The Endowment Diary

The Endowment Diary


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

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?