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Watchdog warning on endowment calculations

The Financial Ombudsman is warning that some firms are taking the wrong approach to calculating compensation on top-up mortgage endowments by offsetting “gains” in one policy against “losses” in another.
In this month’ Ombudsman News, it says, in line with FSA guidance, firms must carry out an additional redress calculation for any top-up policies as they are usually in separate contracts, sometimes from different product providers.
Although the ombudsman says it cannot provide figures on the scale of the problem it says it has seen firms do a single calculation which balances “gains” and “losses” affecting the amount of compensation paid.
It says: “We do not believe this is the correct interpretation of the guidance.”
The ombudsman is also calling on firms to review cases affected by the FSA’ explanation in CP126 of how to treat windfall payments when working out compensation on mortgage endowment complaints.
It says the regulator confirmed windfall benefits should not be taken into account for compensation. This is based on the outcome of the Taber pension misselling test case.
Firms are now expected “to review all cases where they have said they would make good any windfall benefits that they took into account when they calculated compensation.”
Ombudsman spokeswoman Alison Hoyland says: “We are a complaints’ mechanism so we do not have figures on the full population affected as we only deal with complaints coming to us that have not been resolved.”

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