What a pity about the BBC's Panorama Mortgage Timebomb programme last
week. I was expecting a serious in-depth analysis of endowment policies,
about what percentage of them are likely to fail to repay the mortgage and
an actuarial comparison between the total costs of endowment and repayment
Instead, we were treated to a number of examples of the failure of
policies sold by Allied Dunbar and Eagle Star, both owned by Zurich Life,
to be on track to repay the mortgage. We were not told what rate of
expected annual growth was selected to provide the necessary maturity value
or whether the policies were low start.
Yes, we all know these two companies have not exactly acquitted themselves
well, with very poor with-profits bonuses from Eagle Starand sometimes
excessive assumptions about future investment returns from Allied Dunbar,
combined with poor unit-linked insurancefund performance.
Frequently, anticipated compound growth figures at the time the policy
started wereover-optimistic compared with actual investment growth.
The outrage of the Gan salesman againstthe couple who suffered a “churn
and burn” ofa perfectly good Allied Dunbar endowmentpolicy, which on the
admission of the programme-makers would have repaid the mortgage in
question, was not a criticism of theoriginal endowment policy but was an
exposure of the type of dishonest sales methods which were frequently
taught by sales managers of many of the direct-sales companies.
In the case referred to, the matter was probably an issue for the fraud
squad and it is a pitiful indictment of Windsor Life, the successor to Gan,
that it made such a disgracefully inadequate offer of compensation for what
was a total breach of all the compliance regulations.
The reference to the Standard Life mortgage was, indeed, a sad case.
Standard Life changed its contract six years ago to provide very high
surrender values. However, we were not advised whether the policy in
contention, sold by Halifax, was a low-start policy, in which case that
could have been a factor to be considered. Additionally, the couple were
not young and, therefore, the life insurance cost must have been
The use by the programme-maker of a visual background of money being
counted out by bookies at a racetrack while making critical reference to
endowment policies generally, was trite and cheap-quality visual
I consider that the importance of the subject warranted a much worthier
and less sensational presentational backcloth. After all, millions of
people have these policies and there is no evidence that they are generally
a disaster story.
The closing minutes, which suggested that advice on endowment policies is
not regulated, were an example of total inaccuracy in view of the fact that
the sale of them has been regulated for 10 years or more.
The FSA spokesman certainly was most objective in his advice to endowment
policyholders to seek independent financial advice. However, because so
much emphasis had been placed by the programme-makers upon the change in
status of several former Gan salesman to IFAs, the effect, accidental or
contrived, will have been to damn all IFAs – despite the fact that all the
offending policies referred to were almost certainly sold by direct
Many of the best IFAs started their careers working for life insurance
companies but decided to set up as IFAs and do the job properly. This does
not make them automatically dishonest and unfit to look after their clients
in their new role as IFAs. The scenario reflected the position of the
industry when it was dominated by the direct salesforces until the late
1980s, when the new regulatory regime began to clean up the industry.
The programme referred to a small number of cases and ignored the fact
that the majority of endowment policies are believed to be on track to
repay the mortgage. No reference was made to the success stories of
mortgagesrepaid with big surpluses, which far outweigh the failures of the
It was a pity that the programme failed to assess carefully the overall
25-year cost of the two alternative mortgage payment methods. Had it done
so, it might well have established that the likely cost of the repayment
mortgage is, indeed, higher than an endowment mortgage from one of the
providers which was responsible for the majority of the policies sold.
An interesting feature of the programme was the filmed activity of the
Allied Dunbar salesman who failed to declare his status (can't think why)
and whose throwaway line to close the deal was: “Well, it's also 10 quid a
month cheaper” (that is cheaper than the repayment mortgage).
This highlighted the real problem, namely, the fact that where unrealistic
expectations of investment returns have been used – higher than the rate of
interest payable on the mortgage – then the overall outgoings will be
cheaper but at the expense of a higher risk of not achieving the necessary
returns to repay the mortgage.
Where a policy was sold on the sales pitch that it saved money, it was
clearly an incautious approach. But surely the bottom line is thatthe past
returns on endowment policies have been well in excess of the cost of
borrowing money at typical mortgage interest rates. A margin of 4 per cent
is not untypical.
If ever investment returns fall below that level of mortgage interest, it
means that British industry will not be able to make an investment return
on borrowed money. That will spell the end of commerce, investment and
industry as they will no longer be able to earn money on borrowings. I find
it difficult to believe that such a scenario will happen during the next 25
The programme was sensational, shallow and trite in its treatment of the
subject. It concentrated on a number of admittedly really bad cases without
any comment on the majority of cases, which provide no grounds for gloom
Certainly, there has been bad selling in the past. We all know where so
many of those policies have ended up – in closed funds. Maybe the programme
should have applied more pressure to have the victims' cases reopened and
proper compensation paid.
It would appear that it is just as important for the programme-maker to
present his product to maximise his viewing ratings as it isfor the
financial adviser to earn his commission on the sale of an appropriate
mortgage policy. The difference is that the financial adviser is very
rigorously regulated and has to ensure that records are good and advice
A golden opportunity was missed for showing up the general serious
shortcomings and poor performance of many but not the majority of endowment
Information about which companies have bad surrender values and high
charges would have been really useful. The only objective analysis of
endowment policies was that carried out by the Office of Fair Trading about
five years ago but even that very well written document was misquoted at
the time. Let's face it, bad news sells. Cry foul and you get more viewers.
I am not suggesting that endowment policies are magic or right for most
people. The new flexible mortgages and Isa mortgages may be better for
many. However, many of thetotally justified criticisms levelled at
endowment policies have been addressed by providersstill offering them.
Sadly, the worst feature, namely the inflexibility, is enforced by the
Inland Revenue rules over qualifying policies.
All I wish is that the deliberate assassination plan to destroy endowment
policies, could be replaced by objective assessment, instead of which we
have suffered a campaign largely motivated by the current fashion to deride
payment by commission.
This has been compounded by the Government's belief that, while lawyers
should be entitled to write their own unlimited pay cheques, financial
advisers should provide their services gratis.
Sadly, all this criticism could have the effect of the withering on the
vine of a product has served millions of homeowners very well.
If that, combined with declining profitsas a result of stakeholder's
unprofitability, undermines the financial security of lifecompanies and,
therefore, with-profits funds, perhaps with-profits endowment policies have
If they do die, I do not believe it will have anything to do with a flaw
in the basic product as supplied by the majority of life offices. Panorama
has done the product a disservice.
What a pity about the BBC's Panorama Mortgage Timebomb programme last