The Endowment Diary

The Endowment Diary


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

Friday, November 27, 2009

ABI Displays Empathy

ABI Displays Empathy

In a rare display of public empathy, the Association of British Insurers (ABI) says that life companies must do more to design products with consumer needs in mind.

ABI head of distribution policy, Peter Jolly, said that life companies have failed to properly engage with consumers.

"I guess the evidence of that is we need to sell them. If we had products that people really wanted they would come and buy them and most of the products in our industry are designed to be sold, rather than bought.

And the industry's failure to develop a new regular premium savings product is probably evidence of that. As the endowment market tailed off we don't really have a replacement


The endowment market "tailed off" because it was a lousy product, not fit for purpose and badly managed.

Thursday, November 19, 2009

Class Actions

Class Actions

This week's Queen's Speech has raised the possibility of hapless endowment policy holders being able to mount class actions against the life assurance industry.

The government proposes to give consumers the right, for the first time, to take "class action" suits through the courts in cases of large-scale wrongdoing such as endowment mis-selling or personal pensions.

This is something that I have been calling for over many years. Not only has the financial services industry mis-sold these flawed and badly designed products, but they have mismanagement them (despite awarding themselves very generous "management" fees and commissions).

The consumer will not only has grounds for suing wrt mis-selling, but also has grounds based on the fact that the products are not fit for purpose (ie they did not pay off the mortgage, which is what they were meant to do).

Why buy the product if it wasn't going to work?

Unfortunately, there is little chance of this becoming law this side of the election.

Friday, October 02, 2009

Fit For Purpose?

Fit For Purpose?

Legal and General informed me today that the shortfall on my "with profits" endowment mortgage of £39K will range between £13K - £16K.

So much for the concept of "smoothing", allegedly one of the main components of a "with profits" policy.

Maybe they could also explain to me why they sold and "managed" a product that clearly was not fit for purpose?

Saturday, September 19, 2009

Aviva Policyholders Lose

Aviva Policyholders Lose

The Times reports:

"800,000 policyholders of with-profits funds run by Aviva, Britain’s largest insurer, will share less than half of the billion-pound windfall promised just over 18 months ago.

The investors had been pledged £1 billion in February last year when the funds were valued at £4.2 billion, but were told this March that the payout would be £500 million because falling gilt, bond and property prices had reduced the funds to £1.2 billion.

The High Court yesterday upheld Aviva’s decision to pay the £500 million because the fund had shrunk in value. Aviva will keep £700 million for its own use.

Eligible policyholders — those with Commercial Union Life, CGNU Life and Norwich Union Life with-profits funds — will receive between £200 and £1,150. Aviva said it would put the scheme into effect on October 1, with the majority of payments being made before the end of the year

Why has the FSA sat on its hands and allowed Aviva to take (Which? uses the word "plunder") £700M of policyholders' money?

Some also argue that Aviva have deliberately dragged this out; so as to not to have to pay out so much money, as the markets continued to fall.

Policyholders, yet again, have been ill served by a life assurance company.

Friday, August 21, 2009

Reality Dawns

Reality Dawns

As I have noted many times on this site, at some stage the hapless millions who were conned into buying useless, underperforming endowment mortgages will have to cover the shortfall when the policy matures.

The penny may finally be dropping, wrt paying off uncovered debt, as The Times reports that people are waking up to the problems of paying off interest only deals (an offshoot of endowments).

"Figures from the Financial Services Authority, which has regulated mortgages since 2004, show that 38 per cent of Britain's 11.1 million mortgage borrowers — or more than one in three — may have made inadequate provision to pay off their capital sum.

Many are in negative equity and the savings products taken out to cover the capital repayments have fallen short. That 38 per cent figure does not include those with endowments or buy-to-let investors who took out interest-only mortgages to keep the cost down

These policies are beginning ot mature at the very time the property market/economy is struggling to pull itself out of the mire.

Wednesday, August 19, 2009

Unbelievable Betrayal

Unbelievable Betrayal

The hopeless and hapless FSA has now published its final decision on its endowment mis-selling consultation, and has ignored consumer concerns about the proposals.

Which? describe this as "an unbelievable betrayal of consumers".

Which? goes on to note that the FSA had 234 responses to their consultation. Only 10 responses were from firms and industry bodies. Despite this, the FSA only addressed the concerns of firms who felt that the proposals go too far.

Which? quite rightly states that the FSA is allowing the financial services industry to dictate policy once again; get away with ripping off the consumer.

The FSA will not be missed when it is abolished after the next election. It has been worse than worthless in its role as consumer "champion", and serves only the needs of its paymasters in the financial services industry.

Monday, August 10, 2009

Things Will Only Get Worse

Things Will Only Get Worse

Those of you who hung onto a flimsy straw of hope that the recent rebound in the FTSE may help draw a line under your collapsing "with profits" (such a misnomer for such a lousy product) endowment policy, need to read this article in The Times.

The bottom line is that the returns will worsen, and that the life assurance companies will continue to cut bonuses.

Either way, in good times or bad, the policy holder picks up the bill for the failures of these useless products and the conmen who sold them to you.

We need a class action to bring these companies to heel!

Monday, July 27, 2009

Slash and Burn Policy

Slash and Burn Policy

Aviva (nee Norwich Union) has slashed the payouts on its with-profits (an ironic term, given how useless these products are) endowments and pensions.

Aviva runs several with-profits funds including those sold by; General Accident, Commercial Union, Norwich Union and Provident Mutual.

- A 25 year General Accident mortgage endowment is now down 8.4%

- Aviva Life is now down 12%

- Commercial Union down 7.7%.

Precisely why does the FSA allow life assurance companies to use the phrase "with profits", when it is very clear that they do not do that?

Read more:

Tuesday, July 21, 2009

Aviva Error

Aviva Error

The Telegraph reports that a computer error by Aviva, has resulted in the miscalculation of Aviva's orphan asset payout to 9,000 policyholders.

One million policy holders were contacted in May, wrt the terms of distribution for Aviva's £1.4BN inherited estate.

Aviva was then forced to send another letter to 9,000 policyholders, to tell them of a "technical error" that resulted in them being offered the wrong amount.

Thursday, July 16, 2009

99% Shortfall

99% Shortfall

This Is Money reports that a staggering 99% of endowment policies will fail to pay off the mortgages which they were designed to cover.

With over 4.3M policies still in force this means that millions of people will be affected by the failure of these useless products.

The FSA and the life assurance companies that "manage" these failed products continue to hide behind the excuse that, as they are investments, the consumer knowingly accepted the risk that they might not cover the mortgage.

This excuse is not valid, as the life assurance companies told the hapless consumer that they were designed to pay off their mortgages. Why else would anyone have bought these products if they were not going to fulfil their primary function of paying off a mortgage?

The fact 99% of them will fail to do this is proof that the product was poorly designed, and continues to be atrociously "managed" (eg why do life assurance companies continue to milk the policies of commissions, when they have demonstrably failed?).

The consumer has been ripped off by the life assurance industry, and left to rot by the FSA.

Thursday, July 09, 2009

Lautro 19 To Remain "Secret"

Lautro 19 To Remain "Secret"

Any hope of naming and shaming the Lautro 19 is now "dead and buried", according to former IFA Defence Union chief Evan Owen.

The Information Commissioner's office has stated that the High Court has ruled that the information falls under absolute exemption rules under the Freedom of Information Act, and therefore does not have to be disclosed.

The Information Commission ruled in August 2007 that the FSA had to name the mortgage endowment providers which misused Lautro projections in setting premiums, which lead to clients being given unrealistically high maturity figures (cynics might say that they were conned).

The hapless FSA, ever keen to protect the financial services industry from the consumer, appealed against the decision. In October 2008 the Information Tribunal rejected the FSA's appeal.

The FSA then took the appeal to the High Court, which upheld the appeal.

If only the FSA were as zealous when protecting the consumer!

Wednesday, July 08, 2009

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Wednesday, June 03, 2009

Lost The Plot

Lost The Plot

The FT is suitably scathing about the FSA decision to kowtow to the insurance industry wrt compensation payments for mis-selling endowment policies.

"So FSA has bottled it once again. Faced with pressure from the insurance industry, they have backed away from fully enforcing a ban on using policyholders' money to mis-selling bills.

The decision appeared in document CP 09/09: "Proprietary firms will no longer be able to pay compensation and redress payments from their with-profits funds, where they arise out of events that occur after the rule takes effect. The position in relation to events prior to the effective date will be unchanged."

So any compensation or redress from new mis-selling cannot come from the with profits fund, but for all past misdemeanours they can still raid policyholders' cash.

The Financial Services Consumer Panel describes this as a "backward step" and says that "having uncovered unfairness, the FSA should resolve it".

Predictably, the FSA has allowed intense lobbying from the powerful insurance industry to override consumer fairness. Reading through the comments from respondents in this consultation paper illustrates how many insurance companies are still living in the dark ages.

Some argued that policyholders have no interest or rights in any inherited estate that might exist in with profits funds. Others referred to previous consultation papers without appearing to have noticed that these have been overtaken by clarifications and later statements.

So once again the dinosaurs have outwitted the FSA and consumers will be left to pick up the bill as insurers continue to raid their savings to pay mis-selling bills

Friday, May 15, 2009

Which? Campaign

Which? Campaign

Which? have launched a campaign to lobby the FSA to change its decision re allowing life assurance companies to charge compensation costs for mis-selling endowment policies against inherited estate.

Prudential has taken a staggering £1.6BN from the inherited estate to pay mis-selling costs, while Norwich Union (Aviva) has taken £202M and earmarked another £64M for future claims.

Which? thinks it is outrageous that firms can avoid paying the penalty for their mistakes. The FSA seemed to agree that they should change the rules but have gone back on their original proposals. Now the FSA say that they will only stop firms from charging for mis-selling on policies sold from July this year.

This new rule will be almost meaningless, as hardly any new policies are being sold and firms will be still be able to avoid paying the cost of any new cases that emerge of past mis-selling.

Which? have created template letters which can be completed and sent to MPs and the FSA in less than 2 minutes. They can be accessed via this link Which?

Monday, May 11, 2009

Aviva Halves Offer

Aviva Halves Offer

Aviva (formerly known as Norwich Union) has halved its offer to policyholders for a share of the company's surplus investment funds.

As noted on this site earlier this year, Aviva reneged on last year's offer of £1BN to one million policyholders.


"It is a fair bet that any new offer will be lower, and that Norwich Union will seek ways to delay payment to their policyholders."

The policyholders in two with-profits funds are now being offered £500M of the firm's "inherited estate".

How ironic that Aviva took time out during a rapidly falling market to revise its offer. Cynics might argue that the timing was deliberate, thus ensuring that any payout offered would be reduced.

Wednesday, April 01, 2009

The Lautro 19

The High Court will take at least a month to decide as to whether to rule in favour of the FSA's appeal to avoid naming the Lautro 19.

The FSA presented new evidence this Monday, which focused on the FSA's argument that confidential information received by the FSA must not be disclosed without consent.

This relates to a Freedom of Information request by IFA Defence Union chairman Evan Owen in January 2005. The Information Commissioner ruled in August 2007 that the FSA had to name the endowment mortgage providers which misused Lautro projections in setting premiums.

Thursday, March 05, 2009

Suckered In

Suckered In

As per The Daily Mirror:

"More than 300,000 homeowners due to clear their mortgage debts this year are facing shameful shortfalls.

And some five million more people will suffer a similar fate in the next few years as a result of monstrous mis-selling of with-profits endowment policies....

Millions of people were suckered into taking out these disastrous policies in the 80s.

Re being "suckered in", I couldn't agree more!

Friday, February 27, 2009

FSA Shortchanges Policyholders

FSA Shortchanges Policyholders

The Financial Services Authority has shortchanged endowment policyholders who lodge a complaint for mis-selling against life assurance companies running closed funds.

New rules preventing life companies from using surpluses held in with-profits funds to meet compensation costs will only apply to policies sold after the rules come into force.

Under the FSA's original proposal, the rule change would have applied to all payments made after the regulations came into force, regardless of when the policies were sold or any mis-selling occurred.

Wednesday, February 25, 2009

Prudential Cuts Bonus

Prudential Cuts Bonus

Prudential has cut its annual bonuses by between 6% to 10% on its £65BN with-profits (such an ironic name) fund. Approximately 4.5 million policyholders are now facing cuts, some of which are up to 10%, in their payouts.

The Prudential says that it is acting in the best interests of the fund, and cushioning policyholders against potentially bigger blows.

Surely the purpose of the with profits fund was to smooth the returns in good and bad years, in order to avoid such massive swings?

This cut demonstrates that the concept of "with profits" smoothing has not been properly applied in past years.

Friday, February 13, 2009

Scottish Widows Cut Bonuses

Scottish Widows Cut Bonuses

Scottish Widows have cut the bonus rates on their with-profits (such an ironic name for a product that does not actually produce a profit for the hapless policy holder) policies. Scottish Widows claim that the £14BN with-profits fund fell by 17.5% in 2008.

The majority of the 775,000 policies will therefore pay out less than they did last year.

The concept of "with-profits", as told to hapless investors by the life assurance companies, was that the life assurance comapnies would smooth the bonuses during the life of the policy. The fact that companies are having to cut bonuses indicates that this smoothing clearly has not taken place, and the bonus payments in earlier years were too high.

Why would the companies pay out bonuses that were too high in earlier years?

Simple, so that they could attract more investors by showing that their policies were high profit yielding products (some cynics might argue that these policies were a scam).

Wednesday, February 04, 2009

Norwich Union Renege on Deal

Norwich Union Renege on Deal

Aviva (aka Norwich Union) has announced that it is seeking to restructure its £1BN offer to policyholders for its inherited estate, which was agreed in July 2008.

It is a fair bet that any new offer will be lower, and that Norwich Union will seek ways to delay payment to their policyholders.

In a statement the company said:

"Since we agreed an offer with the policyholder advocate in July 2008, the estate has reduced significantly as a result of substantial reductions in the value of equity and property investments.

Continuing market volatility and uncertainty means that the original reattribution offer for the inherited estate no longer meets our critical test of being fair to both policyholders and shareholders. We are working closely with the policyholder advocate to see how we can restructure our offer.

While we realise this will be disappointing for our eligible policyholders, it does reflect the nature of the current exceptional investment market conditions. We expect to be able to update policyholders in the next few months

Approximately 700,000 people were to have been offered between £400 and £1,000, and another 220,000 would have been offered a payout of between £1,000 and £3,500 if they accepted.

Who is there left in the UK who trusts in any shape, form or the slightest way the financial services industry in this country?

Tuesday, January 20, 2009

L&G Replaces Freshfields

Legal & General (L&G) has completed a review of its external legal advisers, and replaced Freshfields Bruckhaus Deringer with Allen & Overy.

Freshfields advised L&G in 2005, when L&G was investigated by the Financial Services Authority for the alleged mis-selling of endowment mortgages.

Monday, January 19, 2009

Norwich Union Cuts Bonuses

Norwich Union Cuts Bonuses

The annual bonus season is upon us again and, unsurprisingly, cuts are in the offing.

Norwich Union has announced a cut in bonus payments on its "with profits" (such an ironic name!) policies. The 2.3 million people who hold a Norwich "with profits" policy suffered a cut of up to 16%.

This means that the majority of Norwich's endowment mortgage customers are likely to face a shortfall when their policy matures.

David Barral, Norwich Union Director, is quoted in the Guardian:

"Our with-profits funds have continued to prove their worth by delivering attractive long-term returns for investors while protecting them from the ups and downs of the stockmarket."

Could someone from the financial services industry care to explain to the millions of hapless "with profits" policy holders why "with profits" smoothing, in poor years, is never applied (as evidenced by the sharp cuts in bonuses); yet in good years it is applied?

Other companies will be announcing their cuts in due course, and it is certain that they will be as bad or worse than Norwich Union.

Wednesday, January 07, 2009

Bonus Cuts

Bonus Cuts

The Times warns that holders of with profits funds will find that their maturity values will be cut again this year, because of poor performance.

Friends Provident will announce bonuses this week, Norwich Union next week.

Standard Life will declare at the end of this month, with Prudential and Legal & General making their announcements in February.

Many "with profits" (a contradiction in terms) policy holders are of course relying on these policies to pay off their endowment mortgages. A fine example, among many (eg PPI, credit card charges, bank charges, commissions etc), of how the City has ripped off the ordinary British citizen.