The Endowment Diary

The Endowment Diary


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

Saturday, November 29, 2008

FSA Taken To Task

FSA Taken To Task

Legal & General are taking the FSA to task over its annuity rate tables displayed on L&G want the FSA to display real-time annuity quotes, up-to-date rates and make a provision for postcode annuities.

However, the FSA have told the FT that the tables are up to date and are updated almost daily.

Thursday, November 27, 2008

Equitable Life Sale Pulled

Equitable Life Sale Pulled

Equitable Life has pulled the sale of its £7BN with-profits fund having failed to find a buyer. The reason cited being the current market turmoil.

Equitable Life will put the fund into "run-off", ie the policies will run until they mature.

Sunday, November 16, 2008

Court Case

Court Case

Simon Shaw, the England International Rugby player, is scheduled to appear at the Royal Courts of Justice as a witness in a case between two financial advisers and Zurich.

Other rugby stars (eg Rob Henderson, Phil Greening and Damian Hopley) are also mentioned. It is alleged that some were mis-sold thousands of pounds worth of endowment policies by Zurich. The allegations are being made by the executives Zurich had hired to sell policies to the rugby stars, but who claim they uncovered massive mis-selling instead.

In 1998 Zurich became the official sponsor of the Rugby Premiership, and Allied Dunbar approached Philip Matania and his partner Terence Pullen to sell its products to the rugby community.

Under the deal, Allied Dunbar lent Matania and Pullen £429K to help them build up the business. Nine months later Matania made an appointment to see Simon Shaw.

He had already signed up to an Allied Dunbar endowment policy and its Maximum Investment Plan through Allied Dunbar salesman Mike Skeele.

According to court documents, Matania thought Shaw had been wrongly advised to take out both policies. Matania and Pullen claim that others, eg Wasps players Henderson and Greening, had also been wrongly advised.

Zurich is suing Matania and Pullen for recovery of the loans plus interest, and Matania and Pullen are counter-suing, claiming Zurich sabotaged their business in revenge for them pointing out the mis-selling.

Saturday, November 15, 2008

140 A Week

140 A Week

Caroline Mitchell, lead ombudsman for the Financial Ombudsman Service, told an audience at MBE London 2008 that the level of mortgage endowment complaints has fallen as a result of time barring.

However, complaints are still coming in at 140 a week.

Tuesday, November 11, 2008

FSA Fights Lautro Ruling

FSA Fights Lautro Ruling

The Financial Services Authority (FSA) has appealed to the High Court over the Information Tribunals' decision to make them name and shame the Lautro 19.

The FSA argues that the information provided to it by the "Lautro 19" was confidential, and that it can't be disclosed.

The "Lautro 19" are endowment mortgage providers who misused Lautro projections to set unrealistically high maturity figures when selling their useless products to the unsuspecting public.

It is estimated that the number of policies affected by this number in the hundreds of thousands.

The FSA, by opposing the naming and shaming of the "Lautro 19", are failing in their duty to maintain an orderly and honest financial system; in other words the FSA is not fit for purpose.

Wednesday, October 29, 2008

Norwich Union Imposes Penalties

Norwich Union Imposes Penalties

Norwich Union has imposed hefty exit penalties on customers' holding with-profits policies.

The market value reductions (MVRs) of between 13%-22% are a heavy blow to the already beleaguered with-profits (hardly an apt name given the ongoing diminution in value of these useless products) policy holders.

The MVRs will apply to about 1.2 million of Norwich Union's 2.4 million holders of with-profits pensions, bonds and endowments.

John Lister, Norwich Union's chief actuary, is quoted in the Times:

"Since the beginning of the year we have seen equity markets, commercial property and corporate bonds fall significantly in value.

MVRs are a mechanism to ensure that those policyholders leaving or wishing to take money out of the fund do not take more than their fair share of the fund at the expense of those policyholders who remain

All very well but I wonder, if the with-profits funds had been better managed and profits/losses smoothed, whether such a drastic step would have been really necessary.

Monday, October 27, 2008

What Happened To Smoothing?

What Happened To Smoothing?

The Times reports that:

"Legal & General has become the latest insurer to cut terminal bonus rates on with profits funds. The FTSE 100 company is cutting rates by between 5 and 9 per cent in the wake of falling and turbulent stock markets.

The move means that a 25-year £50 a month mortgage endowment maturing will pay £38,565 compared to £41,293 before the reduction. A 20-year £200 a month pension maturing after this change will pay £90,999 compared to £98,511 before the change.

Mark Gregory, managing director of with profits at L&G, said the decision would affect 10,000 of the company's 800,000 policyholders. He added: “We have made the decision to reduce final bonus rates to take account of some of the negative movements in the investment markets.

'In making these changes, we are ensuring fairness between all of our customers, whether they are leaving or remaining in our with profits fund

Am I alone in believing that the concept of a "with profits" (a somewhat ironic name under the circumstances) fund is that the "profits/losses" are smoothed over the period of the policy in order to minimise wild fluctuations in returns?

Surely, if these policies had been well managed by L&G, such a large reduction in one year would be unnecessary?

Thursday, October 16, 2008

Market Falls

Market Falls

It should come as no surprise to anyone with an endowment policy that the ongoing falls in the stock market will negatively impact the returns on the already poorly performing endowment policies.

However, another issue that may also affect returns is the level of involvement by the life assurance companies in complex financial instruments (eg credit default swaps).

Exactly how exposed are the life assurance companies to these instruments, and what effect will that exposure have on the stability of the endowment policies managed by these companies?

Saturday, September 20, 2008

Adviser Claims Foul by Norwich Union

Adviser Claims Foul by Norwich Union

The FT reports that Dolly Pickering, of Heather, Moor & Edgecomb (an IFA), has claimed that Norwich Union's change in projection calculations has led to an endowment misselling claim being brought against it.

Ms Pickering was informed of a £6K drop in the value of a client's policy, caused by an improvement to the accuracy of estimated maturity value (EMV) calculations.

Ms Pickering stated that it was unfair that IFAs were being punished for selling endowment policies, whose initial projected values were inaccurate, and holds the providers responsible.

Monday, September 08, 2008

Norwich Union Cut Bonuses

Norwich Union Cut Bonuses

Norwich Union have delivered another blow to the tattered reputation of the life assurance industry, and its much derided and failed product of endowment policies.

Norwich have told their 2.4M with-profits policy fund holders that it will cut policies maturing this year by 11%, in comparison with those that matured last year.

The phrase "with-profits" sounds somewhat hollow does it not?

I wonder why it is that no one has tried to sue the life assurance industry for misrepresenting their product by using that phrase?

The theory of with-profits policies is that they are meant to smooth returns. However, given the ongoing cuts in these policies, that theory appears to be half baked. The life assuring companies have quite clearly mismanaged these policies.

The cuts made by Norwich Union are in line with the fall in the FTSE 100 index over the past 12 months, and that means that the "smoothing" has had no benefit or effect whatsoever.

The changes mean that payouts from Norwich's top-paying mortgage endowment fund dropped by 5%, or £2,144, overnight.

Those who hold these useless, mismanaged polices should take a class action against the life assurance industry for:


Thursday, August 28, 2008

The Great Swindle

The Great Swindle

Tony Hazell in The Daily Mail writes:

"With-profits policies must be the most widespread con ever perpetrated on British investors. Very few people over 30 will have completely avoided having some of their money mismanaged in these massive funds.

But aside from a few mis-selling fines, the insurance companies responsible have got away with this great swindle

I couldn't agree with him more!

The life assurance companies should set this matter straight and underwrite these useless products that have been badly designed, and massively mismanaged.

They won't of course, because too many people in these companies have made far too much money by way of commissions and bonuses; ie greed, rather than integrity, is the overriding principle at play here.

Tuesday, August 19, 2008



Mortgage advisers have blamed policyholder greed for the endowment policy disgrace. conducted a study that showed that 87% of people believed that they were mis-sold policies by brokers, who failed to explain in sufficient detail the possible shortfalls.

However, some advisers have taken umbrage at this slur and claim that a combination of personal greed and changing market conditions have contributed to the failure of these policies.

Alan Townley, of Dave Alan Financial Services, is quoted:

"Let's make no mistake, people are greedy and although you can spell out that past performance does not equate to future performance it tends to fall on deaf ears when they can only see pound signs in front of them."

I believe that a more fundamental problem is to blame, quite simply many of the policies are not fit for purpose. They were designed to pay off the mortgage, yet are manifestly failing to do so.

When a newly purchased TV or car fails to function, the owner can claim redress; so it should be for the policy holders of these poorly designed and badly managed products.

Blaming market conditions and greed is an easy excuse, the real blame lies with a lousy design and excess management charges (for precious little quality management).

The costs for this scandal should be met by the companies that run these underperforming products.

Saturday, August 16, 2008

The Endowment Rip Off

The Endowment Rip Off has published research that shows 90% of people who own a useless and underperforming endowment product believe that they were victims of mis-selling.

The research also showed that 86% of endowment policyholders were expecting their policy to suffer a shortfall.

Of those who felt their had bought their policy after receiving poor advice, 49% said they had been given a guarantee that the policy would cover the mortgage costs, while 27% say the risks involved were not made clear. A further 6% felt fees and charges had not been properly explained.

Something that our financial services industry can be proud of?

Thursday, July 31, 2008

The £1BN Payoff

The Times reports that long suffering Norwich Union endowment policyholders have been offered £1BN of its with-profits fund.

Aviva, the owner of Norwich Union, will offer about 700,000 policyholders between £400 and £1,000 in exchange for foregoing their right to future bonus payments. A further 220,000 will receive up to about £3,500 and a handful of long-term investors will collect several thousand pounds more.

Clare Spottiswoode, the policyholder advocate, is well pleased and describes the result as a "triple-whammy winner" for the policyholders.

Tuesday, July 29, 2008

Public Censure

Public Censure

The Financial Services Authority (FSA) has publicly censured Mandrake Associates Limited (MAL) for serious failings in the way it handled mortgage endowment complaints.

The FSA has also prohibited William John Pirie, the firm's sole director, from carrying out any customer functions in regulated financial services due to his mishandling of endowment mortgage complaints received by MAL.

The FSA claimed that as a result of MAL's failings, there was an enhanced risk that endowment mis-selling complaints were either wrongly rejected or delayed.

MAL was found to have failed to ensure its complaints handling procedures were operating effectively, failed to provide adequate resources for the handling of mortgage endowment complaints and failed to ensure that complaint handling personnel were trained to carry out fair investigations.

In addition it failed to finalise the complaints that were dealt with, within a reasonable time and failed to provide complainants with updates about the progress of investigation in a timely fashion, while it also failed to co-operate fully and promptly with the directions of the Financial Ombudsman Service.

Margaret Cole, director of enforcement at the FSA, said:

"Firms must have in place and operate an effective complaints handling system as a key part of treating customers fairly. MAL's endowment complaints handling failings were systemic, lasting for four years and meant consumers who had been mis-sold endowments were at risk of not receiving compensation at all or only after long delay.

Firms who fail their customers in this way will face enforcement action. MAL would have faced a fine of £400,000 if it had not been for its current financial position

Monday, July 28, 2008

The £1BN Payout

The £1BN Payout

The Financial Services Compensation Scheme (FSCS) reported that over £1BN of compensation has been paid out to consumers who lost money due to the collapse of financial services firms over the past seven years.

The FSCS was set up in 2001, and has paid out £1.04BN since inception. However, out of the 16,490 new claims, the majority (7,410) still relate to mortgage endowments. The hapless claimants having bought the useless product from a firm that had collapsed before they received their compensation for mis-selling.

The average payout was £1,800 each.

Monday, July 21, 2008

Friends Provident Cuts Bonuses

Friends Provident Cuts Bonuses

Those long suffering endowment policy holders who have polices managed by Friends Provident will have been disappointed to learn that it will be slashing the final bonuses it pays to long-term savers.

Friends Provident state that the value of its with-profits fund fell by more than 7% during the first half of the year.

Whilst annual bonuses are being maintained, the final bonuses are being cut. Those in the main with-profits fund are being more than halved.

A policyholder with a 15 year unitised pension plan in the main fund will receive a regular bonus of 4%, but their final bonus will be cut from 18.7% if the policy had matured in January to just 2.1% now.

Those with a 25 year policy will be paid a final bonus of 17.5%, a massive reduction from the original 40% in January.

The ongoing credit crisis and recent falls in the stock market are being blamed. All very well, but what about the previous years when the stock market was booming?

A lousy result for those who have spent years investing in these policies.

Monday, July 14, 2008

Equitable Life

Equitable Life

The long suffering, and shockingly mistreated, investors in Equitable Life may be slightly cheered by a report in today's Telegraph that says:

"Prudential, Legal & General and Swiss Re are among a pack of insurance giants circling Equitable Life, Britain's oldest mutual insurer.

Equitable has drawn up a shortlist of bidders for the remnants of the former insurance leader, which at its peak was worth £26bn and had 1.5m policyholders.

News of prospective bids for the business comes ahead of this week's publication of a damning report by Ann Abraham, the Parliamentary Ombudsman, who will criticise the Government for its failure to regulate the society properly in the lead-up to its near collapse

The purchase, if it comes, will take some time. Therefore, whilst the investors are waiting for the outcome of that, they should mount a class action against the government for its maladministration of one of the biggest scandals to shake Britain's financial services industry.

Monday, July 07, 2008

Without Profits

Without Profits

Those hapless with profits endowment policy holders have good reason to make a claim against the life assurance companies for false description of their products. The recent poor results from these companies show that these policies should be refereed to as "without profits".

Money Management magazine has identified a number of "stellar" under performers:
  • Monthly premiums of £50 paid into a London Life with profits endowment for the past 10 years (ie £6000) would have a generated a payout of £5,544. Why not just set fire to your money instead?

    Other 10 year policies paying out less than was paid in include Equitable Life, Pearl and Royal Life.

  • In 1998, the average 25 year endowment policy paid £105,540 on a £50 per month premium. In 2003, the average payout was £65,776. Now the average 25 year policy pays out £45,330.

  • Thirty five insurers are paying lower payouts on 25 year policies compared with this time last year.
With profits is a misleading term, many of the life assurance companies should be sued for misleading their hapless customers.

Monday, June 30, 2008

Which? Policy Holder Event Epilogue

Which? Policy Holder Event Epilogue

Last week Which? held a policy holder event in Westminster for Norwich Union and Prudential policyholders, the objective being to publicise the Which? campaign for a fair deal for with-profits policyholders.

The day started with a photo-call with "Dick Turpin", where they called on the Financial Services Authority to "stand and deliver" for policyholders.

They were then joined by John McFall MP, the Chairman of the Treasury Select Committee and Derek Wyatt MP, a supporter of the campaign.

After the photos, they went to a meeting in the House of Lords hosted by Lord Joffe, who has been campaigning on this issue since 2000. Vince Cable MP, the Liberal Democrat Shadow Chancellor, expressed support for the campaign and discussed his involvement.

This was followed by a roundtable discussion with Vince Cable MP, Derek Wyatt MP, policyholders, their constituency MPs and Which? policy expert Dominic Lindley.

Which? intend to continue the campaign.

Tuesday, June 24, 2008

Which? Policy Holder Event

Which? Policy Holder Event

Which? has confirmed that it will be holding an event for policyholders on 25th June tomorrow at Parliament. It will take place between 1-3pm.

The event will give policyholders a chance to take part in a photo opportunity, and attend a reception in Parliament with Which? and politicians involved in their campaign to secure a fair deal.

Friday, June 20, 2008

Barmy FSA Regulation

Barmy FSA Regulation

The Treasury Select Committee has published their report based on their inquiry into inherited estates. The Committee is none too complimentary about the Financial Services Authority’s (FSA) regulation of the with-profits industry.


"The Committee concludes that the Financial Services Authority (FSA) is not providing a robust enough framework to manage the conflicts of interest inherent in proprietary life funds."

I am hardly surprised, the FSA's "regulation" has been all but non existent.

Chairman of the Committee, the Rt Hon John McFall MP said:

"The approach taken by the FSA towards inherited estates seems a long way from the philosophy of 'principles-based regulation' to which it aspires. Policyholders need to have confidence that their interests are being protected, but the current oversight by the FSA gives no such assurance.

Policyholders deserve a regulatory framework based on a clear set of principles and unambiguous guidance on how inherited estate can be used by life firms’ management

He refers to FSA regulation as "barmy":

"Shareholder tax is another example of the FSA's barmy regulation in this field."

He then goes on to put a well aimed boot into Prudential:

"I was astonished that the Prudential had taken £1.6 billion from their inherited estate to pay the costs of compensation arising from mis-selling."

Then Norwich Union:

"Tens of thousands of Norwich Union’s longest-standing policyholders do not stand to receive the whole value of the recently announced special distribution. The Committee was not convinced by the argument that such phasing of payments was necessary for the stability of the funds concerned.

In my view, phasing represents an unreasonable barrier for policyholders wishing to exit the fund

The Committee calls on the FSA to take action in several areas to ensure that policyholders interests are protected, including the following:
  • To ensure that a fair price is offered in a re attribution, not just an adequate price.

  • To provide a very strong case about why the phasing of special distribution payouts should be permitted, noting that the FSA has yet to put forward an adequate case.

  • To consult on a redesign of the overall regulatory system for with-profits funds during 2008. The Committee said that they are not satisfied that the FSA has done enough to provide a robust framework.

  • To consult on the charging of shareholder tax to the inherited estate by the end of 2008, noting that their view is that it should not be permitted.
The full report can be downloaded from this link Treasury Select Committee.

It is clear that those with money stuck in these lousy endowment funds have been ill served by the FSA. It really is worth, in my view, considering mounting a class action against the FSA and the life assurance companies for this disgraceful situation.

Monday, June 16, 2008

Policyholder Event

Policyholder Event

For information:

"Which? is considering staging a policyholder event in central London on 25th June, from 10am to 12pm. This is a great chance for policyholders to stand up and be counted in our campaign for a fair deal.

We are only in the planning stages at the moment, but if you'd be interesting in coming along please let us know asap. We will then keep you updated with our plans.

Best wishes,

The Which? With-Profits Team

2 Marylebone Road
London NW1 4DF

Thursday, June 05, 2008

Reattribution Change

Reattribution Change

The Financial Services Authority (FSA) has proposed that insurance companies should no longer be able to use surpluses from their with-profits funds to compensate customers who have been mis-sold endowment policies.

Many of the claims for mis-selling of endowment policies have been settled using with-profit surpluses and returns on the retained funds.

Under existing FSA regulations, compensation and other business costs can be met from orphan funds, which are eventually reattributed to policyholders and shareholders, normally at a ratio of 90-10 (policyholders to shareholders).

However, the proposals for the reattribution of Norwich Union's £2.6BN has brought down a deluge of criticism on the heads of the FSA and life assurance companies for the use of retained funds in this way.

Clare Spottiswoode, the policyholder advocate in this case, has described Aviva's (owners of Norwich) proposals and the FSA regulations as unfair to policyholders.

The proposal by the FSA may be a step in the right direction, if it is implemented.

Monday, June 02, 2008

Risky Business

Risky Business

A survey of more than 2,000 people, carried out by Engage mutual assurance, showed that 23% of people with a mortgage will only be able to pay it off if they inherit money.

That's a risky way to keep a roof over your head.

Monday, May 26, 2008

Standard Life Rejects Fund Call

Standard Life Rejects Fund Call

Standard Life has rejected a call to use £100M a year from its profits to fund a programme to cover the firm's endowment policy "black hole".

The call to build up a fund to cover the shortfalls of with-profits mortgage endowments, came at the company's annual general meeting in Edinburgh last week.

Alastair McClelland, a Standard Life shareholder, used the AGM to demand that the company set aside £100m a year over ten years into the firm's "with-profits fund".

Standard Life chairman Gerry Grimstone argued that the problems with with-profits policies were a legacy of the company's mutual past.

In 2000 Standard Life promised that it would meet any shortfall policyholders faced on their endowment policies. However, when the company got into solvency problems, the promise was changed in 2004 to a guarantee of paying only a proportion of shortfalls.

Monday, May 19, 2008

The 9 Million Shortfall

The 9 Million Shortfall

Over 10 million endowment policies were sold to hapless mortgage applicants in the 1980's and 1990's. The policyholders were assured by the insurance companies that the endowments would pay off the mortgage (why buy it if it wasn't fit for purpose?) and that there may even be a surplus.

Unfortunately those assurances, as we are all well aware, were worthless. have conducted research that shows that a staggering 86% of endowment policy holders (who were questioned) have been warned that their endowment policy will not be enough to pay off the mortgage.

Could the companies that sold and manage these useless products please explain to us exactly what is the purpose of these useless products, if they are not going to pay off the mortgage?

Within those who expect a shortfall, 41% are expecting a deficit of 25% and 23% are expecting ashortfall of a mind numbing 50%.

What exactly have the companies that have been "manging" these policies been doing with their policyholders' monthly contributions?

The figures confirm government findings, which in 2003 estimated that 80% of endowment policies would fail to fulfill their intended purpose.

So, once again, let me give the companies that sold and manage these useless policies the opportunity to answer this question:

Given that these products are incapable of paying off policyholders' mortgages, what exactly are they good for and why did you sell them in the first place?

Tuesday, May 13, 2008

The Traded Endowment Policy Market

The Traded Endowment Policy Market

The Motley Fool gives a straightforward, helpful and easy to understand explanation of the traded endowment policy market.

"A traded endowment policy (TEP) is an endowment that the original policyholder has sold on to an investor. The new investor is then entitled to all future benefits that the policy provides, as they have effectively bought it second-hand. They will also take on responsibility for paying the remaining premiums (if applicable)."

It is worth reading if you are considering selling your policy.

Wednesday, May 07, 2008

Worse Than Worthless

Worse Than Worthless

According to a recent survey by Investment, Life & Pensions Moneyfacts the vast majority of 25 year with-profits endowment policies are now are producing lower returns than they did last year and the year before that.

That's not too good!

Are the people who sold us these useless products, and the people who continue to mismanage them ,receiving lower bonuses as a result of their failure?

I doubt it!

The Motley Fool has some advice about the options available to holders of these useless products.

Monday, April 21, 2008

Norwich Union Deadlock

Norwich Union Deadlock

The negotiations over the fate of the orphan assets of Norwich Union have become deadlocked.

As such the task of freeing up the deadlock has fallen to John McFall, chairman of the Treasury Select Committee.

Norwich Union are refusing to offer policyholders anymore. However, policyholder advocate Clare Spottiswoode is standing firm against the current offer on the table by Norwich Union.

Norwich Union have surplus (orphan) assets of £5BN (aka "inherited estate"). They are using £2.1BN to increase the value of policyholders' assets over the coming 3 years.

However, the dispute centres around what will happen to another £2.7BN.

The argument is focused on whether it is right for Norwich to use the money in ways that do not benefit policyholders, eg instance paying tax or financing growth.

The danger is that Norwich walk away from the negotiations and keep this £2.7BN for themselves.

Tuesday, April 08, 2008

Time Bar Pays Dividends

Time Bar Pays Dividends

Life assurance group Chesnara, the holding company for Countrywide Assured plc and City of Westminster Assurance Company Limited, has benefited from the time bar on making mortgage endowment complaints for mis-selling.

Its results for 2007 have improved.

Figures show that pre-tax profits rose 11% to £27.7M in 2007 from £25M in 2006. The significant reduction in endowment complaints allowed for a provision release of £2.8M.

Chesnara Chairman, Christopher Sporborg, said:

"Our recent experience of mortgage endowment mis-selling complaints has been generally positive. The number of complaints has reduced significantly and an increasing proportion of those received are time-barred in line with FSA rules, while uphold rates on those complaints which are not time-barred have increased.

Although we do not believe that this issue has fully run its course, we do feel able, however, whilst maintaining an element of conservatism, to reduce our redress provisions, by £2.8 million, based on our revised expectation of future complaint activity

It's nice to see that someone can make money out this mess.

Monday, March 24, 2008

Fingers in The Pie

Fingers in The Pie

The trouble with some of the life assurance companies that are "managing" this country's useless and underperforming endowment policies, is that they can't seem to distinguish between assets that belong to their hapless and much put upon policy holders and the company's assets.

Normally, this "confusion" over ownership is demonstrated by the excessive and unjustified management charges levied by life assurers against the minuscule returns of the endowment policies that they fail to manage.

However, Norwich Union have found another way to tap the assets of their hapless endowment policy holders. The Times reports that Norwich Union has helped itself to £300M of policyholders' funds, in order to plug a hole in its own pension fund and to pay for its own mis-selling costs.

Some would argue that it is pretty rich of Norwich Union to help themselves in this manner, in fact most people with any concept of ownership and property would argue this. However, Norwich Union is unabashed; safe in the knowledge that it can do this, because it can do this.

If only life were that simple and profitable for its policy holders!

Needless to say this raid on the policyholders' funds will mean lower payouts for 1.1 million policyholders.

Norwich Union has helped itself to £83M of its surplus assets to cover a deficit in its staff pension scheme, with £182M being set aside to pay for endowment and pension mis-selling.

To run that by you again, it is making its policy holders pay for its pension failings and for its mistakes wrt selling endowment policies.

Happy with that?

Vince Cable, the Liberal Democrats’ Treasury spokesman, is quoted in The Times:

"The Financial Services Authority perpetuates rules which give preference to shareholders over policyholders and allow such appalling abuses as penalties for pensions mis-selling to be taken from policyholders' inherited estates. Companies like Norwich Union and Prudential are managing, under the cloak of complexity, to deprive their policyholders of large sums."

Norwich Union is currently involved in "testy" and "bad tempered" negotiations as to how it will split up £5BN of orphan assets (inherited estate). Needless to say, Norwich Union wants to take as much of that money for themselves as they can, they believe that their shareholders outrank their policyholders.

The fact that these orphan assets arise as a direct results of the policyholders' contributions, and not from anything that the shareholders have done, is irrelevant to Norwich Union.

Why are they treating their policyholders with such contempt?

Simple, because they can!

They know that their policyholders lack the legal and vocal clout of their shareholders.

It is high time that the policyholders gave companies such as Norwich Union a very bloody nose, a class action should be initiated by the policyholders of Norwich Union and the life assurance companies given a lesson not to treat their policyholders with such contempt.

Wednesday, March 19, 2008

Named and Shamed

Named and Shamed

As we all know, endowment policies have proven to be the worst, most costly financial scandal perpetrated on millions of home owners in living memory.

Money Management have produced a list of the worst performers.

Endowments managed by Resolution and Pearl, which bought up several closed-life funds, dominates the list.

Money Management shows that their endowment policyholders have earned less than in a deposit account over 25 years.

Resolution owns Life Association of Scotland, this was the worst performing endowment in the survey. It gave a 3.9% return over 25 years..yes you did read that correctly...3.9% over 25 years.

What exactly have they been doing with people's money?

Crusader and Britannia, also owned by Resolution, were the third and fourth-worst performers at 4.3% and 4.9% respectively.

National Provident was second with a return of 4.2%.

Clive Cowdery, Resolution's founder, has made millions from his dealing with these funds. However, his policyholders haven't.

Ironically some of Resolution's funds have done very well. Phoenix Assurance, owned by Resolution since September 2004, has paid out £317,800 on typical 25-year maturing endowment policies, reflecting an annual growth rate of 20%, or 1,168% more than the Life Association of Scotland policy.

Phoenix has paid out so much because it has been winding down its estate, and distributing the proceeds to 1,500 policyholders.

Resolution owned National Employers Life, with an annual growth rate of 11%, and Swiss Life, at 9.4%, also topped Money Management's list of 25-year policies.

Money Management reveals that some 10 year endowments have in fact lost money over 10 years, even though the FTSE All Share is up 43.3% during the last 10 years.

The worst 10-year policy, Pearl-owned London Life, fell by 1.6% a year while Resolution's Sun Alliance & London Assurance dropped 1.2%, Royal Life fell 0.6% and Scottish Mutual declined 0.4%.

The holders of these useless products are going to receive a nasty shock when these shortfalls crystallise.

Thursday, March 13, 2008

The Endowment Rip Off

The Endowment Rip Off

Underlying funds held by insurance companies have risen by an average of 6% over the last year. This in theory should be good news for the millions of people holding useless, underperforming with-profits endowment policies.

Unfortunately, as with all endowment policy matters, what at first appears to be an opportunity for the hapless policy holder to earn a respectable return turns out to be an opportunity for the life insurance companies to take "a dip".

The biggest and the "best" of Britain's life insurers have in fact reduced their payouts by 3% last year (remember the funds they "manage" on our behalf have actually risen by 6%).

This cut in payouts has cost the endowment policy holders around £8BN, according to The Times.

The Times quote Tom McPhail, at Hargreaves Lansdown:

"Stock markets have risen substantially since the end of the bear market in 2003, but final payouts keep on falling.

It just doesn't add up

That's putting it politely!

We would be better off having "invested" our money in a "bog standard" savings account over the last 10 years.
  • A 10 year endowment policy from Friends Provident has returned a mind numbingly small 0.9% a year, compared with 1.6% from a 90 day deposit account.

  • Prudential's fund grew by 7.2% last year. However, a typical maturing £50-a-month, 25 year Prudential endowment policy will now pay out £44,515. This represents a 5% cut on the £46,695 paid out on an equivalent plan that matured in 2007.

  • A typical 25 year Commercial Union endowment policy will pay out £40,737. This is 7% down on the £43,697 paid out on an equivalent plan last year.
Why is that the insurers are able to take "a dip", and not pass on the increased returns to their policy holders?


Because they can!

Insurers have discretion over how much of the gain they pass on, therefore they choose to keep the money for themselves.

A report for the trade body Actuarial Profession expects payouts to continue to fall by 3% per annum until 2020.

We are being ripped off by the insurance companies, and no one in the regulatory authorities is doing anything about it.

Tuesday, March 11, 2008

Scottish Widows

Scottish Widows

Lats year holders of endowment policies with Scottish Widows were bitterly disappointed to be told that they would not be receiving any bonus on their policies, in spite of the fact that the underlying with-profits fund grew by 10%.

However, this year Scottish Widows, despite only showing a return of 5%, has added bonuses to 239,000 polices.

Needless to say, what is given with one hand is taken with the other, the final payout to mortgage endowment customers has fallen compared to 2007.

A typical 25 year, £50 a month mortgage endowment policy maturing in January paid out £38,136 this year, last year it paid out £38,758.

A mind numbing 88% of Scottish Widows endowment policy holders will not receive payouts large enough to cover the mortgages that their policies were designed to cover.

The blindingly obvious question therefore arises, what is the point of these policies if they do not do what they were designed and sold to do?

Monday, March 10, 2008

Dwindling Returns

Dwindling Returns

The Times offers some advice to those who hold underperforming endowment policies which look like missing their targets:

"In the light of dwindling returns, investors should be asking themselves whether they want to keep their with-profits policies or head for the exit."

In essence, it is a keep or sell decision.

Thursday, March 06, 2008

Pass The Parcel

Pass The Parcel

The endowment scandal has created a legal version of pass the parcel as policyholders claim damages from those who mis-sold these useless products and they, in turn, claim damages from insurance companies etc.

Legal Week recently reported that Reynolds Porter Chamberlain (RPC) is facing a multimillion-pound negligence claim relating to its involvement in a case brought by Standard Life.

Standard Life Assurance recently won a case against AON, and stands to be awarded up to £75M.

Aon has brought its own negligence claim against RPC, as a third party to the proceedings, and a second trial will now take place to decide whether or not the firm was negligent.

Aon's claim against RPC argues that the firm did not recognise that the wording of the policy meant claims could not be grouped together.

Now don't you think that all this trouble, time and expense could be avoided if the life assurance companies simply underwrote these useless, underperforming and badly managed polices?

Wednesday, March 05, 2008

Sir Nicholas Montagu

Sir Nicholas Montagu

Liberal Democrat Treasury spokesman, Vince Cable, has questioned the impartiality, effectiveness and independence of the Norwich Union With-Profits Committee (set up to protect the interests of policyholders).

He is concerned about Norwich Union's plans to distribute a proportion of its inherited estate to policyholders over three years, as opposed to a one off lump sum payment.

Mr Cable wrote to Sir Nicholas Montagu, chairman of the committee, questioning the committee's role in allowing the special bonus to be phased over three years.


"Your committee has been established to protect the interests of policyholders and yet in your first public act you seem to have destroyed any prospect of being seen as a credible champion for them."

Montagu, a former civil servant who presided over the Inland Revenue during a period of bungles and who now gives after-dinner speeches for £5K a time, is seemingly reluctant to answer questions from "This Is Money" about this decision.

However, Montagu is paid from policyholders' funds to safeguard their interests therefore he is obliged to answer questions from policyholders.

Policyholders should send their complaints, comments and any queries relating to his role to:

Sir Nicholas Montagu,
Norwich Union With-Profits Committee,
Norwich Union Life,
2 Rougier Street,
YO90 1UU.

With-profits committees, if they are to really serve the policyholders that they claim to represent, need to be independent, impartial and effective.

It would appear that some fall short of this.

Monday, March 03, 2008

Call For Evidence

Call For Evidence

In a move designed to ensure that another endowment related scandal does not occur, the Treasury Select Committee has called for written evidence as part of its inquiry into the orphan assets (Inherited Estate) held by life companies' with-profits endowment funds.

The call comes as concerns are raised over the actions of AXA, Prudential and Norwich Union as they attempt to re attribute their Inherited Estates.

These assets are worth billions of pounds yet, despite these funds being contributed by policyholders, some insurance companies have been using a portion of them for the benefit of their shareholders rather than policyholders.

In 2000 AXA paid out a paltry 31% of its inherited estate to policyholders, this gave rise to the FSA to creating the post of Policyholder Advocate.

Claire Spottiswoode, Policy Advocate, is currently acting on behalf of Norwich Union policyholders.

Ms Spottiswoode, who is not happy with the current plans by Norwich Union (eg to pay the policyholders their share over 3 years), has welcomed the call for evidence:

"Foremost among the issues will be the way in which the FSA allows companies to subsidise the writing of new business, which has the effect in a re attribution of transferring value from the estate directly to shareholders.

Further, the way in which the FSA allows companies to pay shareholder tax from the estate is costly to policyholders and requires explanation

The committee would like to hear about the following areas:
  • The regulatory definition of the inherited estate in a with-profits fund.

  • The extent to which life assurance companies should be permitted to diminish inherited estate in order to subsidise corporate activity, including financing new business, making strategic investments, paying shareholder tax and paying the costs of compensation for mis-selling.

  • Whether allowing life assurance companies to use inherited estate to subsidise corporate activity has any adverse effects on competition.

  • The principles that should guide the division of inherited estates in 90:10 funds between policyholders and shareholders upon re attribution of the estate.

  • The appropriate sharing of inherited estate between current and future policyholders.

  • Whether policyholders' reasonable expectations of distributions from inherited estate should be zero or have a positive value.

  • Whether any distribution of benefits from the inherited estate should be made in a single payment or phased over several years.

  • The role and responsibilities of the Policyholder Advocate.

  • The framework for negotiation between the Policyholder Advocate and the life assurance companies.

  • The role of the with-profits committees of life assurance companies.

  • The approach of the Financial Services Authority to the issue of inherited estate.
Written evidence should be sent to the committee at this address Parliamentary Committee.

Wednesday, February 27, 2008

Sauce For The Goose

Sauce For The Goose

It is refreshing to read for once a story about a life assurance company suing a broker for mis-selling, rather than an endowment policy holder suing a broker or life assurance company.

In this particular case Standard Life sued brokers Aon for advising it to take out the wrong indemnity insurance, to cover claims for mis-selling of mortgage endowments policies.

I would venture to suggest that had they not mis-sold the policies in the first place, they would not have needed to take the cover out!

Standard Life won the case and stands to gain £75M, the final amount will be determined at another hearing.

The judge ruled that Aon had been negligent, as no reasonably competent broker could have concluded that Standard Life's needs were clearly met by the policy.

I can't but help feel a small amount of shadenfreude over this.

Now at least one life insurance company may know what the millions of us, who were sold these useless underperforming endowments, feel like.

Monday, February 18, 2008

Norwich Union - Eligibility For Reattribution Payment

Norwich Union - Eligibility For Reattribution Payment

In order to find out whether your with profits Norwich Union policy is eligible for a Reattribution Payment, please visit this site.

Thursday, February 14, 2008

Which? Campaign Against Norwich and Prudential

Which? Campaign Against Norwich and Prudential

Which? has launched a campaign against Norwich Union's and Prudential's plans for reallocating the assets of their respective inherited estates.

Which? does not mince its words, and refers to the schemes as "rip offs".

"Which? is calling on the Financial Services Authority (FSA) to act to prevent £7 billion of with-profits policyholders’ money being 'reallocated' to shareholders.

Without a change in FSA policy, millions of Norwich Union and Prudential policyholders could lose out. Which? believes it is unacceptable for the Government and FSA to stand by and do nothing to stop this smash and grab raid

Which? are asking for people who hold with profits policies with Norwich Union and Prudential to contact them at

I have a policy with Norwich Union, and most certainly be in contact with them.

Wednesday, February 06, 2008

Norwich Union Windfall

Norwich Union Windfall

Some good news for over a million Norwich Union endowment policyholders. They have been promised a share of a £2.1BN arising from Norwich's "orphan assets" or "inherited estate" surplus.

Norwich Union has agreed to hand back almost half the £5.4BN surplus in its two main with-profits funds.

Individual payouts will vary, depending on the size of investment and how long it has been in force. However, projections indicate that policyholders should see the value of their assets increase by 10% by 2010.

It is also estimated that approximately 50,000 holders of Norwich Union mortgage endowment policies, currently projected to shortfall, will be reassigned a "green light" over the next three years.

Policyholders will receive 90% per cent of the £2.3 billion being distributed. The remaining 10% will go to shareholders.

Norwich Union have tabled a separate offer of a cash payment to policyholders in exchange for renouncing their claims on the rest of the estate (£3.1BN).

Clare Spottiswoode, the policyholder advocate responsible for securing the best deal for Norwich Union customers, is not entirely happy with the arrangement. She is quoted in the Times as saying:

"The money is available now, so how on earth can it be fair to deny it to policyholders now?"

She also called on Norwich Union to backdate payouts to cover customers who have cashed out of policies since November, when Norwich first said that it would press ahead with a distribution.

IFA's who have paid out compensation, because of Norwich Union's mis-selling of endowment policies, are also not that happy. They are asking why, if the policies now look like thy are going to revert to surplus, should they have been penalised.

Wednesday, January 30, 2008

Banned For Life

Banned For Life

Jonathan Leigh Hardie, of Primedale Financial Services, has been banned indefinitely from being a senior manager by the FSA, for refusing to investigate nearly 400 cases of alleged endowment mis-selling.

Primedale Financial Services had been the subject of complaints over a five year period, to May 2006. The Financial Services Authority (FSA) had received 389 complaints over this period about potential endowment mis-selling, out of around 3,000 mortgage endowment policies sold between 1988 and 1999.

The FSA state that Hardie had "already decided that Primedale had never knowingly mis-sold an endowment policy", and refused to assess the claims properly.

The company is now in liquidation, and as a result of the FSA ruling Hardie is banned from entering senior management.

Sunday, January 20, 2008

FSA Bends In The Wind

FSA Bends in The Wind

The Financial Services Authority (FSA), has given discounts of £4M on fines imposed on banks, building societies, mortgage firms and stockbrokers over the past year.

The firms (eg Nationwide, Capital One and Norwich Union) had been found guilty of serious rule breaches ranging from mis-selling of payment protection insurance (PPI) to failing to adequately safeguard the personal details of customers.

The discounts offered are in the region of 30%, in return for promising to co-operate and not challenging the FSA's findings at tribunal.

Which? is far from impressed, and accuses the FSA of "putting the interests of the industry over those of consumers".

The FSA has decided to bend in the wind as a result of the fight it had with Legal & General in 2005, over its endowments mis-selling case.

L&G successfully appealed against the size of the fine imposed on it.

The FSA is showing excessive weakness, it neglects the fact that were a firm to complain about the size of a fine it would receive an enormous amount of negative publicity during the tribunal.

By offering such large discounts, the FSA has let the insurance and banking industry have its cake and eat it.

Thursday, January 17, 2008

Commercial Union Cut Payouts

Commercial Union Cut Payouts

Those unfortunate endowment policy holders who save with Commercial Union are in for a very unpleasant shock this year.

A saver who put in £50 a month for 25 years from January 1 1983, (from age 29) will receive just £39,321. This is 10% down on the £43,697 paid out on a 25-year plan taken out in January 1 1982.

To add to the misery, it is 19.6% down on the £48,889 paid out two years ago.

The odd thing is the fund, in which these policies are invested, grew by 5.4% last year and 11.7% the year before.

Why the cut the cut then?

Will the senior management of Commercial Union be taking a cut in their bonuses too?

Will Commercial Union be cutting their management charges, given that the fund is not producing the payouts that holders were led to believe it would?

As ever, it the hapless long suffering endowment policy holder that is left to foot the bill for failure not the managers of the endowment company.

Wednesday, January 16, 2008

Norwich Union Cuts Payouts

Norwich Union Cuts Payouts

This has not been a good week, PR wise, for Norwich Union; and a very bad week for those who hold endowment policies with Norwich Union. Earlier it was reported that Norwich Union was using part of its inherited estate to pay off compensation claims, now it has announced that it is cutting back on payouts.

Norwich Union has 900,000 endowment policy holders, and has announced that despite 4 years of rising stock markets 90% are still in the red zone.

Last year the red zone was 89%.

Norwich Union has now announced a 2% cut in its payout on a typical policy.

The company has 69,000 mortgage endowments that will mature this year, half are expected to fall short by over £1K.

The rather strange thing about the cut in payouts is that the fund in which the policies are invested grew by 5.4%.

Why the cut then?

Will the senior management of Norwich be taking a cut in their bonuses too?

Will Norwich be cutting their management charges, given that the fund is not producing the payouts that holders were led to believe it would?

Tuesday, January 15, 2008

Calls For £100K Limit To Be Scrapped

Calls For £100K Limit To Be Scrapped

IFAOnline reports that the Financial Ombudsman Service (FOS) has been told by the All Party Parliamentary Group on Insurance and Financial Services (APPGIFS) to scrap or substantially raise its £100K compensation limit.

APPGIFS says the existing limits on awards, that were established over 25 years ago, have not increased in line with financial transactions carried out by retail and small business customers.

The FOS has been heavily involved in the endowment policy scandal.

Friday, January 11, 2008

Norwich Union's Sleight of Hand

Norwich Union's Sleight of Hand

It seems that Norwich Union is planning an interesting use of £150M of its inherited estate (orphan funds), which in theory are meant to be for the benefit of its policy holders.

Norwich plans to use £150M of £5BN surplus assets to pay for claims made against the company.

Currently Norwich Union is in the process of re attributing the funds to with-profits policyholders and shareholders, which is perfectly reasonable. However, Which? has warned that £150M has been designated to pay for past mis-selling.

It should be noted that the Financial Services Authority (FSA) does allow money in with-profits funds to be used in a number of ways, including settling compensations claims. It is considering a change in its regulations.

However, it seems to be rather "sharp practice" to use policy holders' money to pay for mis-selling perpetrated by the company that claims to be acting in the interest of the policy holders.

Which? is of the same opinion, and has quite rightly threatened to take the matter to court.

Norwich Union is negotiating the re attribution of the £5BN surplus, and also wants to use some of the money to finance business expansion; which also seems to me to be taking a liberty with policy holders' funds.

Dominic Lindley, financial policy adviser to Which?, is also claiming that billions of pounds of with-profits money has already been used by insurance companies to pay for the mis-selling of endowments and pensions.

What are the FSA doing about this?

Why do they sit on their hands and allow companies, such as Norwich Union, to get away with this?

Friday, January 04, 2008

The Reckoning

The Reckoning

As Neasa MacErlean writes in The Observer:

"One of the biggest financial scandals of the past 30 years reaches its climax in 2008 when thousands of endowment policies linked to mortgages start to mature. Endowment mortgages were sold in massive numbers from April 1983 and - since most home loans were set for 25 years - will start coming up for repayment by borrowers from April 2008."

Norwich Union describes 2008 as a peak year in terms of the numbers of endowments it has maturing, estimated to be about 90,000.

She offers some advice to those hapless endowment holders facing shortfalls, estimated to be on average between £10K to £35K, on their policies.

However, the only effective solution to this shameful scandal is for the life assurance companies to underwrite these useless underperforming products.