Job cuts at the FOS

In a recent report the Financial Ombudsman Service has announced that around a quarter of its workforce will be losing their jobs, as resources are streamlined to fit in with workloads.

Although the Financial Ombudsman Service has been receiving many complaints about bank charges it had been dealing with a high level of complaints relating to mis-sold endowment policies. The number of complaints relating to this issue reach its peak in 2005 but then began to taper off.

It is thought that the workload of the Financial Ombudsman Service will fall significantly in 2005, particularly if banks continue to reduce their overdraft charges, as many have stated they will be doing. Nearly a million complaints relating to endowment policies have been dealt with by the service of the past few years, with around seventy thousand complaints coming in for 2005. However, although more complaints were expected the issue seems to be cooling down.

One FOS spokesperson stated that staff number were being cut in order to align them with demand and workloads, and that it was hoped many of the job cuts would result from voluntary redundancy. The Financial Ombudsman Service is the main point of contact for complaints relating to financial institutions and services. The aim of the Financial Ombudsman Service is to try and resolve disputes between consumers and financial service providers, and award compensation in cases where this is deemed appropriate.

Bosses at the Financial Ombudsman Service will soon be starting consultations with the staff council in order to finalize the details of the job cuts.

Complaints relating to mis-sold endowments have dropped to under thirty thousand for this year, with one official from the FOS stating: “We are not processing the hundreds of thousands of endowment mortgage disputes since 2005.”

Tom Smith
24th October 2007

Tags: vuts, mortgage, jobs, ombudsman, financial, endowments

Victims of mis-sold endowments owed millions

According to a recent report the victim of mis-sold endowment policies are owed at least £200 million collectively.

Endowments are policies that are sold alongside interest only mortgages, and this is where the mortgage repayments made by the borrower will only cover the cost of the interest, so at the end of the mortgage term the initial loan amount is still outstanding even though the interest on the loan will have been paid off in full over the term.

Although the popularity of interest only mortgages has fallen, with some lenders refusing to offer mortgages on an interest only basis, they were very popular in the 1980s and 1990s. In order to be able to pay off the initial loan at the end of the mortgage term those taking out interest only mortgages also had to pay towards an independent investment, which was the endowment, and this was designed to mature over the mortgage term to raise enough cash to pay off the initial loan once the mortgage ended.

However, according to many reports consumers have been mis-sold these policies in many cases, where they were not warned of the risk associated with this sort of investment and were instead led to believe that the investment would definitely raise enough to cover the principle loan amount at the end of the mortgage term. However, many consumers have been informed that their endowments are under-performing, which could lead to severe problems once their mortgage term ends.

Many companies that sold these endowments have now put aside funds to deal with claims, and there are various campaign groups such as Which? offering advice to those that feel they were mis-sold an endowment policy. Because standard charges were also used when selling these policies in the past the impact of charges on future returns was also underestimated.

Tom Smith
1st October 2007

Tags: interest, borrowing, Loans, endowments, savings, Mortgages

Endowments Still Failing

Despite the last four years seeing a rising stock market, millions of endowment policies are still unlikely to be worth enough to pay off the mortgages they were meant to cover.

 There have been soaring share values around the world, and record growth in commercial property, but for six million mortgage endowment policy holders in Britain it will still not be enough.

The Association of British Insurers has produced figures that reveal that to the end of 2006, two thirds of endowment policies in force were still in the red band – that is, they will not deliver the target sum upon maturity. Those achieving a green rating were only 18%, and should deliver the target amount. The figures are only marginally better than at 2004, when 71% were red and 14% were green. Amber policies make up the rest – these are at risk of not paying the intended maturity value. The booming stock and property markets do not seem to have had much of a positive effect on these policies.

Deeper investigation shows that the overall trend disguises huge differences between insurers. Where there are some companies forecasting that nearly all their endowment policies will hit the targets, others have only a meagre number that are expected to deliver the goods.

Sadly it is some of the bigger companies, who between them number two million endowments, who are failing. Norwich Union, Standard Life and Friends Provident are those with the highest number of prospective shortfalls.

One couple in Fareham, Hants have two endowments they hoped would pay off their £41,300 mortgage. A Legal & General policy started in 1983 is due to mature next year and is expected to beat its target of £22,800 by around £2,000. The other policy was taken out with Royal Insurance in 1988. It is now run by Phoenix, part of Resolution. Due to mature in 2013, the latest projection in spring suggested it would fall short of its £18,500 target by somewhere between £5,000 and £7,000. They will have to re-invest the £2,000 from Legal & General to help pay the shortfall of the Phoenix policy.

The Phoenix policy’s recent performance has been poor, giving returns almost less than investment. How can that be the case with such good growth in the markets in recent years?

Most endowment policies are invested in “with-profits” funds. These spread the money from savers across a number of assets that include shares, bonds and commercial property. In the past five years shares have managed average returns of 10%, and commercial property has average returns of over 15% in the same period. Bonds only grew by an average of 4.6% per annum, and the in past twelve months have actually gone down in value. The problem was that many insurers got cold feet in the share and property market in 2002 and 2003, and transferred large parts of their funds to bonds. Thus, the funds have failed to take advantage of the rising stock market and commercial property prices.

Small companies Wesleyan and Liverpool Victoria have no policies in the red, and Legal & General now has half of its policies in green, up from 20% in 2002. Conversely Standard Life has 88% policies in red, up from 68% in 2002.

It seems that most endowment investors have missed out as equity markets have soared.

Tom Smith
18th July 2007

Tags: red, equity, profits, black, shortfall, Mortgages, short, invest