An endowment is a regular premium policy which ends at a predetermined maturity date or on the death of the life-assured person, if that’s earlier.
Policies mix life cover and investment, but are usually geared more towards investment.
There are many types of savings endowment, for example, full, low cost and low start endowments. They can be unit linked, with-profits, mortgage endowment policies or savings endowment policies.
Types of complaints we see
The complaints we see most often are about:
- 10-year savings plans
- endowment savings plans
- maximum investment plans
What we look at will depend on what kind of endowment the complaint is about.
Examples of complaints we look into include:
- the charges, such as the cost of life cover, were too high
- there was a reduction in yield which meant the return wasn’t worthwhile for the customer
- the premiums for the policy collected regularly from a customer's home by a collection agent were too high
What we look at
The main purpose of a savings policy is to save for the future and achieve a positive return. So when considering a complaint, we’ll decide whether the plan was a worthwhile investment. We’ll also look at whether the policy was suitable for the customer in the first place.
If we think it’s possible at the time the advice was given that the return would be less than the amount the customer would be investing, we’ll look at the reasons behind the choice of policy.
Where a plan has been sold by an independent financial advisor, special rules apply, so we’ll have to consider these base on the individual circumstances.
Find out more about what we look at:
Sometimes, the customer complains about the amount the policy has returned, but the more significant issue is actually the suitability of the plan. So we’ll start by checking that the policy was suited to the customer's needs.
Many customers who’ve taken out endowment plans will be considered ‘low risk’, but should have been classed as ‘risk averse’. We’ll always take into account what the customer would have done with their money if they hadn’t taken out the savings plan.
If we’re satisfied the policy wasn’t suitable as a general savings vehicle for the customer, we’re likely to uphold the complaint.
If we believe the sale was execution only and the customer did, or should have, understood that it was execution only, we’re unlikely to uphold the complaint.
But even where the customer started the plan as a result of a mailshot or an illustration, we must be satisfied that the information provided was clear, fair and not misleading for the customer to make an informed choice. If not, the sale is still in question because the execution was based on inadequate or misleading information.
Illustrations must be balanced in the presentation of information.
Read more about how we assess the suitability of an investment.
The difference between the projected return and the projected return after costs are applied is called the reduction in yield.
In complaints related to reduction in yield, we’d expect you to be able to provide or recreate an illustration from the point of sale. This is to show the projected return on the plan after the cost of life cover and any charges have been applied.
If there’s no illustration, we may ask you for information about the costs of the plan. We’ll take these costs into account, along with other relevant information, to see if we think the plan offered a realistic prospect of a reasonable return.
If the illustration showed the return would be less or only slightly more than the amount to be paid into the plan, we’ll consider if the customer knew this when the plan was taken out. If this wasn’t discussed with the customer, we’re unlikely to agree that it was made clear, even if it was shown on an illustration.
We usually think it’s unlikely a customer would choose an investment if they knew they’d be getting back less than they paid in. If we decide this wasn’t made clear to the customer, we’re likely to say the plan was unsuitable.
We don’t have a definition of a ‘worthwhile’ investment, but instead take a sensible approach. We’ll consider any reasons why someone would choose to invest in a plan that would return less than if they held the money in a bank account (assuming reasonable growth). We’ll then decide if the customer had been financially disadvantaged by taking out the plan.
Because the plan proceeds are paid to the customer without any tax liability, we’ll look at the total return to the customer. So it might be appropriate to look at the gross return received. This is relevant when the customer is a higher-rate taxpayer.
A common problem we see is the effect of the charges, such as the cost of life cover, on the final return.
These costs sometimes mean there was little chance of getting a worthwhile return, unless the fund had grown well above any reasonable estimate.
The need for life cover
Life cover is included in deductions from the plan. It’s included to make sure the policy meets the qualifying rules so that it’s beneficial for the customer but the amount is usually very low.
In some cases, the deduction might make a large difference to the return the customer receives, even though they don’t need the cover. So we’ll carefully check if the customer actually needed the life assurance.
The cost of the life cover can vary substantially, depending on the age of the customer when the plan started. If we decide the customer needed it, we’ll work out the actual cost of the life cover as a percentage of the premium. We may still uphold a complaint even this percentage is very small.
If the reduction in yield is large but isn’t caused by the cost of life assurance, then we’ll look at what other charges could be causing it and if they make the plan unsuitable.
Industrial branch sales
Industrial branch sales are where the premiums for the policy are collected regularly from a customer's home by an agent. The cost of collection means that the charges are usually higher than policies where premiums are paid from a bank account. So this is the most common type of policy we see among complaints we receive about charges.
These aren’t always unsuitable. But we’ll need to carefully consider what the customer understood at the time it was sold to them, especially if the agent was selling door-to-door and we find the plan is very different to the one sold in branch.
Charges tend to be higher for older customers, possibly because a greater deduction is made for the cost of life assurance. Although the customer's age alone isn’t evidence that a plan was unsuitable, we’ll need to look closely at what you explained to the customer at the beginning.
Handling a complaint like this
We only look at complaints that you've had a chance to look at first. If a customer complains and you don't respond within the time limits or they disagree with your response, then they can come to us.
Find out more about how to resolve a complaint.
Putting things right
In suitability complaints, our general approach to putting things right is to place the customer in the position they’d be in if they hadn’t been given the incorrect advice to take out the plan.
In these cases, we’ll usually recommend either:
- that the business should refund the premiums paid into the plan and compensate the customer for lost investment opportunity (less the surrender or maturity value)
- that the business should refund the premiums paid, plus interest
In cases where we’ve decided the customer needed the life cover provided by the policy, we might say the cost of the life cover should be deducted from the compensation awarded.
Find out more about how we award compensation.
Delay in proceeds of policy being paid