Those holier-than-thou mutuals made to blush
Sunday 14 July 1996
How embarrassing, then, that past examples of naughtiness should continue to emerge. Last week came the revelation that 2,000 people sold endowment mortgages by the Nationwide in recent years bought policies without knowing they could be landed with tax bills of thousands of pounds each when the endowment matured.
These "Freedom" endowments were sold as part of a tie-up with Guardian, the insurance company. But it seems that Nationwide's sales staff failed to tell many borrowers that if they were higher-rate taxpayers when the policy paid out, they would face further tax if they took out this particular deal. The proceeds from most endowments are tax-free.
A potential compensation bill totalling millions of pounds is on the cards to ensure that affected borrowers don't lose out as a result of the sloppy advice. Nationwide members - the owners of the society - can at least be thankful it is Guardian that will pick up the tab. But it still begs the question why the society didn't give better advice.
Nor do you have to look far to find dubious practices continuing among those societies purportedly in the mutual camp.
Remember those hard-sold accounts with big rates in which the interest flopped once they'd got your money? They're still around. Last month Birmingham Midshires building societyslashed the rates on its popular First Class postal account by a full percentage point. That's more of a cut than any mortgage borrower has seen since the Chancellor's latest base rate shaving, and leaves savers with pounds 1,000 earning a pitiful 2 per cent (before tax). Of course if, as rumoured, there's a big windfall on the way for members, then perhaps we shouldn't niggle too much. In the meantime, the society continues to mouth platitudes about its commitment to giving members value.
The Britannia, by comparison, offers savers and borrowers cash bonuses without selling out or becoming a bank. It is signing up existing customers for its Members Loyalty Bonus Scheme, using a glossy mailshot featuring Wallace & Gromit-style characters, and built around the idea of what members might do with their bonus. One character holds a cheque for a "stereophonic gramophone", another for "sensible shoes". The society claims the average bonus will be pounds 40. But don't be fooled - most members' bonuses will be far less.Most savers, who are already labouring under piddling deposit rates, are likely to get less than pounds 20. Furthermore, the bonus registration form seems as much an exercise in finding out what other products customers can be sold.
AS WELL as being boring, pensions are also highly complex. Which is why the Prudential's plea to the Government this week to simplify the system - exclusively trailed in this paper - can only be welcome. "There is no logical reason why a pension needs to be more complex than a building society account," said a Pru executive. Quite. To which could be added that, given the importance of encouraging people to have a pension, there is every reason for a pension to be at least as simple as a deposit account.
It would be good to see the Pru - as the UK's largest life insurer and seller of personal pension plans - setting an example. But I have seen little evidence of this (nor, indeed, from many pension providers). Clarity begins at home.
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