Firms admit endowments will not cover mortgages

Further evidence emerged yesterday that a substantial number of those who took out unit-linked endowments may end up with less than needed to pay off their mortgages.

Andrew Verity reports on admissions by some of the country's leading insurers that they are warning policyholders about shortfalls.

Scottish Widows and Scottish Provident both admitted yesterday they had to warn policyholders that their endowments may not cover their mortgages.

Scottish Provident has already written to some customers who bought unit- linked endowments before 1985 to warn them of potential shortfalls in their endowment policies and inviting them to step up contributions. Roger Edwards, a spokesman for Scottish Provident, said: "We are formulating a strategy to deal with endowment reviews generally and what the implications are."

A spokesman for Scottish Widows, one of the leading providers, also said it had warned a number of endowment policyholders that they may need to pay more into their policies.

The embarrassing admissions follow revelations that Eagle Star was compensating customers because investment growth on their policies was poorer, and expenses were higher, than the policyholders had been led to expect.

More than half of the life assurance providers which sold unit-linked endowments have put policyholders' money in investments which have not grown enough over the past 10 years to ensure their mortgages will be paid off in full.

Robert Guy, endowment expert at mortgage brokers John Charcol, said yesterday: "I am certain other companies are likely to be writing to their policyholders with a review of some sort, either because of investment performance or because of their charges." He called on holders of unit-linked endowments to check their investments carefully.

Unless the endowment savings grow by unexpectedly high amounts before they mature, many policyholders are likely to find their endowments fail to pay off their mortgages. This could leave them to make up the shortfall at the last minute.

Figures from financial statistics specialist Micropal show that managed life funds, the vehicles used to invest the savings of most endowment holders, have failed to grow enough to meet the hopes of customers who bought unit-linked endowments before 1995. More than 90 out of 158 managed life funds have seen annual growth of less than 7 per cent over 10 years, even though they were sold on the basis that investors could expect up to 10.5 per cent growth.

Across the sector, the average annual growth over 10 years has been just 6.58 per cent.

According to Micropal, Commercial Union saw annual growth of just 5.79 per cent over the past 10 years. For Scottish Provident, the figure was 6.23 per cent.

In the competitive housing market between 1987 and 1995, several of the leading providers of endowments were able to offer customers low premiums for their endowments because they assumed optimistic growth rates.

Because life companies were forced by the then regulator, Lautro, to use growth rates of at least 7 per cent, even the most cautious policyholders could have paid too little into their endowment to cover their mortgage.

Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
News
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
Life and Style
fashion Designs are part of feminist art project by a British student
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
books
PROMOTED VIDEO
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
i100
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
Arts and Entertainment
Residents of Derby Road in Southampton oppose filming of Channel 4 documentary Immigration Street in their community
tv
Voices
voicesSiobhan Norton on why she eventually changed her mind
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
i100
Extras
indybest
Sport
Scottish singer Susan Boyle will perform at the Commonwealth Games opening ceremony in Glasgow
commonwealth games
Arts and Entertainment
Dwayne 'The Rock' Johnson stars in Hercules
filmReview: The Rock is a muscular Davy Crockett in this preposterous film, says Geoffrey Macnab
Life and Style
tech
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.

iJobs Job Widget
iJobs Money & Business

PMO Analyst - London - Banking - £350 - £400

£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn