I thought you might like to see this letter, which I asked my MP to forward to the chairman of the Treasury select committee. I have yet to receive a reply.
To the Rt Hon Eric Forth, MP, re: the Treasury select committee report into endowment policies.
I would be most grateful if you would ask the chairman of the Treasury select committee, John McFall, MP, for his responses to the following important questions.
Did the committee consider the fact that people with repayment mortgages postpone the repayment of capital each time they move house or remortgage? (At the beginning of a repayment loan, payments are mostly interest. Capital begins to be repaid in large quantities at the end of the mortgage term. Thus, every time a repayment mortgage holder moves house or remortgages, the result is a postponement of the repayment of the debt. Borrowers, if they realised this, may question the actions of the committee.) Is the number of times a policyholder has moved or remortgaged taken into consideration when compensation is being offered to complainants?
Why is the matter of compensation considered mid-term? Surely, the test of whether a policy has worked is when it is required to repay the mortgage, not before?
Has the fact that the Consumers' Association encouraged people to buy endowment policies been considered by the committee? Is the CA to be pursued for compensation?
As an investment practice, we have not been affected by the endowment issue (apart from a general increase in our professional indemnity insurance) but it is sad to see so many colleagues being put out of business for factors over which they had no control. They are losing their livelihoods, their homes and sometimes their families.
No one would doubt that inefficient contracts that waste clients money should not have been offered. However, the number of companies at whose door that criticism can legitimately be laid is small. The number of people affected, therefore, is a commensurately small proportion of endowment policyholders.
While it is clearly correct for people to be encouraged to make “mid-course corrections” to address any potential shortfall (which is only prudent), one cannot help but feel that in these days when our Government is not trusted on the most basic of issues, that it is engaging in the denouncing of so many areas of trade for political kudos. It seems just a little too keen to champion the interests of the consumer.
However, when the Government is accused of wrong-doing, mysteriously, nobody resigns or even apologises.
The difficulty for the Government, it seems to me, is that while it stands ready to criticise and denounce all and sundry in the City for “ripping off” the consumer (a mantra it has learnt from some very savvy operators in the business world), it clearly does not have the interests of savers at heart itself, as demonstrated by its reneging on its promises to investors. Such a view is now being widely expressed within the media as it is self-evident to even the most casual observer.
With the broken promise on the tax efficiency of Isas, is the Government going to compensate those investors who, having been tempted by the promise of a commitment by the Government to that savings vehicle, now find that the tax status of these investments is to be further impaired? One hardly needs to ask the question really. The answer, of course, will be no.
Will IFAs be lambasted for not anticipating the fact that the Government would break its promises? Probably.
By breaking its promise on Isas, the Government has manufactured a misbuying and misselling scandal of huge proportions.
With the proposed changes to Isas (and the destruction of Peps and Tessas beforehand) as prime examples of this Government's total lack of commitment to the creation of personal wealth (and thereby encouraging a culture of dependency on the state), closely followed by the incompetent handling of the pricing of stakeholder, resulting in a near complete failure of its distribution to its target market, are the efforts of the Treasury select committee somewhat misdirected?
The long-term problem for the country if the Government continues along the present line is that confidence will be lost in all financial products. It is time for the Government to put its own house in order and deal with the consequences of its own actions in relation to the consumer before it denounces others for far less serious offences.
Here is a practical example. When we buy road tax for our cars, we are required to pay revenue from the first day of the month. If we surrender the tax disc, we pay for the full month, even if it is surrendered early in the month. Thus, the consumer, at the hands of this Government, can be charged 100 per cent of the tax for only 84 per cent usage. When one considers that this tax (for most people) is paid out of income that has already been taxed, it becomes clear that the Government is in an abusive relationship with the consumer – the same consumer that it claims to be helping to protect in its rhetoric about endowment policies.
When one considers that lower socio-economic groups may follow the above usage pattern, the situation for the Government is even more embarrassing. The problem for the consumer is that the Government has a monopoly on the sale of tax discs. So far, in the matter of their mortgage arrangements, they do at least have a choice.
The Harvest Partnership,