Fair deal for endowments (General Comments)

Member Name: williejohn

Product:	General Comments
Date:	14/03/01 (3264 review reads)
Rating:

Advantages: Cannot loose what you're not going to get

Disadvantages: None

Unhappy with the projected returns on your endowment policy?
Complained about mis-selling? That won't improve the performance of your endowment. A lot of companies have reduced the bonuses paid - and this is the real scandal, not mis-selling. So get going, check out your policy statements and if bonus rates are low - COMPLAIN. Check with my examples, below.
Apparently very few endowment policy holders have complained, probably because these are complicated long term products, made even more complicated by the obscure language used. Read this long message for details of how to compare your policy and if bonus rates are low, don't take it lying down. Don't wait until your policy matures to find out its been a shocker, check it now, check it every year, and if its bad - COMPLAIN.
I have 5 (yes, five) endowment policies, all taken out to repay the mortgages my wife and I have taken out, to buy, build, etc - all on one house. Two of these, with Legal and General were taken out 23 years ago on our first house, and are doing OK. Three are with Scottish Amicable, now owned by the Prudential, taken out in 1985, 1991 and 1992. These are plumbing the depths, and I've had THE LETTER telling me that one (the big one of course) is not likely to return enough to repay the loan. So I started to look at these.
Of course, there is the commission scandal, but its really only a minor part of the problem. The real scandal is the low bonus rates. I've had letters from both these companies explaining that with low inflation and low interest rates, returns have fallen. Nonsense, don't accept this drivel. I did not pay these companies to put my money into a building society, I paid them to invest in stocks and shares on my behalf and to manage that investment for me. Did you pay them to put your money into a building society? Of course not, we can all do that, for free. So the only yardstick to judge the performance by is the sto
ck market. According to the current issue of The Economist magazine (page 110), the long run real return earned by good pension fund managers averaged about 13% over the last 20 years. The long run return of the British stock market is about 9%, and the good managers have beaten this. So we should expect the same with our endowment funds, accepting a slightly lower return because we get life assurance too, as part of the deal.
So now we know how to judge our policies over the long term - but how to assess them in the short term? What I did was to compare the bonuses paid over the years 1994 to 1999 - five years. But first a word about bonuses.
In my policies there are three types of bonus. The first is the bonus on the sum assured, which is the amount of benefit (not necessarily the amount you are insured for - check your statement carefully). The second is the bonus given based on the bonuses already accumulated. These bonuses cannot be taken away. The third is the terminal bonus, paid out when (and only when) the policy matures. If you cash your policy early, no terminal bonus - you give it to the company.
I added up the first two types of bonus, and excluded all special bonuses so that you can compare yours with these. The total bonus on the 'sum assured' for the Legal and General policies was 25.35%, but on the Scottish Amicable policies it was 19.0%. WOW!!. The total bonus on 'accumulated bonuses' allocated by the Legal and General was 12.85%, by Scottish Amicable, 11.0%. Guess why the Scottish Amicable policies are not doing well. Nothing to do with selling commissions, or with low interest rates.
Its not that Legal and General are star performers either. According to their web site, 25 year endowment policies being cashed on March 1 2001 have given an average increase of 12.1% per year. Not bad - but inflation (RPI) averaged 4.6% over this period, so the real return was 7.5% per annum. But compared wit
h Scottish Amicable their bonus rates are great.
What about other companies? I don't have data for bonus rates for other companies - but you do. Post it, lets compare. I've shown you mine!!
There are also tables published each year detailing the returns on with profits policies - for example, in the Daily Telegraph on March 3, 2001. They listed 15 companies, but not Scottish Amicable or Legal and General. The best was Royal London (the return over 25 years) averaged 13.7%, so in real terms was about 9.1%. They managed to beat the average for stocks, and provided life assurance too, so well done lads and lassies in Royal London for your policy holders. The worst of the 15 - National Mutual. Their average return was 10.0%, a real return of about 5.4%. The average of the 15 - 12.3%, a real return of 7.7%, so Legal and General were very slightly lower than average - what hope is there for my (our) Scottish Amicable policies? So check your bonus rates. If they are not a lot better than mine write, email, phone COMPLAIN. Ask how the performance of your company compares with others. Ask what they doing to improve performance. Go to the AGM, stand up, ask questions, be awkward. They have to improve!!! Compare the projected return of your policy with advertisments for other products by the company, such as ISAs. You can bet these don't mention low interest rates, or low rates of return.
Finally, why do these companies pay such poor bonus rates? Good question, and I don't know the answer, but I don't think its to benefit us. Some clues - the with profit fund managers make a charge on this fund every year - the more there is in the fund, the more money there is for their salaries, expenses, bonuses, etc. So when they give us a bonus, which effectively removes the money from the with profits fund, could it perhaps reduce the money available for their salaries? Secondly, for publicly quoted companies, they need to give div
idends to shareholders. I'd be willing to bet that over the life of our policies its better to be a share holder of these companies than to be a policy holder.

This has been a long one, but hope its useful. Get your friends to check out their policies too, compare bonus rates - COMPLAIN. Get a ball rolling - lets get this scandal into the financial press, onto TV, etc, then maybe we'll get a fair deal for endowment policy holders.

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