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Going round in circles on endowments

With regards to the endowment scandal, our authorities do seem to be going round in circles on this issue. As I understand it, the FSA are responsible for the general contents of the so-called new-style review letters. However, they unfortunately contain insufficient information to enable the planholders to make any form of valued decision and in many cases, after reading the letter, panic sets in and they attempt to encash the plan.

I now understand that the FSA have stepped in yet again and have advised the life offices that it would be correct to inform their planholders of the facility of the second-hand endowment policy market.

If that is how the FSA view the situation and every time you turn on your radio you hear as from companies who offer this particular service, it must mean that besides the FSA there are an awful lot of other people out there who look upon With Profits endowment policies as a first-class investment and are happily paying, if you believe the advert, up to 30 per cent more than the surrender value and then the ongoing monthly premiums to maturity.

Why is this you may ask? On the one hand, the FSA have produced a review system that makes the policy look worthless and yet on the other hand insist that those with these worthless policies are made aware that there are people out there who do not think they are worthless.

Having taken the time to explore the situation, I would like to advise readers that generally speaking when a 25-year low-cost endowment policy passes its 50 per cent of term point, the guaranteed sum assured together with accrued bonuses in many cases is equal to the quoted surrender value, plus a 15 per cent additional premium by the purchaser, coupled with all future premiums due to be paid to maturity.

Currently, terminal bonus is still being paid on 25-year maturing policies but this fact is not allowed to be included in the review letter, which if brought into the equation enhances the purchase even greater. No doubt that is why we have a highly active second-hand endowment policy market.

Unfortunately for the public that was supposed to be protected under the new system that has replaced the easy to understand annual bonus notice, the reverse is the situation. Planholders should be given full information regarding the current guaranteed worth of their policy and the current surrender value.

I would like to know how this new system is protecting the planholders and, second, why we as an industry have allowed this to happen as we are, after all, morally bound to protect our planholders/clients.

Brian Pickering

Managing director,

Heather Moor & Edgecomb,

Chippenham, Wilts

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