The Endowment Diary

The Endowment Diary


The Endowment Mis-selling Debacle - one of the UK's worst financial scandals

Wednesday, May 26, 2004

FSA Gets Tough

It seems that the FSA is getting tough with the rather "laid back" life assurance companies.

They have requested that the life assurance companies provide holders of underperforming endowment policies with more information about how to make a complaint.

Additionally, from June 1st, all insurers who apply the 3 year time limit on complaints have to write to policy holders 6 months before the end of the complaint window; to remind them to complain.

The question is, will they accept yopur complaint once you have made it?

What a mess!

Monday, May 24, 2004

Tardy Payments

Not content with using all the excuses under the sun to avoid paying compensation, to those of us lumbered with an underperforming endowment policy, it seems that one major life assurer also delays paying compensation; even when it has agreed to pay the compensation.

The life assurer promises to pay within 28 days of compensation being agreed. Yet it appears that it breaches its own promises on a regular basis; keeping people waiting for over 10 weeks.

I understand that the FSA has put a warning shot across their bows, telling them to speed up; or face another fine.

The company claims that the delays are due to the sheer number of complaints.

Well, if it is bad now, wait and see how bad it will get over the coming year; as the penny finally drops that around 6 million people will face a shortfall and the claims flood in.

Thursday, May 20, 2004

Reuters report that Legal & General will contest the £1M fine from the FSA.

L&G accuse the FSA of having to seek extra evidence, because its original case was not strong enough.

The FSA had accused L&G, in November, of selling risky savings products to risk-averse customers; and mis-selling endowment policies between 1997 and 1999.

Those of you anxiously waiting to hear the outcome of the case, will have to hold your collective breaths; the tribunal will not begin until September.
The Scandal That Won't Go Away

Despite hoping that the endowment mis-selling scandal will go away, life assurers are now having to face the same financial misery that the 6 million of us who bought these non performing white elephants have been enduring for the last few years.

Evidence of this emerged yesterday, as Nationwide has announced that it has tripled its provisions for compensating endowment mortgage customers; as complaints of mis-selling continue to escalate.

Fortunately for Nationwide, they do have a 21% increase in profits to cushion the effect.

Nationwide has raised its provision from £11M to £34M.

They admit that it is "possible that the value of some investment policies will not be sufficient to fully repay mortgages on maturity".


Don't fear for Nationwide's future, its pre tax profits for year end April 2004 were £426M.

Tuesday, May 18, 2004

I dropped Milberg Weiss a note today, to confirm that they have received my original enquiry about class actions sent a few weeks ago.

Sunday, May 16, 2004

I have just had a look at a wonderfully acerbic site, that takes a punch at the "Which" campaign for compensation for mis-sold endowment mortgages.

The site, quite rightly, points out the risk of making fraudulent claims.

It then goes on to have a "pop" at Which, for allegedly recommending endowments in the 70's and 80's. They even have a complaint letter generator which you can send to Which.

I understand that the site is the brainchild of certain Independent Financial Advisers, who are sick of people complaining.

It is a splendidly entertaining site. However, the comment in the lurid green box at the bottom of the page; asking for regulation of "The Dammed Press", is something that I do not agree with at all.

Freedom of speech is essential, to suppress the media just because a vested interest does not like what they say would be a step towards dictatorship.

Friday, May 14, 2004

I see that the rules relating to compensation payments for mis-selling, may be adjusted by the end of this year.

The new rules will cover consumers who have lost money, because they have been mis-sold a product such as an endowment policy, or have been given poor financial advice.

The scheme will replace the voluntary arrangement currently practiced by brokers et al, and will come into force from October 2004.

Tuesday, May 11, 2004

Shutting The Stable Door

It seems that the government has finally woken up to implications of the endowment policy mis-selling scandal.

However, before we all crack open the champagne; in the expectation that some form of compensation will be winging its way to us, I must dampen your spirits.

The government, realising the mess that the mis-selling of endowments has caused, is making sure that the same thing will not happen again for home reversion schemes.

These schemes are whereby older people may release the equity from their homes, and live off that until they die.

Needless to say these schemes have every chance of being as massively mis-sold, as the endowment polices were in the 1980's.

Therefore the government will regulate them.

Announcing the decision, financial secretary Ruth Kelly said that buying such a policy represented a huge decision.

She added: "It can have significant implications for tax, benefits, inheritance and long-term financial planning."

No kidding!

Monday, May 10, 2004

Happy Monday!

It seems that a staggering 84% of endowment policies are unlikely to reach their target. This figure is likely to grow, as life assurance firms cut their projections.

The projections are likely to fall as the Financial Services Authority has asked all life assurance companies to use lower rates, if they hold less than 70 per cent of their with profits funds in equities and property.

It seems that only Legal & General and Prudential hold almost 70% in equities and property (69% and 65% respectively); the rest fall short.

It is estimated that every 1% reduction in the projection rate will reduce the payout on a £100K 25 year policy, with 12 years to run, by £7K.

A nice way to start the week!

Friday, May 07, 2004

Drip Drip Drip

Yesterday the Bank of England raised interest rates by 0.75%, for the third time.

This move did not come as a surprise, the markets did not take flight; and it is unlikely that the booming housing market will collapse as a result of this one rise.

However, couple this rise with the two others and the prospect of more to come; then add in the total failure of the FSA, and the insurance companies, to address the endowment mortgage mis-selling scandal.

You now have a recipe for undermining the confidence and trust in the housing market, something which underpins the entire British economy, and causing a collapse in both the housing market and the economy as a whole.

We live in dangerous times.

Thursday, May 06, 2004

More Doom and Gloom

It seems that shortfalls on endowment mortgages are likely to be worse than currently projected by life assurance companies.

The problem lies with the asset mix. Most of the major insurers have switched the majority of their holdings from equities and property, into assets with a lower rate of return.

Life insurers are now forced to publish far more detailed information about their investment strategy, and charges levied on their with profits funds.

However, these disclosures (called entitled Principles and Practices of Financial Management) do not require companies to disclose in full the asset mix of their funds. As usual, something that is "too little, too late".

In addition to disclosing their asset mix, life insurance companies are now disclosing that they are introducing additional charges to back up their guarantees.

Norwich Union will charge customers in the Norwich Union Life and Pensions with profits fund an additional 0.75%, and CIS will charge an extra 0.5%.

Ever felt like you were being screwed both ways?

Taking the above into account, it is unlikely that the so called "projection letters" dropping onto your mats over the coming months are accurate.

We, the holders of these failed endowment schemes, are just meant to sit and watch these companies try to bury their heads in the sand; and avoid telling us the truth about how bad things really are.


Wednesday, May 05, 2004

The Association of British Insurers has announced that it is revising its industry code of practice on endowment mortgages.

It will provide more, and better information, for consumers to help them take prompt and appropriate action if they are faced with a potential shortfall on their endowment mortgage.

All very well, but time is running out.

Tuesday, May 04, 2004

Bad news for the 1.5M people holding endowment mortgage policies with the Norwich Union.

Reports indicate that the Norwich Union will be cutting their returns by 0.75%.

This cut is ensure that the guarantees made by Norwich Union, which promise that the policy will be worth a minimum amount on maturity, will be honoured.

Norwich Union expects returns of between 4.5%-6% a year after tax.

Doubtless other life insurers will be delivering bad news as well.

Monday, May 03, 2004

I understand that some of the UK's actuaries have taken a dislike to the Treasury Select Committee's investigation into the endowment policy mis-selling scandal.

They have branded it a "circus" after a heated and aggressive hearing. What is aggressive to some, is critical analysis to others.

My message to the Select Committee is simple; "keep up the good work!".

Sunday, May 02, 2004

It seems that endowment letters, currently being sent to the hapless owners of the failing endowment mortgage policies, may not reflect reality.

The ConsumersÂ’ Association is worried that the calculations that may not reflect the true financial position.

The letters that will be dropping on peoples' floors shortly, will show that the expected shortfalls have increased. However, because unrealistic returns of 6% are being used in the calculations, these figures are more than likely too optimistic.

The current asset mix held by life assurers is more heavily weighted towards bonds,whichh have a 4% yield.

Hardly good news for the hapless home owner with an endowment mortgage.

Don't despair the FSA says that it is keeping its eye on things.

Well that's alright then, isn't it?

Saturday, May 01, 2004

According to today's FT, more than 75% of endowment polices will not meet their target.

See full article here.

What a bloody mess!