The Endowment Diary

The Endowment Diary


The Endowment Mis-selling Debacle - one of the UK's worst financial scandals

Wednesday, June 30, 2004

The latest statistics from the Financial Ombudsman, in respect of complaints about mis-sold endowment polices, make unpleasant reading.

It seems that the number of complaints that the Financial Ombudsman Service (FOS) has received has risen dramatically, from 13570 in 2002/03 to 57917 in 2003/04.

That is more than 1000 complaints per week!

In fact, the number of complaints relating to endowment policies is now so great; that the FOS finds that over half of its workload is now devoted to this single issue.

I recall warning well over a year ago, that the system could well be deluged with complaints; as more people realised that their endowment policies were not going to pay off their mortgages.

It is, of course, expected that the number of complaints will continue to rise.

You can view the full Financial Ombudsman Service report by visiting FOS Report.

Wednesday, June 23, 2004

Beware The Compensation Offer

It seems that holders of mis-sold endowment polices have yet another issue to worry about.

Having successfully got through the complaints procedure, and been offered compensation by a "reputable" life assurance company, one would have thought that the policy holder could rest easy.

Unfortunately this does not seem to be the case.

It is reported that some well known life assurance companies are doing everything they can to minimise their compensation payments. They are reportedly making "mistakes" in the awards that they offer successful claimants.

One trick that has been used, is to calculate the compensation up to the date that they sent the first warning letter. Allowing for the lengthy time it takes for the complaint to be made and compensation to be agreed, coupled with compound interest rates, this can make a significant difference to the award amount.

However, the FSA take a different view on this; their rules state that the compensation must be calculated up to the point when the policy holder actually took action to deal with the problem.

In my view, the actions of those life assurance companies who seek to "bend" the FSA rules in this manner are reprehensible to say the least. They are undermining what little credibility the life assurance industry has left, and are leaving people with the impression that life assurance firms are little better than sleazy and underhand con artists.

The lesson here is, as with any financial decision, always take independent financial advice from a properly qualified and reputable adviser before making any financial decision (eg accepting a compensation payment).

Do not assume that the life assurance company have got their sums right!

Monday, June 21, 2004

There is a particularly good article on "This is Money", about the endowment policy mis-selling scandal.

It covers the activities of the Prudential during the 80's and 90's. It seems that in 1993, internal investigations carried out by Prudential uncovered "evidence of widespread activity intended to deceive customers".

To my view it makes damming reading; not just in terms of the activities of the Prudential, but also in terms of highlighting the aggressive selling policy adopted by the life assurance industry at that time.

The article can be read in full at "This is Money".

Thursday, June 17, 2004

There's a Storm Coming

Those of you holding endowment mortgages, who think that things are bad now, are going to have to steel yourselves for matters to get worse.

It is reported that about 50% of all endowments maturing this year will fail to pay off mortgage debts; this appears to be the straw in the wind of a very unpleasant storm coming our way.

It seems that, according to experts, matters will get worse.

The current estimate is that there will be a shortfall on mis-sold endowment policies of around £40BN.

However, it is reported that Ned Cazalet an insurance analyst at Cazalet Consulting, is predicting that nearly all all mortgage endowment policies that mature after 2008 will miss their targets.

Here are some stats (source Life Insurance Association):

  • Norwich Union expects 45% of its 38000 policies maturing this year will not meet target.

  • Standard Life expects 47% of its 57000 policies not to meet target this year.

  • Scottish Amicable expects 22% of its 18000 policies maturing this year not to meet target.

  • Legal and General expects that 25% of its 25000 policies maturing this year not to meet target.

  • Scottish Widows expects 67% of its 9000 policies maturing this year not to meet target.

  • Abbey Life expects 98% of its 1500 policies maturing this year not to meet target.

Is it any wonder that people have lost confidence in the financial system in this country?

Friday, June 11, 2004

It is reported that the Royal & Sun Alliance has imposed a time limit, preventing customers who may have been mis-sold a mortgage endowment policy from complaining.

They claim that they are reconsidering their approach.

I understand that the other main endowment companies claim that they do not apply time limits.

However, the Financial Ombudsman Service (FOS) believes that the majority of companies do apply time limits.

There seems to be a "confusion of facts" here!

It is reported that the Select Treasury committee will investigate this, when it sits in the next fortnight.

I would say that the reputation of the Financial Services industry must be pretty well in tatters now. There is a report circulating that people are not saving enough for their retirement.

Given the endowment policy mis-selling scandal, why on earth would anyone trust these guys again with their pensions?

Would you?

Wednesday, June 09, 2004

Missed The Boat

It seems that about 700000 people, out of the total of 8.5M who hold endowment policies, may have missed the deadline to lodge a complaint for mis-selling.

These figures come from the Treasury, so they are probably reasonably accurate.

The chairman of the Select Committee, John MacFall, is reported to have described the fact that so many people didn't know of the time bar as "inexcusable".

The Financial Services Authority (FSA) is understood to be trying to persuade companies operating a time bar to reconsider their approach. Some of the endowment companies have agreed to waive the time bar.

The committee has also raised the issue of people sold endowment mortgages before 1988. As we all know, the ombudsman cannot consider these complaints because there was no voluntary code or scheme covering their activities before 1988.

The Select Committee is worried that this lack of action wrt pre 1988 policies will harm the reputation of the financial services industry.

I would suggest that the 8 million people facing shortfalls on their endowment policies already think that the financial services industry is pretty poor, whether the FSA deals with the complaints or not.

It seems that there are no stats available on the number of people turned away by the Ombudsman for trying to complain about pre 1988 endowments. The estimate is 1.2M, that's a lot of unhappy people!

Let's give them some stats!

Write to the Select Committee, if you were turned away because your policy was sold pre 1988.

There is a small crumb of comfort, the FSA and government are exploring options for voluntary help for people with pre 1988 policies.

However, don't hold your breath folks, that is a "cop out" in my view.

Friday, June 04, 2004

Alright For Some

The complaints company, which is handling the claim for compensation on one of my mis-sold endowment polices, wrote to me today.

The letter proudly informed me that they are expanding, and moving to larger premises.

Although I am pleased to see that they are doing well, it does seem that the misery of 8 million endowment policy holders is being used to supply the revenue stream for others.

Wednesday, June 02, 2004

New Rules, Same Problem

New rules came into force yesterday with regard to the information that life assurers must supply endowment policy holders with, concerning their underperforming endowment mortgages.

The rules require that policy providers must warn consumers of approaching deadlines for complaints about failing endowment policies. The policy provider must remind the holder when they have six months left to complain.

This of course does not address the actual problem, namely attaining compensation for the policy shortfall.