The Endowment Diary

The Endowment Diary


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

Tuesday, February 28, 2006

Legal & General Offer Good News

Legal & General Offer Good News

In a rarity for this site, I am again pleased to be able to write that a life assurance company is offering their long suffering endowment policy holders some good news.

Legal & General announced last week that their with profits fund experienced a 19% investment return during 2005. This meant that L&G could increase terminal bonuses for the majority of its 900,000 with-profits savers.

Additionally, L&G said that it had reduced the penalties policyholders had to pay if they cashed in their policy early.

The bonuses would vary from policy to policy, but people with a conventional endowment policy would receive 0.75% on their sum assured and 1.25% on bonuses they had previously been paid.

Someone with a 25-year low-cost mortgage endowment policy into which they have paid £50 a month will receive a final payout of £45,769, compared with £42,743 if the policy had matured a year earlier.

L&G claim that the strong investment returns seen during the year, were likely to reduce the number of people with endowment mortgage shortfalls.

In 2004, 55% of their policyholders were warned that their policy would not be large enough to repay their mortgage.

This "good" news from L&G, I would remind you that these policies were designed to pay off the mortgage, again calls into question the skills of some of the other life assurance companies who have announced cuts this year.

Wednesday, February 22, 2006

Good News From The Pru

Good News From The Pru

Those of you with endowment policies, managed by the Prudential, have something to celebrate.

They have announced a 20% return on their with-profits fund, after increasing the equity backing of the £83BN fund from 64% to 74%.

The rise of 17%, after tax, has been passed on to their customers.

Endowment policies rose by over 16%, and maturing policy pay-outs were higher than a year ago.

Ned Cazalet, an industry commentator, said that the performance was "head and shoulders above everybody else a 45% cumulative return over the last six years compared to an average of 20% for the rest".

During 2005, whilst the Pru was adding to its equity backing (equities plus property), Standard Life (for example) was reducing the equity backing of its fund from 50% to 45%.

Standard Life then went on to whine and bleat earlier this month that the reason for their dismal performance was because the FTSE-100 had fallen from 6930 six years ago. Had they been more flexible and better organised they could have taken advantage of the rising market, just as the Pru did.

Almost all of the Prudential's maturing endowments paid off their mortgages last year, and the number of "red" policies off track has dropped from 65% to 16%.

How many other endowments can claim that?

This good performance by the Pru raises some very uncomfortable issues for many of the other life assurance companies, that have been performing dismally:
  • Why have many of the others performed so badly?

  • Why do they continue to blame the markets, when it is clear that it is the management of these funds that is to blame?

  • Why do they continue to pay their senior staff bonuses, when their policies are failing their customers?

  • Why do they make "management" charges on these failing and useless endowment policies, when they are clearly not capable of running them effectively?
These issues should be taken up by the millions of us who are being poorly served by many of the life assurance companies. A class action for mismanagement would definitely bring the issues onto the table, and force a resolution to this growing crisis.

Monday, February 06, 2006

Standard Life Fails To Deliver

Standard Life Fails To Deliver

More bad news for people holding useless and underperforming endowment mortages.

Standard Life have warned their 2 million with-profits customers that policies maturing this month will pay out on average 5% less than before, on comparable policies; this is despite the fact that share prices are booming.

The annual bonus rates on conventional with-profits policies are unchanged, but terminal bonuses are down.

The maturity value of a Standard Life 50 a month, 25 year mortgage endowment policy is now £40,459 this month, that is a massive fall of 18% when compared to the same policy of £49,511 in February last year.

John Gill, Standard's UK life and pensions managing director finance, is quoted as saying:

"By smoothing returns, we have protected policyholders from the full drop in asset values between 2000 and 2002."

Others are not taken in by this pr hype.

Clive Scott-Hopkins, from independent financial advisers Towry Law, is quoted as saying:

"Standard Life is obviously losing its competitive edge with this very poor result. The Norwich Union typical endowment payout last month at £50,295 was 25% higher than these results."

Standard Life sold £7BN of equities in 2004 after guidance from the Financial Services Authority on "strengthening" its financial reserves.

The result being that it now unable to take advantage, or rather its hapless endowment policy holders are unable to take advantage, of the booming stock market.

Given the fact that other insurers have performed better than this (even if their endowment policy holders are also out of pocket), I would suggest that the holders of Standard Life policies should be considering asking some very hard questions indeed about the quality of management of their funds.

Indeed they may laso like to consider aksing some hard questions of the FSA, as to why it gave such absurd advice.

Wednesday, February 01, 2006

The Financial Services Compensation Scheme Online Claim

The Financial Services Compensation Scheme Online Claim

The Financial Services Compensation Scheme (FSCS) has launched an online service today, to help people who think they may have been mis-sold an endowment policy decide whether they have a claim that FSCS may be able to help with.

FSCS is the UK's statutory fund of last resort for customers of financial services firms.

The FSCS can pay compensation to consumers if a financial services firm is unable, or likely to be unable, to pay claims against it.

The service is free to consumers.

The new online questionnaire is available on the FSCS website,

It is designed to help speed up response times for consumers. It will help people determine whether FSCS may be able to help with their endowment complaint, and will automatically generate an application form for those who may have a claim.

Loretta Minghella, FSCS chief executive says:

"FSCS plays a vital role in protecting consumers and maintaining confidence in the industry.

Without our help thousands of consumers would have nowhere to turn. Since we became operational on 1 December 2001, FSCS has paid consumers over £650M in compensation.

Over the past couple of years endowment claims have been received at unprecedented levels, way beyond our expectations.

The processes we are putting in place should ensure a faster response for consumers and help us to deal with their enquiries more quickly

The majority of new investment claims received by FSCS over the past couple of years relate to mortgage endowment claims.

It is expecting to receive 22,000 new endowment claims in the financial year 2005/06, and a further 26,000 in 2006/07.

This compares to just under 9,000 new endowment claims received in 2004/05.

Whether the FSCS will be able to handle this extra workload remains to be seen.

The solution, as I keep reminding you all, is for the life assurance industry to underwrite these useless underperforming products.