I will try to squeeze three points into a short letter. First, Julian Stevens' mortgage idea (Money Marketing, August 15) is seriously flawed.A repayment mortgage repays capital from day one.
I did a quick illustration and 15 years into a 25-year mortgage on a repayment basis, 40 per cent of the capital has been repaid – in this example, £33,000 out of £80.000).
The flexibility is a good idea, but overpaying mortgages to shorten the term is old news.
Second is the capital-protected annuity. Cross-subsidy is essential to keep annuity rates up. If the capital is returned, there is no mortality factor and annuities become more expensive.
The capital return will be an alternative to a widow's pension and that is not necessarily a good thing.
Presumably, any return would be taxable, as it would be under drawdown, so how would this benefit a widow who would otherwise be a nil-rate taxpayer? She would probably have to invest the (taxed) money to provide an income – in an annuity perhaps?
Finally, I cannot understand why Sandler thinks that commission is paid by the provider. If it is, then it must be a cracking deal for the customer because he gets our advice for free. If it is not the customer who pays it,who does – is it the fairies?
The Dunne Partnership,