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IFAs hit back at FSA endowment &#39scare&#39

IFAs are accusing the regulators of creating a huge endowment scare when evidence on the ground bears no resemblance to grim predictions of millions of shortfalls.

Advisers say they have spent the last few weeks dealing with thousands of complaints from worried policy- holders concerned that their endowments will not pay off their mortgages.

They claim the majority of cases they have dealt with so far, even those falling within the serious risk of shortfall category, are unlikely to fall short of their target.

But advisers are concerned that many policyholders may have already cashed in their plans needlessly.

Their claims have been fuelled by concerns that the projection rate used for the endowment letters is flawed.

Leading IFAs say the 6 per cent figure the FSA recommends does not reveal a “true 6 per cent”. They explain the calculations are gross returns which do not take into account any expenses such as administration charges.

They say these are gross returns which are subject to further deductions such as charges, therefore the actual return a policyholder could expect on these figures is at best 4.5 per cent a year.

O&#39Halloran partner Eleanor Downie says: “The review letters may lead to people cashing endowments in because they are worried about the end result but there is no need for 99 per cent of all people with policies to worry at all about whether their contracts are going to produce the goods at the end of the day.”

Brook Financial Advice director Martin Brook says: “The regulators want to be ultra-cautious and one understands that nobody wantspeople not to have enough to pay their mortgages off. But in my opinion the basis for implementing the 6 per cent is extremely flawed and is causing untold worry and misunderstanding.”

FSA spokeswoman Louise Buckley says: “We are in the business of informing customers and not causing unnecessary alarm. We still anticipate that overall there will be around 60 per cent of policies that fall in the red and amber categories.”

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