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Endowment News ::

Archived news items relating to the endowment policy industry and life companies.

Standard Life Endowment-With-Profit policyholders are extremely unhappy about maturity shortfalls. - 29/05/2007

On Standard Life's first annual general meeting as a non-mutual company, Group Chief Executive Sandy Crombie acknowledged that the endowment shortfalls in it's closed Heritage-with-Profit Fund is in excess of £1.3 billion. However, the company has not made any attempt to calculate the overall shortfalls, which their Endowment- with-Profit Policyholders have to face. Mr Crombie added: 'We cannot generate money that is not there. We are trying exceptionally hard to make sure the fund continues to perform for those who are invested in it.' Rubbing salt into injuries, Brian Stewart, outgoing Chairman, was of the opinion that policyholders have ‘unreasonable expectations' of policy payouts. Source: www.citywright.com

Re-projection letters are useless - 15/04/2007

Have you ever wondered how accurate the re-projection figures for your endowment policy provided by your life office really are?
These days life companies send out re-projection figures quite frequently. These letters quoting the estimated maturity value of endowments, usually at 4%, 6% and 8%. Depending on how close or far off those re-projection figures are from the original policy target amount the letters will come in 'green, amber or red'. Red means, your policy is in severe danger of not reaching its target amount. If you have two endowments from two different life companies you will probably wonder why one life company is quoting their re-projection figures at 4%, 6% and 8% and the other company at 3.25%, 4% and 5%. Confused? Life companies can choose which range of projection figures they use as long as they are within the limits set by the FSA (Financial Services Authority)
How helpful and accurate are those re-projection figures really? Let's assume that a Standard Life endowment policy's target amount was £30,000 at the outset of the policy. The projection figure at a growth rate of 4% now shows a maturity value of £24,800 and at a growth rate of 8% the projected maturity is £32,100. It is left up to the policy holder to decide which figure he considers to be the one most likely to be achieved. Not an easy thing to do if at one end of the spectrum you could be £2,100 better off than you originally thought and on the other end you could be £5,200 worse off and well below the policy's original target amount.
Relying in projection figures would not be good enough for someone who buys an endowment policy on the second hand market. More and more endowments are being sold rather that surrendered to life companies. So,what criteria is the purchaser looking at when deciding to buy endowments on the second hand market? Well, he wants to know what he potentially gets in return for his money, not only at the time of purchase, but also including future premiums. Most importantly, he will want to know what estimated maturity value he can expect. For that he will not rely on the projection figures from the life company. About £250 Million worth of endowments have been sold to foreign investors last year. Those investors regard projection letters as useless as they do not reflect the true potential of endowments when purchased and do not provide them with ability to track the performance of their endowments during the remaining term.
Investor in TEPs (Traded Endowment Policies) want to know what the estimated maturity value, calculated at current bonus rates at purchase, would be, thus using the same calculation as the life company would use at maturity. They know that if bonus rates are being maintained during the remaining term of the policy the maturity value will be exactly what was calculated. By recalculating the future maturity value every time bonus rates change, the investor gets a true and accurate picture of his policy's performance without giving the projection figures provided by the life companies a second thought.
NOW - UK endowment with profit policy holders don't have to relay solely on projection figures any longer. EndowmentCheck offers policy holders an alternative endowment shortfall and endowment maturity calculation which gives the policy holder the opportunity to see at any time how his endowment is really performing.

Germans want to buy endowments - and we love their money! - Monthly Newsletter April - 05/04/2007

Standard Financial Ltd. We have had a lot of enquiries about trading endowments. Most of them we put through to our very own Ernst Riess, who is an IFA in Hertfordshire. Ernst, who laid his towel down in the UK in 1980 (his words not mine!) joined the financial services industries in 1981 has been supplying his fellow Germans with TEP for the last 15 years. He now runs www.endowmentcheck.com an online business providing maturity calculations and market values for endowment with profit policies.
Ernst says: 'Germans love UK endowments because of their intrinsic guarantees and good performance records and are happy to pay top prices. However they wouldn't dream of buying a policy without knowing what the future maturity value, based on current bonus rates, would be. Life Company's projection figures are a big no no and regarded as completely useless!'
So why on earth are UK policy holders kept in the dark and expect to sell or surrender their endowments not knowing what their policy would pay out at maturity? How can they make such a decision without knowing what the potential loss or gain is? More and more IFA's recognise the need for more etailed information and that their clients are none the wiser when it comes to reprojection figures. Endowment Check offers every IFA a unique opportunity and a new angle to talk to their clients about the real performance of their policies.

Norwich Union endowment shortfall - 12/01/2007

Nine out of ten Norwich Union 'with-profits' endowment policies are not likely to repay their customers' mortgages. This will affect will hit about 675,000 out of 750,000 Norwich Union endowment with profit policy holders.Norwich Union says it has already put aside about £1bn to make good part of the shorfall its customers will face when their policies eventually mature.The figures have been released by the company as part of its annual bonus statement for with-profits investors. read full article http://news.bbc.co.uk/1/hi/business/6254839.stm

Endowment companies pay £120m extra - 11/12/2006

The FSA (Financial Services Authority) has forced Endowment firms to pay an extra £120m in compensation to more than 100,000 customers whose mis-selling complains had previously been rejected. The FSA states that due to it's pressure 75% of previous rejected claims have so far been decided in favour of endowment with profit policy holders.Since 2000 the FSA has fined ten firms a total of £14m for mishandling their endowment complaints process.Since the process started for compensating victims of mis-sold endowments, 1.8 million people have received monies amounting to £2.7bn. read full article http://news.bbc.co.uk/1/hi/business/6168813.stm

Royal London cuts with-profits bonuses By Jennifer HillLONDON (Reuters) - 29/09/2006

There is little respite for hard-pressed with-profits policyholders, with Royal London announcing a cut to bonus rates.The life assuror said on Monday it had reduced the terminal bonus rate on many with-profits policies in its closed Scottish Life fund.Although final bonus rates maintained unchanged for shorter-term plans -- those of 10 years - they were cut across-the-board for those of 15 years or more.Policies with a 15-year term have suffered a 3.75 percent cut in final bonus to 11.25 percent, while 20 and 25-year plans have seen reductions of 5.25 percent and 7.5 percent to 19.75 percent and 37.25 percent respectively.That means that the maturity value of the average 25-year endowment policy has tumbled 9 percent in the past eight months alone -- to 43,095 pounds on 1 September from 47,337 on 1 January -- based on monthly premiums of 50 pounds.Payouts on mortgage endowments suffered a similar fate, with the maturing value of a 25-year policy falling 9.5 percent to 40,621 pounds.

Bad news on Endowments – 85% short by 30% Source: IFA Comliance Ltd - 01/08/2006

In his conclusion to this year's with profits report, Ned Cazalet writes that he expects more than 85% of endowments to fall short of the targeted home loan amount and for the shortfalls to be on average more than 30% each.According to Cazalet, between 1985 and 1995 more than 60% of mortgages were taken out with endowments. So assuming the vast majority are sold on a term of 25 years, the pain will come between 2010 and 2020.Mr. Cazalet repeatedly warns of the complexity and obscurity inherent in with profits contracts. In one section he contradicts our own observations. He makes the point that many endowments have lost so much ground from target that they need 11% net returns (15% gross per annum) just to recoup the losses. With so small a share of their assets in equities he illustrates how hopeless a situation this is for so many life offices.The total industry bill so far is £2.2bn. That is the amount already paid out in compensation for endowments. Assuming that this figure is the English £2,200,000,000 then divided between the 25,000 practicing IFAs left in business that represents £88k each IFA!! Thank goodness that most of the compensation is paid by the life offices.

With Profits: Three Actuaries say No - Source: IFA Comliance Ltd. - 01/08/2006

Many people, including the FSA, believe that with profit providers should reveal more about 'smoothing', the process where the bad year returns are subsidised by the good years. Tom Imber, UK actuary for Prudential, objects:'People could then see what their payouts were and whether they were higher or lower than their asset shares. If you have some clever IFAs or investors they could work out whether it would be better to take their money out.'Michael Earnshaw, with profits actuary for L&G:'If it goes so far that people know the underlying value as well as knowing what they have got at any particular time, that gives them the chance to leave when smoothing is working in their favour, which could act as a destabilizing influence.'David Riddington, head of with-profits at Norwich Union:'The majority of with profits holders don't want to know all that much about the workings of the funds, just the outcome. Increasing transparency will affect that outcome.'David Hogg, Director of development at AEGON points out that the company can un apply the smoothing process from time to time, if it feels fit. Are you feeling re assured?

Fed up with hearing about Endowment shortfalls and Life Office projections? - 07/06/2006

PRESS RELEASE - 'Why doesn't somebody just tell me what the real maturity value of my policy will be?'This is exactly what Endowmentcheck.com does. All you have to do to find out the real maturity value of your with-profits endowment policy is to go to our website and enter your policy data and completely free of charge we will tell you whether or not your policy will reach it's target amount.We use real Bonus Rates including the Terminal Bonus and apply them to your policy to work out exactly how much it will be worth at maturity provided bonus rates do not change. This is a totally unique service that you will not find anywhere else and it is available to both IFAs and the public direct.What could be easier? Just a few clicks on our website will instantly tell you whether or not you need to worry about the performance of your policy and give you the knowledge to make the right decision about your finances.

Step 1: Log on to www.endowmentcheck.com

Step 2: Enter your Policy details

Step 3: Get your instant result

It is then entirely up to you to pay for a more comprehensive report with one of our subscriptions.Company backgroundFounder and Managing Director of EndowmentCheck Ltd., Ernst Riess, has been an IFA for more than 20 years, providing Endowment Portfolio Management Services since 1990 mainly to international clients who have bought UK Traded Endowment Policies. He has been instrumental in raising the popularity of UK Traded Endowment Policies, especially in continental Europe.Ernst Riess, Managing Director, adds:No investor would envisage buying a policy on the Traded Endowment Market unless he knew what the maturity value, based on current bonus rates, is going to be. It is not enough to send out bonus declarations and leaving their interpretation to the client. Investors want to know how their policies are performing and how changes in bonus rates affect the maturity of their policies.With more than 3500 up to date bonus rates from all major UK life companies, which are constantly updated, we can work out the future maturity value of a policy within seconds, making our website an essential tool for the online user.Testimonial'My life company advised me to double my premium to make up for a possible shortfall, I used Endowment Check for a second opinion which proved that my policy would meet its target figure after all thereby saving me £3,600 in additional premiums. The £4.99 has certainly proved to be a good investment.'Alan MarriottContact Details:Monika ReinmannPublic Relations ManagerEndowmentCheck Ltd.Suite 1 Broxbourne Business CentreFairwaysCheshunt, HertsEN8 0NJTel. 01992 623623Email: monika@endowmentcheck.comWebsite: www.endowmentcheck.com

Endowment surplus shock after scandals - By Ed Monk (Financial Adviser) - 25/05/2006

Long-term mortgage endowment policyholders who claimed for mis-selling are now making gains from their policies, a survey has shown.Providers were invited to give the premium, maturity value and annual growth rates for their low-cost endowment products in a survey.Some 21 providers were willing to share the information.The results showed that while those with 10-year, 15-year and, to a lesser extent, 20-year endowments still faced large shortfalls on the policies.Those with 25-year endowment mortgages stood to benefit from healthy surpluses. The surpluses are revealed when 25-year endowment mortgages are compared with repayment mortgages.A standard variable rate repayment mortgage provided by Halifax, for a £50,000 loan over a 25-year period would cost £142,874, while a Halifax interest-only mortgage, with a 25-year endowment attached costs significantly less. Even in the case of the worst performing endowment by yield – of those included in the survey – the cost would have been less.The Winterthur, ex-Colonial Life, traditional with profits policy would have seen total interest paid on the £50,000 loan of £120,267 over the 25-year period.Adding the total premiums on the Winterthur policy of £27,840, and the £50,000 outstanding mortgage balance, but subtracting the maturity payout of £57,612, gives a total cost of the endowment plan of £140,495 – some £2379 less than the repayment mortgage. However, the fortunes of endowment policyholders fall dramatically for shorter-term plans.Just 59 per cent of 20-year policies from the current survey are forecast to pay off the mortgage sum, while this reduces to 33 per cent for 15-year terms and 38 per cent for 10-year terms.Paul Wood, senior product consultant for Norwich Union, said: 'The investment returns were very good from 1981 to 1986 and the 20-uear policy would have just missed out on that period.'The improved stock markets even lead providers to launch policies with lower premiums for 25-year terms than for 20-year terms.The research, carried out by Financial Adviser's sister publication Money Management also shows the differences that occur when providers use surrender values, as opposed to actual values.The research showed that, even for 25-year policies, surrender values were very low, potentially causing anyone receiving a projection letter based on surrender values to cash in their policy too early.Colin Jackson, director for Essex-based IFA Baronsworth Investment Services, which runs a service to trade policies for more than their surrender value, said: 'Often people will see the surrender value and become very pessimistic about the prospects for the policy. They often forget the life cover they also get for their premium.'

Comment: weighing up windfalls and shortfalls: Telegraph - 22/04/2006

With Standard Life policyholders shortly taking a vote on the possibility of floating the company on the stock exchange, many eligible members are looking forward to a windfall, hoping that this will soften the blow of endowment shortfalls. Even if the windfall shares only cover part of the shortfall, and there is no tax liability on receipt of the shares, it is unlikely that in the long term with profits policyholders will benefit from a demutualisation, considering the high cost of the floatation of £158m so far and the £1m salaries of some directors.There is also the possiblility that, by giving the with profits fund enough time to recover from recent bad years, endowment policies that mature in 10 or 15 years may still reach their target amount, despite current threats of shortfalls. A lot of questions will be asked by savers at Standard Life's special general meeting on May 31, particularly about miniscule maturity values on with profits endowments in the light of a soaring FTSE 100 index.

Money Management - 05/04/2006

Advisors needing help an advising clients on what to do with their with profit investments have help at hand with a new tool from Endowment Check Ltd. www.endowmentcheck.com is the FIRST ONLINE SERVICE that allows policyholders to find out the true maturity value of a policy based on actual bonus rates rather than life office growth projections.'

Online Relief for With-Profits Policyholders and IFAs - 15/02/2006

Endowment Shortfall? – How much is it really going to be?

Endowmentcheck.com offers a unique online valuation service allowing policyholders and IFAs to check the real maturity value of their policies.In the light of ever increasing worries about the performance of endowments and the uncertainty of whether policies will pay the target amount as originally planned, we have launched endowmentcheck.com for endowment with-profits policyholders and IFAs.

We are the first company to provide a clear and accurate independent policy maturity valuation based on up-to-date bonus rates as used by life offices.

At the moment policyholders have to rely entirely on the projection letters issued by their life companies. However, those maturity value projections are normally based on three growth rate scenarios: 4%, 6% and 8% (as stipulated by the FSA), and not on actual current bonus rates, which would apply if the policy were to mature today.

We believe that a projection based on actual current bonus rates is a far more useful calculation than one based on hypothetical scenarios, which, for the majority of policyholders and IFAs does not offer a clear enough answer of what the maturity is likely to be.

We give our website user the opportunity to check whether or not their policy is on track, or if they really need to top up their policy, as it is often suggested by the life company.

We provide the basis of whether to hold on to a policy, surrender or sell it on the open market.

A sensitivity table will help to illustrate the effect a change of bonus rates has on the maturity.

The site will also provide general information about endowments, useful addresses and telephone numbers and will allow the visitor to establish a policy performance record.

Company backgroundFounder and Managing Director of EndowmentCheck Ltd., Ernst Riess, has been an IFA for more than 20 years, providing Endowment Portfolio Management Services since 1990 mainly to international clients who have bought UK Traded Endowment Policies. He has been instrumental in raising the popularity of UK Traded Endowment Policies, especially in continental Europe.Ernst Riess, Managing Director, adds:'No investor would envisage buying a policy on the Traded Endowment Market unless he knew what the maturity value, based on current bonus rates, is going to be. It is not enough to send out bonus declarations and leaving their interpretation to the client. Investors want to know how their policies are performing and how changes in bonus rates affect the maturity of their policies'.Underperforming policies cause great concern for policyholders and IFAs. Life Office Projection letters lack clarity and can cause even more uncertainty of what the future might hold in stock. Relationships between policyholders and their IFAs turn sour all too often because of the threat of mis-selling claims.EC will always notify subscribers to the website of any changes in bonus rates as and when they occur, giving the policyholder the possibility to re-calculate the maturity value of his policy. This is a great way to stay in touch with our clients and there are no nasty surprises in store when it comes to maturity.With more than 3500 up to date bonus rates from all major UK life companies, which are constantly updated, we can work out the future maturity value of a policy within seconds, making our website an essential tool for the online user.TestimonialQuote: 'We use EC regularly to cross check Projection letters from life offices. EC's comprehensive valuation report saves us time and makes it much easier for us when talking to clients about the performance of their policies.' T. Dunsdon, Business Insurance ServicesAs the site is independent and not funded through advertising, we have to ask for a small contribution of £ or £ depending on the service required.Our website is fully secure and compliant.

With Profits Endowment Survey - 10/05/2005

In its April issue Money Management reports that 'this year's bonus announcement adhered to the depressing trend that has been established in recent years'.According to the survey there is very little evidence that with profits endowments have benefited from the upturn in the market during the last two years as bonus rates from most life companies have continued to fall.However, there is evidence that suggests that the rate of decline has stared to slow down. Although most life offices have cut bonus rates, it is to a much lesser extent than in previous years, and there is hope that the market has now reached its lowest point.There have also been reports that fewer endowment policies fell short of their target amount to pay a mortgage off. However it will take some more time and good results to restore consumer confidence to the level prior to 2000.The last two years have also illustrated the widening gap between stronger and weaker life offices. Those companies with strong reserves and higher equity exposure have managed to benefit from the upturn in the stock market.

Policyholders are missing out - 08/03/2005

According to Brian Goldstein, chairman of the Association of Policy Market Makers (APMM), endowment policyholders have missed out as much as £90m last year by surrendering policies to life offices rather than selling them on the traded endowment market. The figure is even more surprising as life companies are obliged to inform policyholders who want to surrender about the alternative of selling their policy on the TEP market.

Prudential shows strength - 08/03/2005

For a number of years now endowment mortgage policyholders have been living in fear of the likely shortfall of their with profits endowment policy at maturity. Bad publicity and disappointing results have contributed to an estimated 700,000 endowment policies being surrendered every year before maturing.The level of complaints to the FSA ombudsman has risen to record heights and is likely to reach 60,000 complaints by the middle of 2005.In a climate where most life companies are still reducing bonus rates and investment returns of 10% seem to be a thing of the past Prudential's with-profits fund has achieved 13.4% return in the past year. This is brilliant news for Prudential with profits policyholders and surely must put a smile on their faces as a 25 year mortgage endowment costing £50 per month maturing in 2005 (assuming bonus rates remain unchanged as of March 2005) at £47,789. This is an increase of 11.1% compared with last year.

Norwich Union cuts bonus rates for many of its 3.3 million policyholders - 18/01/2005

Although the stock market has seen signs of recovery,UK's largest insurance company has cut bonus rates for some of its endowment with profit policyholders.The company claims that it is still effected from the impact of the poor equity performance between 2000 and 2002. read full article

Prudential new with-profits board - 12/01/2005

Prudential which has the largest with profits fund in the UK creates an independent committee to oversee the management of its £69bn with profits fund as recommended by the city watchdog.The step follows the recommendation by the FSA (Financial Services Authority) to make it more transparent how with profits funds are managed as millions of Britons are relying on the with profits products such as endowments and pensions. read full article

Endowment complaints are increasing - 04/01/2005

Complaints to the Financial Ombudsman Service about endowments rose to 51,917, up from 13,570 on the previous year, the service's annual report said.The FSA (Financial Services Authority) believes that some life companies don't treat their customer fairly.Endowment Facts

8 out of 10 endowment mortgage holders are facing a shortfall.

The average shortfall across endowment policies is £5,000, adding up to £40bn overall.

6 in 10 policyholders could have been missold too.

Some life companies are accused of not handling complaints properly and refusing to pay compensation until threatened by court action. read full article

AXA cuts bonuses on with-profit policies - 28/09/2004

An announcement was made today by AXA Sun Life, that it would cut bonus rates by an average of 5% on some of their endowment with-profit and pension policies.AXA, which has an estimated 1.5m UK customers, blames the decline in the stock market during the last three years for having to make further reductions on some life and pension policies invested in the with-profit funds of AXA Sunlife and Sun Life Assurance Society.Someone who paid a regular premium of £50 pm would get a final payout of £46,689 today, compared with £49,323. That is £2,637 less than if their policy had matured last month.Chief actuary at Axa Peter Shelley commented: 'The stock market recovery has been modest relative to the severity of the falls experienced between 2000 and 2003.''As a result this change to terminal bonuses is needed to ensure that our with-profits payouts remain fair to all policyholders and properly reflect investment conditions over the last few years.'

A Financial Times Survey Reveals - 01/08/2004

According to the most comprehensive survey of the industry, carried out by the Financial Times in 2004, more than three-quarters of endowment policies taken out to pay off mortgages are likely to fall short of their target amount. Many Life companies including some of the biggest endowment with profits providers such as Standard Life and Friends Provident said the proportion of policies falling short was more than 90%.Life companies are charging for guarantees, which with profits policy offer and cut the projected growth rate in their illustration when the future maturity value is being calculated showing what policyholders might get back from their endowment policies at maturity.According to the survey, the estimated 62,500 policyholders with Royal Life have fewer worries since 85% of their endowments are ON target. Clerical Medical with 181,000 endowments with profits policyholders is the only other company in the survey with less than 50% of policies showing a shortfall.Twenty-four endowment companies provided details of the proportion of policies expected to fall short of their target - the first time many of them have made the information public. Sixteen others - including Pearl with 170,000 policies and Winterthur Life with 80,000 - either did not reply or refused to participate in the survey.Friends Provident revealed that only 8% of its 260,000 policies were likely to meet their target, having previously refused to disclose the information.Few companies were willing or able to provide information about the size of their average projected shortfall, with only 10 doing so.This lack of information makes the true extent of the problem facing policyholders difficult to judge. Estimates of the numbers of households facing an endowment shortfall range from 1.5m to 7m, but the numbers are almost certain to rise as companies lower the growth rates they use to calculate potential shortfalls.Ned Cazalet, an independent analyst, said he expected most life companies to introduce charges for guarantees, while some companies might cut sharply projected values.

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