The real problem with the endowment review (IFAs slam “scaremonger” FSA
over endowments, MM, July 5) is not what the FSA says in its factsheet but
how the media interprets it. That is how most customers will get their
opinions on the subject.
Media comment is a real problem. Last week, a reporter on Today on Radio 4
said the fact that 70 per cent of policy-holders had not yet taken any
action was very worrying and went on to suggest that, in a few years, this
could turn into the worst repossessions' crisis ever.
This is arrant nonsense. For most people at this stage, doing nothing is
precisely the right option.
First, it would require only a relatively small improvement on the assumed
investment returns for the putative shortfalls to disappear.
Second, if the shortfalls are realised, the policyholders will still be
sitting on an asset whose value is likely to be quite large in relation to
the shortfall and would have several options to cover it. For example, from
other savings, from part of a pension commutation or from a planned move to
a smaller house after the children have left the nest.
There is scarcely a lender in the country who would not extend the
mortgage for a few years on a repayment basis to cover any shortfall,
especially if the endowment was recom-mended or provided by the lender in
the first place.
There is also a degree of naivety in the implicit assumption that most
policyholders would take any action now. The insurers are, in effect,
writing to customers to tell them that the endowment policy their adviser
described to them with such confidence a few years ago has not been such a
good investment but that one way around this difficulty would be to put
even more money into the same policy. Good sales line.
If you look at it from the customer's perspective, then the survey
findings are neither surprising nor particularly worrying. But, of course,
neither the regulator nor the insurers see it this way. They regard the
review itself as just another product and process to be executed rather
than as a benefit tailored to customers' real needs.
I am not sure whether the Radio 4 report was uninformed journalism or
deliberate sensationalism but either way it did little to help its
listeners gain the balanced perspective that they need.
The Oliver Small Partnership,