Which? Campaign

Which? Campaign

Which? have launched a campaign to lobby the FSA to change its decision re allowing life assurance companies to charge compensation costs for mis-selling endowment policies against inherited estate.

Prudential has taken a staggering £1.6BN from the inherited estate to pay mis-selling costs, while Norwich Union (Aviva) has taken £202M and earmarked another £64M for future claims.

Which? thinks it is outrageous that firms can avoid paying the penalty for their mistakes. The FSA seemed to agree that they should change the rules but have gone back on their original proposals. Now the FSA say that they will only stop firms from charging for mis-selling on policies sold from July this year.

This new rule will be almost meaningless, as hardly any new policies are being sold and firms will be still be able to avoid paying the cost of any new cases that emerge of past mis-selling.

Which? have created template letters which can be completed and sent to MPs and the FSA in less than 2 minutes. They can be accessed via this link Which?

Prudential Cuts Bonus

Prudential Cuts Bonus

Prudential has cut its annual bonuses by between 6% to 10% on its £65BN with-profits (such an ironic name) fund. Approximately 4.5 million policyholders are now facing cuts, some of which are up to 10%, in their payouts.

The Prudential says that it is acting in the best interests of the fund, and cushioning policyholders against potentially bigger blows.

Surely the purpose of the with profits fund was to smooth the returns in good and bad years, in order to avoid such massive swings?

This cut demonstrates that the concept of "with profits" smoothing has not been properly applied in past years.

Bonus Cuts

Bonus Cuts

The Times warns that holders of with profits funds will find that their maturity values will be cut again this year, because of poor performance.

Friends Provident will announce bonuses this week, Norwich Union next week.

Standard Life will declare at the end of this month, with Prudential and Legal & General making their announcements in February.

Many "with profits" (a contradiction in terms) policy holders are of course relying on these policies to pay off their endowment mortgages. A fine example, among many (eg PPI, credit card charges, bank charges, commissions etc), of how the City has ripped off the ordinary British citizen.

Equitable Life

Equitable Life

The long suffering, and shockingly mistreated, investors in Equitable Life may be slightly cheered by a report in today's Telegraph that says:

"Prudential, Legal & General and Swiss Re are among a pack of insurance giants circling Equitable Life, Britain's oldest mutual insurer.

Equitable has drawn up a shortlist of bidders for the remnants of the former insurance leader, which at its peak was worth £26bn and had 1.5m policyholders.

News of prospective bids for the business comes ahead of this week's publication of a damning report by Ann Abraham, the Parliamentary Ombudsman, who will criticise the Government for its failure to regulate the society properly in the lead-up to its near collapse."

The purchase, if it comes, will take some time. Therefore, whilst the investors are waiting for the outcome of that, they should mount a class action against the government for its maladministration of one of the biggest scandals to shake Britain's financial services industry.

Which? Policy Holder Event Epilogue

Which? Policy Holder Event Epilogue

Last week Which? held a policy holder event in Westminster for Norwich Union and Prudential policyholders, the objective being to publicise the Which? campaign for a fair deal for with-profits policyholders.

The day started with a photo-call with "Dick Turpin", where they called on the Financial Services Authority to "stand and deliver" for policyholders.

They were then joined by John McFall MP, the Chairman of the Treasury Select Committee and Derek Wyatt MP, a supporter of the campaign.

After the photos, they went to a meeting in the House of Lords hosted by Lord Joffe, who has been campaigning on this issue since 2000. Vince Cable MP, the Liberal Democrat Shadow Chancellor, expressed support for the campaign and discussed his involvement.

This was followed by a roundtable discussion with Vince Cable MP, Derek Wyatt MP, policyholders, their constituency MPs and Which? policy expert Dominic Lindley.

Which? intend to continue the campaign.

Barmy FSA Regulation

Barmy FSA Regulation

The Treasury Select Committee has published their report based on their inquiry into inherited estates. The Committee is none too complimentary about the Financial Services Authority’s (FSA) regulation of the with-profits industry.

Quote:

"The Committee concludes that the Financial Services Authority (FSA) is not providing a robust enough framework to manage the conflicts of interest inherent in proprietary life funds."

I am hardly surprised, the FSA's "regulation" has been all but non existent.

Chairman of the Committee, the Rt Hon John McFall MP said:

"The approach taken by the FSA towards inherited estates seems a long way from the philosophy of 'principles-based regulation' to which it aspires. Policyholders need to have confidence that their interests are being protected, but the current oversight by the FSA gives no such assurance.

Policyholders deserve a regulatory framework based on a clear set of principles and unambiguous guidance on how inherited estate can be used by life firms’ management."

He refers to FSA regulation as "barmy":

"Shareholder tax is another example of the FSA's barmy regulation in this field."

He then goes on to put a well aimed boot into Prudential:

"I was astonished that the Prudential had taken £1.6 billion from their inherited estate to pay the costs of compensation arising from mis-selling."

Then Norwich Union:

"Tens of thousands of Norwich Union’s longest-standing policyholders do not stand to receive the whole value of the recently announced special distribution. The Committee was not convinced by the argument that such phasing of payments was necessary for the stability of the funds concerned.

In my view, phasing represents an unreasonable barrier for policyholders wishing to exit the fund."

The Committee calls on the FSA to take action in several areas to ensure that policyholders interests are protected, including the following:

• To ensure that a fair price is offered in a re attribution, not just an adequate price.



• To provide a very strong case about why the phasing of special distribution payouts should be permitted, noting that the FSA has yet to put forward an adequate case.



• To consult on a redesign of the overall regulatory system for with-profits funds during 2008. The Committee said that they are not satisfied that the FSA has done enough to provide a robust framework.



• To consult on the charging of shareholder tax to the inherited estate by the end of 2008, noting that their view is that it should not be permitted.

The full report can be downloaded from this link Treasury Select Committee.

It is clear that those with money stuck in these lousy endowment funds have been ill served by the FSA. It really is worth, in my view, considering mounting a class action against the FSA and the life assurance companies for this disgraceful situation.

Endowment Maturity Table

The Endowment Rip Off

The Endowment Rip Off

Underlying funds held by insurance companies have risen by an average of 6% over the last year. This in theory should be good news for the millions of people holding useless, underperforming with-profits endowment policies.

Unfortunately, as with all endowment policy matters, what at first appears to be an opportunity for the hapless policy holder to earn a respectable return turns out to be an opportunity for the life insurance companies to take "a dip".

The biggest and the "best" of Britain's life insurers have in fact reduced their payouts by 3% last year (remember the funds they "manage" on our behalf have actually risen by 6%).

This cut in payouts has cost the endowment policy holders around £8BN, according to The Times.

The Times quote Tom McPhail, at Hargreaves Lansdown:

"Stock markets have risen substantially since the end of the bear market in 2003, but final payouts keep on falling.

It just doesn't add up."

That's putting it politely!

We would be better off having "invested" our money in a "bog standard" savings account over the last 10 years.

• A 10 year endowment policy from Friends Provident has returned a mind numbingly small 0.9% a year, compared with 1.6% from a 90 day deposit account.



• Prudential's fund grew by 7.2% last year. However, a typical maturing £50-a-month, 25 year Prudential endowment policy will now pay out £44,515. This represents a 5% cut on the £46,695 paid out on an equivalent plan that matured in 2007.



• A typical 25 year Commercial Union endowment policy will pay out £40,737. This is 7% down on the £43,697 paid out on an equivalent plan last year.

Why is that the insurers are able to take "a dip", and not pass on the increased returns to their policy holders?

Simple!

Because they can!

Insurers have discretion over how much of the gain they pass on, therefore they choose to keep the money for themselves.

A report for the trade body Actuarial Profession expects payouts to continue to fall by 3% per annum until 2020.

We are being ripped off by the insurance companies, and no one in the regulatory authorities is doing anything about it.

Call For Evidence

Call For Evidence

In a move designed to ensure that another endowment related scandal does not occur, the Treasury Select Committee has called for written evidence as part of its inquiry into the orphan assets (Inherited Estate) held by life companies' with-profits endowment funds.

The call comes as concerns are raised over the actions of AXA, Prudential and Norwich Union as they attempt to re attribute their Inherited Estates.

These assets are worth billions of pounds yet, despite these funds being contributed by policyholders, some insurance companies have been using a portion of them for the benefit of their shareholders rather than policyholders.

In 2000 AXA paid out a paltry 31% of its inherited estate to policyholders, this gave rise to the FSA to creating the post of Policyholder Advocate.

Claire Spottiswoode, Policy Advocate, is currently acting on behalf of Norwich Union policyholders.

Ms Spottiswoode, who is not happy with the current plans by Norwich Union (eg to pay the policyholders their share over 3 years), has welcomed the call for evidence:

"Foremost among the issues will be the way in which the FSA allows companies to subsidise the writing of new business, which has the effect in a re attribution of transferring value from the estate directly to shareholders.

Further, the way in which the FSA allows companies to pay shareholder tax from the estate is costly to policyholders and requires explanation."

The committee would like to hear about the following areas:

• The regulatory definition of the inherited estate in a with-profits fund.



• The extent to which life assurance companies should be permitted to diminish inherited estate in order to subsidise corporate activity, including financing new business, making strategic investments, paying shareholder tax and paying the costs of compensation for mis-selling.



• Whether allowing life assurance companies to use inherited estate to subsidise corporate activity has any adverse effects on competition.



• The principles that should guide the division of inherited estates in 90:10 funds between policyholders and shareholders upon re attribution of the estate.



• The appropriate sharing of inherited estate between current and future policyholders.



• Whether policyholders' reasonable expectations of distributions from inherited estate should be zero or have a positive value.



• Whether any distribution of benefits from the inherited estate should be made in a single payment or phased over several years.



• The role and responsibilities of the Policyholder Advocate.



• The framework for negotiation between the Policyholder Advocate and the life assurance companies.



• The role of the with-profits committees of life assurance companies.



• The approach of the Financial Services Authority to the issue of inherited estate.

Written evidence should be sent to the committee at this address Parliamentary Committee.

Which? Campaign Against Norwich and Prudential

Which? Campaign Against Norwich and Prudential

Which? has launched a campaign against Norwich Union's and Prudential's plans for reallocating the assets of their respective inherited estates.

Which? does not mince its words, and refers to the schemes as "rip offs".

"Which? is calling on the Financial Services Authority (FSA) to act to prevent £7 billion of with-profits policyholders’ money being 'reallocated' to shareholders.

Without a change in FSA policy, millions of Norwich Union and Prudential policyholders could lose out. Which? believes it is unacceptable for the Government and FSA to stand by and do nothing to stop this smash and grab raid."

Which? are asking for people who hold with profits policies with Norwich Union and Prudential to contact them at withprofits@which.co.uk

I have a policy with Norwich Union, and most certainly be in contact with them.

The Curate's Egg

The Curate's Egg

The Telegraph reports that around 260,000 extra mortgage endowment holders have seen their policies meet their targets in the past year.

It seems that buoyant stock market has helped some policies recover their lost ground over the past few years. However, as to whether a particular policy that had previously been deemed to fail to meet target will now hit target very much depends on a number of variables; not least the quality of the company that is managing the endowment policy.

The Telegraph notes that, eg:

"Prudential's fund has been strong. The proportion of its policies that are red has significantly reduced over that period too. In 2003, 44 per cent of its policies were flagged up as red, now the figure is 15 per cent of the remaining 201,000 policies.

To date none of the Prudential's policies has failed to pay out the full target amount."

Those with Scottish Amicable have also seen an improvement. In 2003, Scottish Amicable had 65% of its policies listed as red, this figure now stands at 10%.

However, those who hold Legal and General policies have not been so fortunate. In 2004 over 55% of its policies were expected to fail to meet their repayment value. The figure now stands at 40%.

Standard Life is even worse, as it has seen its red policies rise from 86% to 88%.

As can be seen from the above, the performance is very much dependent on the "quality" of the fund managers.

The List of Shame

The List of Shame

Congratulations to Money Management magazine for naming and shaming the insurance companies and endowment providers, who tired to hoodwink their customers, that the Financial Services Authority (FSA) tried to cover up.

When these shamed companies sold their products to their unsuspecting customers they used industry standard charges laid down by Lautro, the industry regulator at the time, to show the returns etc that would be expected on the policies..

However, their actual charges levied by these shamed companies were often much higher sometimes double the Lautro rate. Needless to say, they chose not to tell their customers this. This shoddy practice took place between 1988 and 1995.

It is estimated that around 200,000 policyholders, with low-cost mortgage endowments, could be owed up to £200m by these companies as a result of this practice.

The list of shame includes:

-Standard Life
-Pearl
-Axa
-Scottish Widows
-Prudential, owned Scottish Amicable
-Scottish Mutual
-Scottish Provident, now owned by Resolution.

Companies were taking up to 0.75% a year in charges from the fund. However, their customers were given the impression that the charge was only 0.3% (ie less than half).

Some companies, including Axa, Legal & General and Clerical Medical, have set aside money to make good these shortfalls. Others, such as Standard Life, have so far refused.

Shoddy practice by a very shoddy industry, and a disgraceful attempted cover up by a toothless partisan FSA.

It is hardly surprising that the British consumer has lost all faith in the financial services industry.

A Slice of The Pie

A Slice of The Pie

Standard Life has promised its two million policyholders a windfall payout from its £1.3BN orphan fund pot, surplus cash held in its with-profits fund.

Standard Life said that it would pay the cash to qualifying policyholders as their policies matured, rather than paying out one lump sum to all its customers in one go.

The orphaned assets are pots of surplus cash that inflate insurers' solvency figures.

Aviva, parent company of Norwich Union, will divide its £4BN orphan assets between shareholders and policyholders and Prudential is also considering what to do with its pot of surplus assets, worth £9BN.

A Standard Life spokesman told The Times:

"When other insurers, such as AXA, distributed their orphan assets, they made a one-off payment to all policyholders.

We are taking a different approach and are giving enhanced payouts when a policy reaches maturity, or when it is surrendered or transferred.

We are doing this because we want to retain some of this cash cushion over the life of our policies, some of which have decades to run."

This approach means that investors will be forced to keep their policies until maturity, if they wish to receive their share of the pot.

Norwich Union's Inherited Estate

Norwich Union's Inherited Estate

Norwich Union with-profits policyholders are demanding cash rather than extra bonuses, when the insurer comes to distribute its £5BN inherited estate.

Inherited estate being money in a with-profits fund that is surplus to requirements.

Norwich Union is currently in the process of deciding how to distribute its fund fairly to its 1.1 million policyholders. Prudential is also doing the same wrt its 4 million with-profits policyholders.

Former gas regulator, Clare Spottiswoode, has been appointed to represent the interests of Norwich's with-profits policyholders.

Those affected are in two of its with-profits funds, the old Commercial Union fund and the old General Accident fund. Those in the Norwich Union and Provident Mutual funds will not get anything, because they got windfalls when the insurer joined the stock market ten years ago.

Mrs Spottiswoode has held roadshows across the country to canvass the views of policyholders, and has also commissioned a survey of their views. The results of the roadshows and surveys show that twice as many policyholders would prefer to have cash in hand, rather than extra bonuses.

Clearly the long suffering policy holders have lost faith in the concept of endowment mortgages.

Who can blame them?

Insurers Cash Grab

Insurers Cash Grab

Aviva and Prudential are planning to divert billions of pounds of surplus cash in their with-profits funds to shareholders, despite the fact that those who hold endowments, bonds and pensions are suffering lousy returns.

Aviva own Norwich Union, which recently warned 90% of its endowment policy holders to expect shortfalls on their policies. Aviva wants to pass a large part of the £4BN of inherited estate, in its Commercial Union Life and CGNU Life with-profits funds, to shareholders in 2008.

It is estimated that 1.4m policyholders will each received several hundreds of pounds of compensation. However, Which? believes that they are entitled to over £2K.

Doug Taylor at Which is quoted in The Times as saying:

"The fair solution would be to give 90% to policyholders and 10% to shareholders, even if this is not Norwich Union's preferred result."

Patrick Connolly at JS&P Towry Law, said:

"Norwich Union doesn't want to release the funds to benefit policyholders but because it wants to use them to support the business and boost shareholders' profits."

Prudential also wants to pass on £9BN billion from the inherited estate to shareholders.

These moves are expected to encourage other insurers to do the same, in order to prop up their share prices and to keep the shareholders quiet and subservient.

David Riddington, a senior actuary for Norwich Union, said:

"The inherited estate is legally owned by the company and its shareholders, so policyholders don't have any rights as such. Payments to customers are likely to be comparatively modest."

Ian Allison at Brunel Franklin, said:

"We are astonished that Norwich Union sees fit to attribute some of its surplus to shareholders while many endowment victims' finances remain in tatters."

Clare Spottiswoode has been appointed as "policyholder advocate", by Norwich.

The Policyholder Advocate is the representative for all the eligible with-profits policyholders of a company that is considering a reattribution of inherited estates.

The Policyholder Advocate's key job is to negotiate the size of any incentive to withy-profits policyholders to give up their rights to any possible future distribution from the inherited estate.

Details about Spottiswoode can be found on the website www.policyholderadvocate.org.

The outcome of these two moves will impact the rest of the industry, and the finances of the long suffering endowment policy holders.

Gherkin To Gobble Up Pru

Gherkin To Gobble Up Pru

It is reported that Swiss Re, the Swiss financial group known for the Gherkin in London, is to buy a large part of the UK operations of Prudential for around £5BN.

Swiss Re is reported to have offered to buy the closed life fund business of Prudential. The closed funds contain existing insurance policies, but no longer have new policies added to them.

The approach was made last month on the heals of Mark Tucker's, the CEO of Prudential, plans to shake up the Pru's underperforming UK operations.

Prudential's UK closed life book includes with profits policies and endowment mortgages. The value is estimated to be around £5BN.

The approach has raised questions about the Pru's commitment to Britain. There are rumours that some investors are keen for Tucker to scale back in Britain and concentrate on the faster growing business in Asia and the US.

The sale would give the Prudential £1.5BN. The value of with profits policies is split between shareholders and policyholders. Under the sale of a with profits business, shareholders receive a lump sum to account for the future profits they would have received from the policies.

Swiss Re has bought a series of closed life funds in America, and in Britain it bought Life Assurance Holding Corporation.

Nice to see that someone can make money out of the useless and underperforming endowment policies that were foisted on the unwary British public in the 1980's.

Prudential Time Bar

Prudential Time Bar

The Prudential is, according to the Association of British Insurers (ABI), the last major life assurance company to introduce time bars to their endowment policy holders wishing to complain about shortfalls on their endowment policies.

The ABI last year estimated that around 2.7 million households in Britain have an endowment policy that is needed to pay off all or part of a mortgage, and that over 80% face a shortfall.

ABI spokesman Malcolm Tarling said that:

"Time-barring will help focus people's minds. The longer people wait to file a legitimate complaint, the harder it is to establish the facts."

The Prudential says that it will write to 110,000 customers to tell them about the new, six-month deadline for complaints.

Legal & General and Nationwide Building Society have also introduced time barring in the last two months.

Not surprisingly the insurance companies want to bring the matter to a close, as they are the ones who are being hit by the claims from their endowment policy holders.

This sorry pathetic mess could be sorted out at the stroke of a pen, if the insurance companies acted responsibly and underwrote these useless underperforming products which they foisted on the British public back in the 1980's.

Legal & General U Turn

Legal & General U Turn

Legal & General have announced that they will tell over 600,000 endowment policyholders that they have only six more months to claim compensation, if they believe they were mis-sold the products.

Up until now, L&G now had been one of the few large endowment policy providers to rule out "time-barring" customers.

L&G has started to send out letters to their policy holders this week, covering the new time bar rule and informing the policy holders about their projected returns/shortfalls on polices.

Only Prudential and Nationwide Building Society are keeping an open commitment to consider complaints.

The clock is ticking.

Good News From The Pru

Good News From The Pru

Those of you with endowment policies, managed by the Prudential, have something to celebrate.

They have announced a 20% return on their with-profits fund, after increasing the equity backing of the £83BN fund from 64% to 74%.

The rise of 17%, after tax, has been passed on to their customers.

Endowment policies rose by over 16%, and maturing policy pay-outs were higher than a year ago.

Ned Cazalet, an industry commentator, said that the performance was "head and shoulders above everybody else a 45% cumulative return over the last six years compared to an average of 20% for the rest".

During 2005, whilst the Pru was adding to its equity backing (equities plus property), Standard Life (for example) was reducing the equity backing of its fund from 50% to 45%.

Standard Life then went on to whine and bleat earlier this month that the reason for their dismal performance was because the FTSE-100 had fallen from 6930 six years ago. Had they been more flexible and better organised they could have taken advantage of the rising market, just as the Pru did.

Almost all of the Prudential's maturing endowments paid off their mortgages last year, and the number of "red" policies off track has dropped from 65% to 16%.

How many other endowments can claim that?

This good performance by the Pru raises some very uncomfortable issues for many of the other life assurance companies, that have been performing dismally:

• Why have many of the others performed so badly?



• Why do they continue to blame the markets, when it is clear that it is the management of these funds that is to blame?



• Why do they continue to pay their senior staff bonuses, when their policies are failing their customers?



• Why do they make "management" charges on these failing and useless endowment policies, when they are clearly not capable of running them effectively?

These issues should be taken up by the millions of us who are being poorly served by many of the life assurance companies. A class action for mismanagement would definitely bring the issues onto the table, and force a resolution to this growing crisis.

Money For Old Rope

Money For Old Rope

The third party complaint handlers, that do the work that endowment complainees are well able to do themselves, managed to rake in £12M in fees last year.

These companies can charge up to 50% of the compensation awarded, just for filling in the same paperwork that the endowment policy holder should complete himself.

This "easy money" scheme is now being put under pressure by the life assurance companies.

Prudential and Norwich Union have stopped paying compensation for endowment mis-selling to unregulated claims-handling firms.

The Prudential will no longer pay compensation directly to these firms. Instead it will send payments to their clients, who can chose whether or not to pay the intermediary. Norwich Union is understood to have taken a similar stand.

Consumers claiming they were mis-sold an endowment policy by the direct sales forces of the Prudential and Norwich Union are instead being urged to go directly to them.