Another blow for Standard Life policies

More than 500,000 Standard Life endowment policyholders are to be left with a shortfall on their mortgage, it emerged this week, after the Scottish life insurer announced it was to scrap its mortgage promise, which it introduced four years ago.

The mortgage promise was first launched in 2000, in a bid to provide security for mortgage endowment customers who were concerned that their policy may deliver a shortfall. However, after much worse performance in the equity markets over the following years, the promise has ended up costing Standard Life £100m a year.

In its latest cost-cutting initiative, the promise will be scrapped from the end of next year. However, Standard Life says policyholders who were part of the scheme will be compensated between 40 and 60 per cent of any shortfall on their mortgage.

Whilst many of those who are set to suffer a shortfall are likely to qualify for compensation for the mis-sale of their endowment, only a small percentage of endowment policyholders have made complaints. Standard Life also said all complaints made after May 2006 will be dismissed due to the imposition of a time-barring rule.

A third blow for policyholders this week, was the news that Standard Life is to sever the link between its company profits and the bonus pay-outs to its with-profits policyholders. In future, all pay-outs will be linked to the underlying investments. The group warned that bonuses are set to continue to fall.

Standard Life is undergoing the biggest change in its 175-year history, as its chief executive, Sandy Crombie, leads the group towards demutualisation and a possible flotation.

Commenting on Standard Life's announcements, Clive Scott-Hopkins of Towry Law, the independent financial advisers, said: "These are bold and sensible moves. Although endowment mortgage policy holders will see these discretionary payments gradually phased out they can look forward to a likely windfall, assuming members vote for demutualisation in 2006, which can help to offset anticipated shortfalls.

"However, there is a likelihood that maturity values will continue to decline on longer-term endowments as they are still delivering better results than the insurer's equivalent managed fund, and this degree of subsidy can last for so long before, again, reality sets in."

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