Death of the endowment

The market continues to suffer as watchdog refuses to call for a review

Mis-selling is an ongoing concern in financial services, particularly for endowment policies. After months of speculation over whether a formal review is required, the Financial Services Authority (FSA), the industry watchdog, last week announced there were no grounds for holding one.

Mis-selling is an ongoing concern in financial services, particularly for endowment policies. After months of speculation over whether a formal review is required, the Financial Services Authority (FSA), the industry watchdog, last week announced there were no grounds for holding one.

At the same time, it added that there may be "particular problem categories of business" - in other words, some people may be victims of endowment mis-selling but not enough to warrant a full-scale industry-wide review. The FSA says it will try to make it easier for victims of mis-selling to make a complaint.

As we reported in previous issues, some policyholders have felt they were mis-sold endowments because the risks weren't pointed out to them when they took out the policy.

Walter Merricks, the Chief Ombudsman, agrees there are many displeased buyers: "We have seen a substantial increase in complaints about mortgage endowments over the past year, and we are taking a number of steps to help all those involved," he says.

While many commentators are furious at the decision not to launch an industry-wide review, it is a sensible one. In most cases, endowment policy holders have enjoyed returns that are at least as good as a repayment mortgage.

Homeowners chose endowment policies because monthly payments were generally lower than with repayment mortgages, while the prospect of a bonus at the end of the endowment term was attractive.

Because expected future investment returns have fallen in money terms in recent years, the expected returns on endowments are lower than many actuaries forecast when the policies were first taken out. It is the fall in inflation, rather than mis-selling, which has caused the shortfall.

Some six million people with endowments could face a shortfall. If you are one of these, you will need to save more each month to be confident of building up a sum sufficient to repay your mortgage. This is best done by other investments, such as individual savings accounts (ISAs), rather than topping up endowments. Then, if the worst comes to the worst and you need to make up a shortfall, you will have some cash available.

By the end of August, 3.8 million endowment policy holders had already received re-projection letters, colour-coded according to how urgent the problem is. Green means: on track to meet the target amount to repay the mortgage if average annual investment returns are 4-6 per cent until maturity; amber - on track if returns are 6-8 per cent until maturity; red - will only meet the target amount if returns are over 8 per cent until maturity.

The Association of British Insurers (ABI) says that more than half of these letters were green, nearly 30 per cent were amber and 10 per cent red.

Most companies are sending letters first to those people whose policies are nearest maturity as they will have less time to address any shortfall.

A red letter doesn't necessarily mean you have been mis-sold a policy. The FSA says it depends on the advice given to you at the time you bought it. Nor does a red letter mean your endowment will definitely not meet the target amount to pay off your mortgage, but on current projections it isn't likely to - so you should think about saving more.

Whether you face a shortfall or not, this is the latest nail in the coffin for future endowment policy sales. Philip Cartwright at mortgage broker London & Country says: "Around 80 per cent of mortgages were endowments back in the late 1980s, but this is down to 25-30 per cent now.

"We are now seeing some companies guaranteeing a certain level of return rather than endure all the aggravations associated with counter-claims from policyholders."

Standard Life has guaranteed its endowment policies but only if it achieves a return of at least 6 per cent on its investments, while Liverpool Victoria offers a blanket guarantee and Wesleyan is guaranteeing to meet the mortgage cost for any borrower whose policy falls due between now and 2007.

If you have a complaint, contact the firm or adviser who sold you the policy. The FSA requires it to have a proper complaints procedure that it must tell you how to use. If you are not happy, you can take your complaint to the Financial Ombudsman Service. The firm you complain against is obliged to tell you how to do this.

* Factsheets from the FSA, 25 The North Colonnade, Canary Wharf, London E14 5HS; Tel: 020 7676 1000; website, www.fsa.gov.uk.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Account Manager / Membership Manager

    £35 - 38k + Benefits & Bonus: Guru Careers: We are seeking an Account Manager ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    Guru Careers: Associate Director

    £50 - 80k: Guru Careers: We are seeking an Associate Director for the Markets ...

    Guru Careers: Associate Director / Director of Sound Practices

    £60 - 100k: Guru Careers: Our client is looking for an Associate Director of S...

    Day In a Page

    Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

    Uganda's giants are flourishing once again

    After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
    The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

    After 350 years, the riddle of Britain's exploding fleet is finally solved

    Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
    Airbus has patented a jet that could fly from London to New York in one hour

    Airbus has patented a jet that could fly from London to New York in one hour

    The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
    10 best sun creams for kids

    10 best sun creams for kids

    Protect delicate and sensitive skin with products specially formulated for little ones
    Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

    Tate Sensorium

    New exhibition at Tate Britain invites art lovers to taste, smell and hear art
    Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

    Nice guy Finn is making up for lost time – and quickly

    He was man-of-the-match in the third Test following his recall to the England side
    Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

    Remember Ashton Agar?

    The No 11 that nearly toppled England
    Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

    US betrayal of old ally brings limited reward

    Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
    VIPs gather for opening of second Suez Canal - but doubts linger over security

    'A gift from Egypt to the rest of the world'

    VIPs gather for opening of second Suez Canal - but is it really needed?
    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

    Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
    The male menopause and intimations of mortality

    Aches, pains and an inkling of mortality

    So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
    Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

    'How can I possibly be on the list with these writers I have idolised?'

    Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
    Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

    Bettany Hughes interview

    The historian on how Socrates would have solved Greece's problems
    Art of the state: Pyongyang propaganda posters to be exhibited in China

    Art of the state

    Pyongyang propaganda posters to be exhibited in China
    Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

    Vegetarian food gets a makeover

    Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks