`Personal Finance: The important thing for endowment holders is, as the FSA stressed this week: Don't panic'

LIKE SHOULDER-PADDED suits and Rick Astley, endowment mortgages were hugely popular in the 1980s but are now almost universally reviled. As interest rates and inflation have fallen to 30 year lows, there are fears that many endowment policies will not grow fast enough to pay off the home loans they are linked to.

This week the prospects for endowments appeared to get even bleaker, as Tony Holland, the Ombudsman for the Personal Investment Authority (PIA), declared that anyone who was sold such a mortgage without being warned of the risks was entitled to compensation.

At first Mr Holland's words, uttered on BBC Radio, seemed to suggest that endowments will follow personal pensions as the subject of a multi- billion pound drive for compensation. The PIA was quick to point out that he was merely restating its position that endowments are inherently more risky than repayment mortgages, and that if this is not explained to borrowers, there may have been a mis-sale, which in turn could give rise to compensation.

This payback would consist of the premiums paid plus interest.

But this is a long, long way from the Government-supported, industry- wide action over pensions miss-selling. Much of the problem is that Mr Holland's words came hard on the heels of warnings from the Institute of Actuaries, which declared that many people will need to increase contributions to their endowment policies.

It was left to the Financial Services Authority (FSA) to damp down the rising panic, by urging people to look very carefully before ditching their endowments. Cashing in your policy is one of the most damaging things you can do.

After all, your contributions will have already paid off the huge commissions that the salesmen take from the policy in the first few years of its life. But the policy will not have benefited from the compound growth of the shares it invests in. So if you are worried about it, write to your lender, or get your IFA to do so, to get an update on how the policy is growing.

An alternative, very popular this year, is to remortgage. You can switch to a repayment mortgage and keep the endowment policy going separately, in effect as a long-term savings policy. You will still get the "uplift" of the last few year's of the policy's growth, but you won't have the worry of whether that growth will definitely pay off the mortgage.

Also, if you are advised that your endowment may fall short, switching to a repayment may be a much better route than "topping up" your existing endowment.

The important thing for existing endowment holder is, as the FSA very sensibly stressed this week, "Don't panic."

If you are still worried, why not contact the FSA direct. The FSA operates a Consumer Helpline on 0845 606 1234. It produces a range of user-friendly fact sheets available from their leafletline on 0800 917 3311. Or try the FSA website on http://www.fsa.gov.uk. The leaflets include the FSA guide to making a complaint, the guide to ISAs and the guide to financial advice.

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
ebookNow available in paperback
Life and Style
ebooksA superb mix of recipes serving up the freshest of local produce in a delicious range of styles
News
Johnny Handle, Northumberland, Ted Relph, President of Lakeland Dialect Society, and Sid Calderbank, Lancashire, founder of the National Dialect Day
newsMeet the enthusiasts determined to stop them dying out
News
The data shows that the number of “unlawfully” large infant classes has doubled in the last 12 months alone
i100Mike Stuchbery, a teacher in Great Yarmouth, said he received abuse
Arts and Entertainment
The starship in Star Wars: The Force Awakens
filmsThe first glimpse of JJ Abrams' new film has been released online
Sport
Rio Ferdinand returns for QPR
sportRio Ferdinand returns from his three-game suspension today
News
The Speaker of the House will takes his turn as guest editor of the Today programme
arts + ents
Arts and Entertainment
St Peter’s Seminary in Cardross. Argyll, has remained derelict for more than 25 years
arts + ents
News
people

Watch the spoof Thanksgiving segment filmed for Live!
Sport
Billy Twelvetrees will start for England against Australia tomorrow with Owen Farrell dropping to the bench
rugbyEngland need a victory against Australia today
Arts and Entertainment
The cover of The Guest Cat – expect to see it everywhere
books
Sport
Tyson Fury poses outside the Imperial War Museum in south London ahead of his fight against Dereck Chisora
boxingAll British heavyweight clash gets underway on Saturday night
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    Opilio Recruitment: QA Automation Engineer

    £30k - 38k per year + Benefits: Opilio Recruitment: An award-winning consume...

    Opilio Recruitment: UX & Design Specialist

    £40k - 45k per year + Benefits: Opilio Recruitment: A fantastic opportunity ...

    Opilio Recruitment: Publishing Application Support Analyst

    £30k - 35k per year + Benefits: Opilio Recruitment: We’re currently re...

    Opilio Recruitment: Digital Marketing Manager

    £35k - 45k per year + benefits: Opilio Recruitment: A fantastic opportunity ...

    Day In a Page

    Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

    Christmas Appeal

    Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
    Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

    Is it always right to try to prolong life?

    Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

    What does it take for women to get to the top?

    Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
    Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

    Knitting pretty: British Christmas Jumpers

    Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
    French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

    French chefs campaign against bullying

    A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
    Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

    Just what you need on a New Year hangover...

    Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
    Cuba set to stage its first US musical in 50 years

    Cuba to stage first US musical in 50 years

    Claire Allfree finds out if the new production of Rent will hit the right note in Havana
    Christmas 2014: 10 best educational toys

    Learn and play: 10 best educational toys

    Of course you want them to have fun, but even better if they can learn at the same time
    Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

    Paul Scholes column

    I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
    Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

    Lewis Moody: Lancaster has made all the right calls – now England must deliver

    So what must the red-rose do differently? They have to take the points on offer 
    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game