Questions Of Cash: 'Will the fines on Abbey Life affect my under-performing pension?'

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The Independent Online

Q A recent William Kay column ("Mis-selling scandal could make people self-invest in a pension") referred to a hefty fine on Abbey Life. Can you tell me more about this and what it means for me, as I have an under-performing pension with Abbey Life. JV, Solihull.

Abbey Life was fined £1m last year by the Financial Services Authority for mis-selling endowment mortgages. Your problem is not grounds for a complaint as such. But Theresa Fritz, of the Consumers' Association, describes Abbey Life's upfront charges as "massive, massive".

The Financial Ombudsman Service confirms that it will consider a complaint of mis-selling where charges were so high that the provider was unlikely to achieve quoted projections. Ms Fritz says that you might also consider a mis-selling complaint on the basis that your pension may not have been suitable for your requirements, and also if you were advised to contract out of Serps, but not told that the replacement product might under-perform.

Q I took out an endowment in 1983 with Scottish Amicable on an Abbey National mortgage. In 1989 I took out a larger mortgage with NatWest. I wanted to upgrade my Scottish Amicable policy, but NatWest refused and offered me only a Standard Life endowment. My Scottish Amicable policy is still on track, but Standard Life now predicts a shortfall of between £6,000 and £8,000 on its endowment. I have complained to NatWest over mis-selling. It is offering compensation of £1,800. But it rejects my complaint of mis-selling on the grounds that I should have complained within six years. What should I do? SC, Rochdale.

You seem to have misunderstood the offer made by NatWest. Its offer of compensation has been made because its paperwork does not prove it offered you a repayment mortgage or an alternative to an endowment.

The compensation puts you where you would be if you had taken out a repayment mortgage. But it is not designed to make up the shortfall. The six-year time limit only relates to your complaint that the bank refused to allow you to top up your Scottish Amicable endowment. This element of your complaint would have been rejected anyway. The offered compensation is not limited to £1,800. You have no palatable options for resolving the £4,000 shortfall.

If you cannot afford the extra monthly payments you may need to remove equity from your house. If possible, avoid taking out an equity release loan, which could be expensive. If it was known at the time you took out the loans that you would not be in work while you were still repaying your mortgage, this could form the basis of a further mis-selling complaint.

Q I have an endowment policy with Friends Provident due to mature in 2011. I now have a repayment mortgage and I do not need the life cover. The paid-up value is £23,000 and I have no wish to sell the policy. Should I carry on paying £118 per month or should I freeze the policy now? CP, by e-mail.

Assuming that yours is a with-profits and not a unit-linked policy, you are probably best off either freezing the policy or selling it.

Meera Patel, at the adviser Hargreaves Lansdown, says there are better routes for achieving an investment return, such as a unit trust - perhaps a distribution fund - or an investment trust such as Foreign & Colonial's. Whether you get rid of the policy rather than freeze will depend on your tax position, whether you have fully used up your ISA allowance and what market value adjustment Friends Provident will apply if you cash it.

Q I have an Allied Dunbar Maximum Investment Plan, the contract for which refers to charges reducing during the period of the plan to 4 per cent annually. But the charges have actually been in excess of 10 per cent. AMG, Devon.

Zurich is offering you £200, recognising its failure to deal with your complaint. But Zurich dismisses your main complaint on the level of charges, saying the reason they were higher than expected is that the returns have been much poorer because of stock market performance. We suggest you now lodge a complaint with the Financial Ombudsman Service.

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