Tax Investigation Insurance - Taxwise

Professional Cover Against the Threat of Costly TAX & VAT Investigations

What is TAXWISE?

TAXWISE is a tax-fee protection service that will pay up to £75,000 towards your accountant's fees in the event of an HM Revenue & Customs full enquiry or dispute. The Policy has been designed to combat the costs and inequities of undergoing the ever-increasing number of HM Revenue & Customs random investigations.

Taxwise Coverage

The standard cover provides representation costs by registered accounting practices on your behalf, for up to £75,000 in any one claim, arising from:

-Income Tax Self Assessment full enquiries
-Income Tax Self Assessment aspect enquiries (if this option is selected)
-Corporation Tax Self Assessment full enquiries
-Corporation Tax Self Assessment aspect enquiries (if this option is selected)
-H M Revenue & Customs VAT disputes
-Employer compliance disputes PAYE/ P11D/ NIC
-IR35 disputes
-Now covers business's with an annual turnover of up to £10 million

To find out more, please use this link Taxwise

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.

Norwich Union Deadlock

Norwich Union Deadlock

The negotiations over the fate of the orphan assets of Norwich Union have become deadlocked.

As such the task of freeing up the deadlock has fallen to John McFall, chairman of the Treasury Select Committee.

Norwich Union are refusing to offer policyholders anymore. However, policyholder advocate Clare Spottiswoode is standing firm against the current offer on the table by Norwich Union.

Norwich Union have surplus (orphan) assets of £5BN (aka "inherited estate"). They are using £2.1BN to increase the value of policyholders' assets over the coming 3 years.

However, the dispute centres around what will happen to another £2.7BN.

The argument is focused on whether it is right for Norwich to use the money in ways that do not benefit policyholders, eg instance paying tax or financing growth.

The danger is that Norwich walk away from the negotiations and keep this £2.7BN for themselves.

Time Bar Pays Dividends

Time Bar Pays Dividends

Life assurance group Chesnara, the holding company for Countrywide Assured plc and City of Westminster Assurance Company Limited, has benefited from the time bar on making mortgage endowment complaints for mis-selling.

Its results for 2007 have improved.

Figures show that pre-tax profits rose 11% to £27.7M in 2007 from £25M in 2006. The significant reduction in endowment complaints allowed for a provision release of £2.8M.

Chesnara Chairman, Christopher Sporborg, said:

"Our recent experience of mortgage endowment mis-selling complaints has been generally positive. The number of complaints has reduced significantly and an increasing proportion of those received are time-barred in line with FSA rules, while uphold rates on those complaints which are not time-barred have increased.

Although we do not believe that this issue has fully run its course, we do feel able, however, whilst maintaining an element of conservatism, to reduce our redress provisions, by £2.8 million, based on our revised expectation of future complaint activity."

It's nice to see that someone can make money out this mess.

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.

A Bumper Year

A Bumper Year

I received my 2006 with profits statement from my endowment provider (Legal & General) yesterday. Imagine my delight when I read the following in the covering note:

"We're pleased to be able to tell you that the investments underlying your policies have performed well during 2006 generating a return of 12% (before tax and charges) over the year."

Splendid!

Unfortunately, on delving deeper into the document I saw that the actual portion of that 12% allocated to me (re annual bonus rate applied to existing bonus and annual bonus rate applied to basic sum assured) was a less than staggering 2%.

The reason for this disparity?

• Tax, fair enough, that takes the 12% down to 11% according to L&G



• Charges, which are not disclosed



• Smoothing, to ensure that "short term fluctuations" in the value of investments are not immediately reflected in payouts

Either the charges are astronomical or the "smoothing" is far from "smooth".

I wonder why L&G don't disclose their charges in this this document?

What a joke!

Nationwide and Portman To Merge

Nationwide and Portman To Merge

Nationwide and Portman building societies announced on Tuesday that they plan to merge. They claim that they intend to provide a "compelling alternative to the big retail banks".

Portman members will receive a booklet explaining the planned merger, before the building society's Spring 2007 AGM. They will be asked to vote on the proposals. Nationwide members do not have anything to do.

If the vote goes in favour of the merger, it is planned to be finalised by September 2007.

Qualifying members of Portman will receive a pre-tax windfall worth a minimum £200, if the merger goes ahead. Only members who had a minimum of £100 in savings, or a balance of £100 on a mortgage, at the close of business on 11 September will qualify.

Nationwide members will not receive a windfall.

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.

Norwich Reduces Payouts

Norwich Reduces Payouts

Norwich Union have dealt a body blow to their long suffering endowment mortgage policyholders, who have been warned to expect a low payout this year.

This is despite the fact that Norwich's main profits fund achieved an overall return of 17.7% before tax.

A policyholder with a 25-year, £50 a month Norwich Union endowment mortgage maturing this month will receive 4% less than he would have done if the policy were to have matured in 2005.

Norwich stated:

"In general, shorter-term policies show increases or small decreases compared to equivalent policies maturing a year ago, while those with a term of 20 and 25 years will generally be lower."

However, Norwich Union went on to say that in many cases an increase is seen when the surrender value of the policy a year ago is compared to the maturity value now.

Well of course it would, surrender values are normally lower than maturity values!

Please don't treat your policyholders in such a patronising manner.

Standard Life Says It Is On Course

Standard Life Says It Is On Course

Following on from the previous article about the possibility of Standard Life delaying its planned flotation, because of unresolved issues with the FSA, Standard Life has stated that its plans are on track.

The FSA was reported to have been scrutinising Standard Life's liabilities for its mortgage endowment promise and its endowment complaints, and would need to be satisfied "by the end of this month" if the flotation timetable was to be met.

Standard Life have stated:

"The FSA and Standard Life are in continual dialogue, and that will take place up until the company's IPO (initial public offering.

Any changes that the company has put in place over the last year, the FSA must continuously be satisfied that it can meet its obligations."

They then went on to note that the endowment complaint issue was "a red herring".

They hold a provision for meeting their endowment promise of £393m.

The mortgage endowment promise was introduced in September 2000.

It promised that for the 770,000 customers who faced a shortfall at that time, the deficit would be made up by the insurer, providing underlying assets grew by at least 6% a year after tax.

Those whose policies went into the "amber" or "red" zone after September 2000 were never covered, but the 65,000 whose policies mature before the end of this year will still be topped up in full.

However, Standard Life reneged on its promise; top-ups will still be applied to the remainder, but limited to between 40% and 60% of what was promised.

Misery For Scottish Widows

Misery For Scottish Widows

Bad news for those of you who hold with-profits policies with Scottish Widows, the maturity values of these policies have fallen again; despite the recovery of equity markets.

The value of an average 25-year with-profits contract has dropped in the past six months, rather worrying given the fact that the stock market has been rising.

Scottish Widows said that payouts were lower because funds were invested over different time periods, yielding different earnings.

It still expects its £18BN with-profits fund to produce a pre-tax investment return of 15% in the 12 months to end-June, compared to 7.3% in the same period the previous year.

However, the company warned that maturity payouts could continue to fall, even in years where positive investment returns were achieved.

The Widows have tried to explain the reason for the fall as being due to the returns on with-profits, which aim to smooth payouts by holding back some of the return in good years to pay out in the bad, as being historically "significantly higher" than those of late.

To my simple view that means that they were paying out too much in earlier years, and not applying the "smoothing principle" properly.

Now there are two possible reasons for this:

1 Poor management of the policy

2 Deliberate over payment to attract new customers and shareholders

A typical 25-year endowment with Scottish Widows, maturing on 1 August, dropped 2.8% on February and 7.4% on the year. A mortgage-linked endowment over the same period fell 2.8% in value since February and 8.1% over the past year.

Another Nail In The Endowment Coffin

Another Nail In The Endowment Coffin

Gordon Brown has managed to bang another nail into the endowment coffin, by adding a new tax on with profits funds.

If this tax is implemented, it will reduce the sums of money available to pay bonuses on with-profits policies.

In other words the already useless endowment policies will be further undermined, and pay out even less money to the hapless holders of these policies.

Gary Withers, chief executive of Norwich Union Life, is reported to have said:

"As we said to the Treasury in December, this is simply a piggy bank raid on the funds that support our customers' savings policies. One of the most effective ways to destroy confidence in savings is to introduce arbitrary tax raids on savings vehicles. We will continue to oppose this stealth tax in the interests of protecting our customers. I would again urge the Treasury to review their proposals in order to promote confidence in long term savings."

Brown started his assault on Britain's savings, when he made a £5BN a year charge on pension funds in 1997.

The new tax will lead to an increase in the tax burden on the free reserves supporting with-profits policyholders' funds.

Peter Vipond, head of financial regulation and taxation at the ABI, is quoted as saying:

"We remain very concerned about the government's intentions in this area. This proposal would represent a significant extra charge on with-profits policyholders and contradict the government's desire to encourage more saving in Britain...We are currently in detailed discussions with the government and negotiations have not concluded. We are determined to do all we can to prevent a rise in taxation on these savings products..".

Up until now, life companies have paid a 20% tax on life fund surpluses and no tax at all on pension fund surpluses. The chancellor is proposing to impose a 30% tax on both these surpluses, which means that there will be less money available to pay bonuses to policyholders.

The bottom line is that we, endowment policy holders, are screwed!

Prudential's Little Ray of Sunshine

Prudential's Little Ray of Sunshine

Those of your with underperforming and useless endowment polices, will no doubt be dreading this year's round of letters from your life assurance companies; as they tell you, yet again, that they are cutting their bonuses on their pitifully pathetic products.

However, there is one small piece of good news for those of you with a Prudential with profits policy.

It is reported that bonuses paid to with-profits policy-holders will be the same or bigger than last year's.

Around 5.5M people hold a Prudential with-profits fund. Prudential said the fund had seen an "exceptionally strong" return of 13.4% gross over the past year, compared with the FTSE 100 index's total return of 11.25%. Over the past five years, the fund has seen a pre-tax return of 20.7%, while the FTSE 100 has seen a negative total return of 19.5%.

Prudential said that buoyant performance meant it would add £2.2bn to the value of its policies.

This means that Prudential will at least maintain the same level of bonus it paid last year across all with-profits policies. Additionally, its with-profits annuities total bonus was to be increased to 7.12% this year, up from 6.35% last year.

David Belsham, actuarial director at Prudential Assurance, said that the fund's good performance was down to "long-term prudence" quote:

"We are now seeing the benefit of long-term prudence. We took early action to protect policyholders' funds by switching out of equities ahead of the prolonged bear market and policyholders are now benefiting from the strong returns earned on Prudential's with-profits fund...This year's bonus declaration shows that with-profits continues to be an attractive investment for policyholders when provided by a financially strong and well managed fund, such as Prudential."

I have but two simple questions:

1 If the Pru can do this, why can't the other life assurance companies?

2 The implication of the Pru's prudence (forgive the pun), is that other life assurance companies have not been prudent. This surely means that they (the other life assurance companies that have cut bonuses) can be sued for mismanagement, doesn't it?

Terminal Decline

Terminal Decline

The Scotsman writes that endowment policies are in "terminal decline". They cite the recent cuts in bonuses, announced by the larger life assurance companies; quote:

"..Standard Life and Clerical Medical were this week the latest in a string of assurors to serve up unpalatable news to policyholders: the former slashed bonuses almost across the board, despite a 10.4 per cent pre-tax return on its with-profits fund, while the latter's investors fared little better, although its fund was up 9.9 per cent.

That followed grim tidings from Scottish Widows, a subsidiary of Lloyds TSB, and Aviva - owned Norwich Union. Like Standard Life, Widows cut final payouts for the sixth time in three years, following a 10.5 per cent lift in its fund.

Earlier, Norwich Union, the UK's largest insurer, became the first this year to deliver a stinging blow, slashing payouts by up to 11.5 per cent when its four funds overall enjoyed the same rise.

Prudential's bonus declaration is over a fortnight away, while Abbey National is not due to make its announcement until March. The Pru has claimed it will increase or maintain total bonus rates on all unitised with-profits and offer good year-on-year increases in value..".

The bottom line to this is that we, the holders of these lousy underperforming polices, are screwed.

Norwich Union Cuts Payouts

Norwich Union Cuts Payouts

Norwich Union gave 1M holders of its with profits endowment policies a kick in the teeth yesterday.

It announced that it would be cutting payouts on maturing, longer term, policies by up to 11%.

The cuts are in spite of an investment return of over 11% before tax in 2004.

Norwich Union did at least try to ease the pain, by announcing that it has put aside £1BN to help its policy holders stuck with an underperforming endowment policy.

Mike Urmston, the chief actuary at Norwich Union Life, is reported to have said:

"The last two years of positive returns have not compensated for the negative returns of the previous three years."

Norwich noted that its maturing 25 year mortgage endowments are producing surpluses, over and above the target amounts. However, its 15 year mortgage endowments are falling short.

The company has reduced its exit penalties, that are charged when people cash in their policies early or move their money to other insurers, to a rather high 18%.

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".

Quite!

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

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!

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 sent the following email to Milberg Weiss (the American legal firm), dipping a toe in the water to see if they can help wrt a class action.

"....I wish to ask about the possibility of taking a class action, in respect of mis-sold endowment policies in the UK during the eigthies and nineties.

During this period these products were created by life assurance companies, to be used as repayment vehicles for 25 year mortgages.

80% of mortgages in the UK used these policies at this time.

They were "hard sold" offering not just full repayment fo the mortgage, but also a tax free profit at the end of the term.

The reality is different, they are underperforming; it is expected that 6 million people will be hit by a shortfall, which is expected to total £40 billion over the next 10 years.

The life assurance companies are doing everything possible to avoid liability. They state that they were investments, and as such there was always a risk that they would fall.

The reality was that they were sold as products, like TV's or cars. There was little or no mention of risks, and the inference was that there would be no loss.

When you buy a TV or car that is not "fit for purpose" you are entitled to compensation. The same should apply here.

I have been trying to claim compensation since Sept 2002, and have kept an on line diary of my efforts "The Endowment Diary" on my website.

Are you able to help, or do you know any firm that can help?

Thanks.

Kind regards.."

My new letter as promised:

"Dear Sir/Madam,

I wish to make a claim for financial redress in respect of a ***(edited out) endowment policy sold to me, in August 1987, by ***(edited out) the estate agents.

The basis of my claim is as follows:

 The Mortgage Services Partner of *** advised me that the endowment would produce a surplus in excess of the mortgage which would be tax free.

 The Partner did not explain that there was a risk.

 There was no mention of the funds that my endowment would be invested in.

 The Partner did not enquire as to my attitude to risk.

 The Partner did not discuss the fees and charges on the policy.

 There was no fact find completed during the sales process.

 Other options for paying off the mortgage were not discussed.

Please be advised that I have already written to *** along these lines. They reject the claim citing, amongst others, the fact that the Financial Services Act had not yet come into force at this stage. I reject their reasoning on a number of grounds; including, but not limited to, the following:

 Whether the FSA has jurisdiction, or not, over policies purchased before April 1988 is irrelevant. I was told that there would be a tax free surplus over and above the mortgage sum borrowed. There is now a projected shortfall, as advised by ***, of £10500 assuming a 4% growth rate.

I draw your attention to the case summarised in The Times (26 October 2002); whereby David Barker cited a 1965 Court of Appeal judgement by Lord Denning which ruled that a verbal statement which induced someone to take out a contract could be considered to be a warranty. Mr Barker was successful in obtaining compensation from the Halifax for the shortfall in his policy.

 The fact that the Financial Services Act came into force eight months after **** sold me the endowment does not alter the key question as to whether best practice, from both an ethical and industry-wide perspective, was followed when the policy was sold.

 A well regulated ethical company would have been aware of the forthcoming legislation, and would have ensured best practice procedures were in place prior to its implementation; to ensure that the key issues raised by the legislation were addressed.

 As to whether the under-performance of the endowment policy could have been foreseen, or not, is irrelevant. The issue is whether the policy was mis-sold, or not, it is my contention that it was mis-sold.

 I believe that the Sale of Goods act also applies, namely that the policy was sold as a “product” that would cover my mortgage debt, not as an investment. This “product” has been shown to be not “fit for purpose”; and as such the shortfall should be compensated by the agent (****) or the product “manufacturer” ****.

I completed the Financial Ombudsman Endowment Mortgage Questionnaire, which I despatched in November. They have advised me that I should raise this matter with the product provider; ie yourselves. To this end please be advised that I have enclosed the following:

 The Endowment Questionnaire.

 My letter to **** raising the complaint (dated 11 October 2002).

 **** acknowledgement of receipt (dated 21 October 2002).

 The rejection from **** Compliance and Quality Control Director (dated 28 October 2002).

 My response to their rejection (dated 4 November 2002).

 ***** acknowledgement of this (dated 7 November 2002).

Please feel free to contact me if you require further information.

Please be advised that since September I have maintained a public diary of my efforts to obtain redress, on my website http://www.kenfrost.com. Additionally, I have copied this letter to The Times.

Thank you in advance for your time and assistance in this matter.

Yours faithfully,


K. Frost"

Isn't this fun!