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.

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!

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!

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.

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.

Pathetic!

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.

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.

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!".

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?

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

See full article here.

What a bloody mess!