Money news, advice and predictions for savers and spenders.
By Jeremy Gates
It's more than 20 years since I took out a third and final endowment policy which guaranteed to pay off part of the mortgage for my wife or myself, in case either of us was hit by a bus - and I haven't followed its progress very closely.
As my policy - moved from Scottish Amicable to Prudential in 1997 - pays only £11,000 in the event of death, I wasn't too worried when the endowment mortgage scandal broke in 2002.
After all, the Pru is one of the more successful providers of with-profits policies which hold a range of assets, shares, bonds, property and fixed interest securities to protect and grow savers' money through the worst financial storms.
But when my annual statement arrived the other day, I got a shock.
My policy with the Pru has grown over 21 years into a lump sum worth just £6,477 - barely half the amount it is supposed to protect.
Each year I pay £255, by monthly direct debit, into the policy, and this year it grew in value by only £67. Yet some managed funds, which hold shares, soared in value by 30%-plus on the back of the big share bounce back in 2009/10.
If the annual bonus on my policy maintains the current rate to maturity, I will pay a total £6,375 by 2014 to get £6,700 back - plus any terminal bonus the Pru can afford.
It's a return I could almost have beaten by leaving the money under the bed. Building society accounts have left it miles behind.
Insurers mostly blame the plunge in inflation for this collapse in endowment payouts. Policies maturing today were sold in the late 1980s, when inflation was roaring and financial advisors told customers their funds could grow by 10% a year.
But the wretched performance of my fund has huge implications for many near the end of mortgage repayments.
Around 4.9 million of the 11 million mortgage endowments originally sold are still active, many with customers who chose interest-only monthly repayments on the assumption their endowment would eventually pay off their outstanding debt.
Although shares and property values have both soared since my policy began in 1989, there is little left in the pot for me to collect - and my experience is pretty typical.
Sally Bowyer, managing director of financial claims firm Brunel Franklin, says: "A whole raft of people previously unaffected by endowment mis-selling are now receiving a nasty shock in the form of shortfall letters.
"Millions of policies sold in the late 80s and early 90s are now known to have underperformed miserably."
"The UK's largest insurer, Aviva, said earlier this year that almost 90% of its mortgage endowments were in the 'red' zone, with a high risk they will not pay off the home loan they were bought to cover."
Danny Cox, a financial advisor at Hargreaves Lansdown, says: "The problem is that with-profits providers have been applying bonuses at too generous a rate, compared to the actual underlying asset value of their funds."
"As terminal bonuses are cut back, or cancelled altogether on the so-called zombie funds like Scottish Mutual, the probability is that somebody with a policy maturing today gets a larger sum than another policy maturing in a year's time, though the second policyholder has to pay in more money."
Cox's advice to endowment policyholders, like me - within sight of their maturity date - is to stick at it, unless they desperately need cash for other things.
"Things could look brighter four or five years from now", he says.
"Markets could pick up, the sense of doom in the global economy could lift. Terminal bonuses, at least, might affect some sense of recovery."
If endowment holders do keep paying, the yearly sum added to their policies could be a fraction of what they pay in. But at least there is a chance of a terminal bonus.
Alternatively, they can cash their policy in with the provider, losing any chance of a terminal bonus and possibly seeing their lump sum cut by the market value reduction (MVR).
They can also stop payments and make the policy "paid up", so it matures with a smaller sum. Before doing so, they should ask their insurer what penalties and charges this course of action involves.
In theory, they could also try to sell their policy on the TEPs (Traded Endowment Policies) market, although as Cox says: "There may be a question as to whether anybody actually wants to buy one."
One other possibility, of course, is to consider action against the provider, though many policy holders think they are 'time barred' from making a complaint.
This bar is generally applied when three years have elapsed after the provider first warns a policyholder, with a red warning letter, that their policy is likely to leave a shortfall on their mortgage repayment on maturity.
However, Bowyer thinks that policyholders who only recently received a first red warning letter might "have a window" in which they can apply for a refund on the grounds that they were mis-sold.
Typical grounds for complaint is that policyholders were unaware their investment was subject to stock market risk, or that they were never warned about a potential shortfall.
Other policyholders might pursue their own complaint - firstly with providers or subsequently with the Financial Ombudsman.
There are signs, too, of growing official disquiet. The Financial Services Authority (FSA), the Government's City watchdog, warned in June that it expected "all firms to raise their game in this area... to ensure all policyholders are treated fairly."
For the moment, it seems, mortgage endowment holders have little option but to keep paying... and keep hoping.
:: Information: FSA consumer helpline (0845 606 1234 and www.fsa.gov.uk); Brunel Franklin (0800 051 5451 and www.brunelfranklin.com). Borrowers near the end of their mortgage repayment period and in danger of facing a large shortfall should discuss the problem with their lenders. Alternatively they can consult the Consumer Credit Counselling Service (CCCS) on 0800 138 1111 and (in Scotland) 0800 138 3328.
Poundnotes
:: As the new football season kicks off, loyal fans like to show support for their clubs, but they should perhaps not try to save with them as well, says Andrew Hagger at Moneynet.co.uk.
He calculated that the average interest rate on a football savings account - a measly 0.14% - hardly hits the back of the net.
"A footie fan with £2,000 would earn just £2.24 interest in a year after basic rate tax, hardly enough to buy a match programme. Deposited in the 'best buy' instant access rate of 2.80% with AA savings, the annual return would be £44.80 net of tax."
Meanwhile, Moneysupermarket.com has looked at credit cards provided through the majority of top Premier League clubs. Fans of Everton, Fulham and West Bromwich Albion get 0% rate for six months on their season ticket purchases, while Wolves fans get a more generous nine months.
But overall the club cards are inferior to market leaders such as NatWest's Platinum card (0% balance transfer period lasting 16 months), or the leading purchase card from Tesco (0% for 13 months).
:: As savers struggle to find a decent return on their money, Sainsbury's Finance is doing its best. Following its 12-month Cash ISA paying 2.6% gross on a minimum £500, which can accept transfers from other ISAs, Sainsbury's is launching a two-year fixed-rate bond paying a guaranteed 3.55% gross on deposits between £5,000 and £50,000. For more information call 0500 405 060 or visit www.sainsburysfinance.co.uk.
:: The Duchess of York is hardly alone in facing severe financial distress, says Louisa Parker at the Money Advice Trust.
"With 70,000 people declared insolvent in the first half of this year, many others will be suffering the burden of debt in relative silence", she says.
Parker says anybody in trouble should contact a trained money adviser to weigh up possible options, with the National Debtline offering free, independent advice over the phone to thousands each year.
Debt Relief Orders (DROs) also means those with debts under £15,000 and with little income or assets have a cheaper option than going bankrupt, which can cost £600-plus.
National Debtline enquiries: 0808 808 4000.
:: As Santander takes over 318 Royal Bank of Scotland branches and 1.8 million customer accounts, smart RBS customers could earn £100 each by jumping ship early to take advantage of the current Santander switching offer, generating a potential £180 million bill for the Spanish giant, says Stefan Maryniak at uSwitch.com.
He says: "Smart RBS customers can currently take advantage of the £100 reward currently offered by Santander to attract new current account customers."
