Pearl Endowment & Promise - Help!

Teigny_2 · 10 April 2007 at 7:02PM

Hi, I've just found this excellent site & need some advice - quick!!

I have a Pearl Homebuilder policy - details below:
Start date: 02/04/1991
Maturity: 02/04/2011
Premium: £75.20
Target Amount: £40,000
Sum assured & bonuses to end 2005: £26,500
Pearl Promise: £7500

Surrender value in July 2006 was £16,050.

Policy update on 31st March 2006 was projected Final Amount £27,800 (+ promise £7,500) = total £35,300, which doesn't seem bad on the face of it.

The policy is no longer tied to a mortgage.

I've had a long running saga over the last couple of years with pearl over the mis selling, eventually coming out with an offer of £3,500, but I would have to give up the "promise".

Didn't seem worth it I thought, so I wrote to Pearl to get them to guarantee that the promise is worth the paper its written on but its not that simple (obviously).

Pearl's reply states "As the Pearl Promise is not a contractual obligation, it cannot be 100% guaranteed. I confirm that Pearl have no plans to remove the promise (at maturity), although technically it is not a contractual obligation, because it was given free of charge."

I replied asking that if the Promise was removed, would Pearl then honour my compensation.

Reply: "I am sorry but I am unable to make any commitment that Pearl would pay you the compensation if and when the promise was withdrawn."

So it appears that although I cannot have it both ways, I can certainly have it neither way.

So I have to decide whether to take £3.5k compensation now, or take a risk that Pearl are not going to drop the Promise within the next four years.

The other dilemma is whether to take the compensation & sell or surrender the policy for a combined total of about £19.5k and put it on my (offset) mortgage. Would I get a better return in total over the remaining 4 years?

I would really appreciate some views on this one. Sorry to have gone on a bit!

Oh & I have until Friday to make my decision!! :eek:

Cheers.

dunstonh · 10 April 2007 at 10:06PM

Pearl are quite correct in removing the promise value on upheld complaints. You won the complaint, they are paying you money, therefore it wouldnt be right to get an enhancement.

That said, the Pearl promise is virtually useless and I would take the money and run.

Teigny_2 · 11 April 2007 at 12:29PM

I have also recently received a letter from Pearl about the possibility of higher final bonuses because the Policy fund is now closed to new business, and they will be in a position from July 2007 to start distributing the "estate" to existing Policy holders. Is there something in this? or is it a blag to get Policyholders to stay for the duration?

dunstonh · 11 April 2007 at 1:34PM

Pearl have started to put higher terminal bonuses on some of the plans already. However, with the terminal bonus being zero as the starting point, then any value is higher. Pearl have a history of SPIN in their documentation. You should see what they say on the pensions in an attempt to keep people from transferring.

Whereas Pru terminal bonuses currently stand around 50%. Pearl stand at zero on most plans. A 2% TB with Pearl would be a possible higher final bonus.

They are financially weak and Pearl is being used to prop up NPI. There is very little reason to stay with Pearl on any plans (apart from some Section 226 and Section 32 pensions). The orphan assets (estate) will be small fry. AMP pinched a big chunk of that (over £1 billion) for themselves back in the 90s.

I would grasp any opportunity I can to get out of Pearl whilst I have the chance.

Teigny_2 · 11 April 2007 at 1:43PM

Thanks for your views dunstonh, you've confirmed more or less what I was thinking. Do you think it is worth trying to sell the policy, or surrender it. If sell, any recommendations?
Thanks

dunstonh · 11 April 2007 at 2:43PM

You could try selling it. It doenst cost anything to get ask for figures. They can only say no and if you do find one willing to give them a go, then fair enough.

I dont transact in TEPs so I wouldnt really be in a position to make any suggestions on whom to use.

hedgehunter_2 · 13 April 2007 at 3:19PM

Lets have a closer look at your two options based on the information you have provided.

You have guaranteed benefits at maturity of £26500 and a maximum promise amount of £7500. As a worst case scenario the maturity value will be £34000 even if not another penny of bonus is added ion the next 4 years.

Or, you can take the surrender value of £16050 and the compensation of £3500 and the remaining 4 years premiums totaling £3609.60. Added together you could invest the total of £23159.60 as a lump sum or offset your mortgage as you suggest.

In order to turn £23159.60 into £34000 in 4 years you would need a return of 10.1% per annum after tax and would also need to replace £40000 worth of life cover for 4 years to be any better off than you are now.

The Pearl promise is in two parts.

£7500 is the maximum that Pearl will reduce any shortfall by if investment returns after tax are less than 6% per annum between 2000 and maturity.

If investment returns average 6% or greater over that same period the policy will mature for a minimum of £40000.00 (the target amount).

The amount of terminal bonus available is dependent on when the policy was issued, some years of issue do not have terminal bonus because the guaranteed benefits exceed the asset share. If asset share is greater than the guaranteed benefits the difference is terminal bonus.

A sweeping statement that Pru pay 50% TB is not correct.

Have another think!

dunstonh · 13 April 2007 at 5:27PM

You work for Pearl by any chance?

The Pearl promise is in two parts.

£7500 is the maximum that Pearl will reduce any shortfall by if investment returns after tax are less than 6% per annum between 2000 and maturity.

If investment returns average 6% or greater over that same period the policy will mature for a minimum of £40000.00 (the target amount).

Spot the "maximum" and "if" and also the fact that redress has been paid and therefore no promise exists.

A sweeping statement that Pru pay 50% TB is not correct.

No-one said that they pay 50%. Just that they can currently stand at 50%. They could pay more or less but at least they have a terminal bonus. Unlike Pearl.

Pearl are one of the weakest insurance companies in the UK. The investment returns have never been good and since they breached solvency requirements during the stockmarket crash (albeit for a short period) their returns have been almost non existent.

Here is an opportunity to get out of Pearl at no cost.

hedgehunter_2 · 13 April 2007 at 5:51PM

I am trying to help this guy out in his decision with a bit of logic.

The promise maximum is £7500 because if the shortfall from the target amont is less than £7500 then less than £7500 will be needed to acheive the target amount.

"If" is used because it is unknown whether the fund will acheive an average of 6% after tax and expenses in 2011.

The promise provides some protection from a shortfall in either case, and this chap needs to consider the advantages and disadvantages of both of his choices.

When you say Pru TB "stands" at 50% what do you mean? 50% of what?

"one of the weakest companies in the UK?" "insolvent"? where do you get your information from?

Teigny is free to make his own choice

dunstonh · 13 April 2007 at 6:22PM

The promise provides some protection from a shortfall in either case, and this chap needs to consider the advantages and disadvantages of both of his choices.

Pearl do not pay it if you take the redress. So, there is no point about worrying about it. Pearl performance is dire. Get out now with redress and be neutral or stick with one of the worst insurance companies in the UK.

When you say Pru TB "stands" at 50% what do you mean? 50% of what?

Typically 50% of basic sum assured. Even some of the other weaker providers are heading towards 20-30% again.

"one of the weakest companies in the UK?" "insolvent"? where do you get your information from?

Research data. Cazalet reports and common knowledge. It's quite well known that Pearl breached FSA solvency requirements for a short period in 2002. It was one of the reasons they had to get rid of their salesforce.

hedgehunter_2 · 13 April 2007 at 7:08PM

Why would you need to pay the promise amount if you had elected to take the redress, the purpose of which is to put you in the same position as you would have been in if the mortgage had been capital and interest from the start?

This is the basis of all redress when it is claimed that a low cost endowment product was unsuitable. If the redress is used for its purpose you no longer have a need for the protection of the promise

If teighny thinks after weighing up what I have said that benefiting from the promise is better than taking the redresss its a no brainer don't take the redress.

I have a Pru policy and the TB is not 50%, this is what I mean about sweeping statements. A good proportion (but not all) of Pearl policies have some TB and it is not 0%. (see my previous comments about how and why terminal bonus is paid).

It is my experience that much common knowledge is nothing more than unsubstantiated speculation or opinion.

Breaching for a short time statutory solvency requirements is not the same as being insolvent.

As for the reasons behind the demise of the salesforce, the reality is that home service had probably had its day for many reasons, and no life company provides home service to the same extent as they did the past.

Pearl Endowment & Promise - Help!

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