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Course for complaint

It is indicative of our society that people will cash in whenever they can

Lord Lipsey’s comments at a Labour fringe meeting that many people who received compensation for pension misselling should never have received a payout would have seen a good few heads nodding in agreement. The comments should also be of little surprise.

The proliferation of complaint-handlers who cropped up to encourage mortgage endowment policyholders to seek a payout is the greatest example of people cashing in, irrespective of whether they knew what they were buying.

Not that these firms are solely blameless for whipping up a storm. Which?, the consumer champion celebrating 50 years this month, played a pivotal role – even recruiting Boycie from Only Fools and Horses to front a campaign.

I have no doubt that a significant proportion of homeowners were sold a pup when they took out an endowment policy to pay off the mortgage and “have a few thousands surplus to splash out on a dream holiday too” but perhaps the misselling scandal has been overdone – as the industry and the FSA has claimed.

The turnaround in stock-markets is transforming the landscape and it has emerged that around 260,000 extra mortgage endowment holders have seen their policies meet their targets in the past year. Take the Prudential, for instance. The proportion of its policies that are red has significantly reduced. In 2003, 44 per cent of its policies were flagged up as red, now the figure is 15 per cent of its remain-ing 201,000 policies.

To date, none of the Prudential’s policies has failed to pay out the full target amount. In fact, those endowments maturing this year are expected to have an average surplus of around £4,400. This has increased every year since 2003, when it was still paying an average surplus of £1,900, even though the markets hit rock bottom. That no one was required to relinquish the endowment they were complaining about will mean that some people could get a double whammy of compensation and a surplus.

In 2003, Scottish Amicable had 65 per cent of its policies listed as red but that has fallen to just 10 per cent this year. In 2005, 16,500 policies matured for Scottish Amicable, with 95 per cent meeting their target with an average surplus of £2,409. Around 815 policies failed to meet their targets but the average shortfall that year was just £49. This year, ScotAm has 21,000 policies maturing, with an average surplus expected to be in the region of £3,200.

A similar story is emerging from Legal & General. In 2004, more than 55 per cent of its policies expected to fail to meet their repayment value, yet this has fallen to 40 per cent now.

The rise of the complaint-handler has undoubtedly encouraged a compensation culture. Lately, several handlers have been trying to get people to claim for being missold Serps even though at the time people contracted out of the state scheme the level of rebates made the choice the right choice for many people.

If the industry has been guilty of anything, it was being slow in advising those that had contracted out that they could be better off contracting back in. But widespread misselling? Unlikely.

They have also jumped on the bank charges bandwagon. Up to a million bank customers have reportedly rushed to take advantage of the banks reluctance to go to court to claim back hundreds of pounds in penalty fees.

I am not condoning the level of charges but most bank customers are acutely aware that going overdrawn means hefty penalty fees. Banks are in the business of making money and rules as they say are rules and, as the BBA says: “People can always phone if they are having difficulty.” I have no doubt that tens of thousands of customers have complained not because they feel hard done by but because they are trying their luck.

But it is indicative of the society we live in that people try to cash in wherever they can, irrespective of whether they deserve it.

Paul Farrow is money editor at the Sunday Telegraph

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