Feeling down about your endowment?

Adam and Simon put your queries to our experts

Louise Hanson from the Consumers' Association and Pat Bunton from London & Country mortgages answer your letters, e-mails and phone calls on endowments.

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Starting with Pat...

Pat listens to your endowment concerns

Sunil Sood: "About six years ago I took a mixed mortgage of part endowment and part repayment.

"It was designed to give us 30% redemption (about £22,500) on the 15th anniversary of the term, but our interest rate can't go below 6.99%.

"We recently converted the whole mortgage to repayment because of a shortfall warning and plan to just get the bonus redemption.

But with interest rates so low, should we continue for another nine years or move to a better rate deal?"

This Britannia mortgage is designed to give you a bonus of 30% of the amount borrowed.

Importantly, the bonus is 30% of the balance owed on the 15th anniversary and therefore if the balance has dropped because it is a repayment mortgage then so would the corresponding bonus.

The bonus you will receive is therefore going to be far less than the £22,500 you are expecting. If, for example, your mortgage has halved by 2012, then so would the bonus.

Simplistically, at present you are paying 6.99% and that is high in today¿s market.

As an example it is possible to get variable rate mortgages without any redemption penalties at around 3.75% and this difference of 3.25% is huge.

If anything like this sort of differential were maintained for the next nine years then clearly you would be better off switching.

I have to say that it would appear at first sight as if you have not been told the whole truth about the Britannia product you have been sold.

I would strongly urge you to take that up with Britannia as it would appear that you were not given a clear explanation of the product in the first place.

Tony Belenkin: "My endowment policy is worth £18,000 at the moment, which would pay off most of my outstanding mortgage and massively reduce my monthly outgoings.

"Should I cash it in or wait for its full maturity in 2008, as even the 4% growth predictions are worth another £6,000?"

You are only five years away from the final payout of your endowment policy and, as the figures show, you only need it to grow at just over 4% per annum in order for it to repay your mortgage.

In your situation there is no hard and fast answer as to the right option.

On the one hand your policy still looks on track to deliver against its original target, but on the other you could surrender early, pay off a big chunk of your mortgage, and enhance your monthly cash flow.

A monthly saving of £150 per month over five years equates to £9,000 and if you take this and add it to the £18,000 surrender value it would be equivalent to the policy paying out £27,000.

The gamble therefore is to do that and guarantee those figures, or to stay put and hope that the policy will pay out more than that amount.

There is no right or wrong here, you should proceed whichever way you feel most comfortable.

Mark Wilson, Pembrokeshire: "I was advised to take out an endowment mortgage because I was unemployed with little prospect of employment due to ill health.

"The idea was to keep the interest payments high, so the DHSS would pay while I was on benefits (this never happened). It also promised a lump sum on maturity.

"We've since taken out a second endowment with a different company (Sun Life of Canada).

"There's a shortfall on both policies but with the first, we have to pay in extra money, while with the second, the company admits its prediction was wrong and is paying in the extra for us.

"Why the difference and do I have grounds for complaint?"

I have to say that at face value I am absolutely staggered that any adviser sold you an endowment policy as the reasons you have been given make absolutely no sense to.

It appears that you have been sold the policy on the basis that it will pay off the mortgage and provide an additional lump sum as well.

All endowment payouts are linked to the investment performance of the insurance company you take it with and as many policyholders are now finding out the end payouts are not guaranteed.

If you were sold a policy on the basis of guarantees, or were not told about the risks involved, then you have a clear case for complaining that the policy was mis-sold to you in the first place.

Another way of dealing with any anticipated shortfall is to switch that part of your mortgage to the repayment basis and I have to say there is an element of not throwing good money after bad here.

The Sun Life of Canada situation appears to be different here as the reason they are contributing to your policy appears to be due to an error in their original quotation to you and not because investment performance was lower than they expected, although this may well have been the trigger that made them look at your policy.

Different insurers are handling the shortfall question in different ways, but for the reasons given you should definitely complain to see if there are grounds for you to be compensated for inappropriate advice.

Stephen Price, Northumberland: "My endowment policy started in 1992 to mature with £43,000. I've paid in nearly £8,000 so far but it's only currently worth £6,500, and I've been told there'll be a shortfall of nearly £19,000 on maturity.

"Luckily I've been paying off the loan with extra lump sums, so I only owe about £10,000.

"Should I keep the endowment as a savings plan or sell it and invest elsewhere?"

It is almost certain that your policy is unit linked and not with profits and this means that it is not a policy that you can sell in the second-hand market.

That is because the value of this type of policy is the value of the units held times the number of units held.

It would appear from the figures that you have provided that the policy is woefully short of its target and, whilst this must be distressing, you are fortunate that your mortgage overpayments have effectively insulated you from this.

There may be a good case here for surrendering the policy and instead diverting the monthly premiums into a more tax efficient and flexible savings plan like an Isa.

Remember though that with any stocks and shares related investment you are exposed to risk and if you cancel your endowment you will lose the life cover that it currently provides.

Ultimately, your decision is one of personal choice, but in your shoes I have to say I would be tempted to cut my losses and look elsewhere for my savings in the future.

Mrs Anderson has received a letter saying there¿s a high risk her endowment won't reach its target in nine years time.

Should she pay more into the existing policy, start a separate savings account or change to a repayment?

I've looked into this and, unfortunately, the policy is a long way off where it should be.

The easiest and safest way of tackling the shortfall is to switch that part of your mortgage to a repayment basis.

Assuming that you have nine years to go and that you are paying a typical mortgage rate of 5.75%, your mortgage payments would increase if you took this option by between £30 and £140 per month.

The potential silver lining in the cloud here though is that you may be able to save that much or more by re-mortgaging to a lower interest rate.

In other words by reducing your mortgage rate the shortfall could be dealt with for you at no cost.

Ian Sneller: "I currently have a part endowment and part repayment mortgage and am looking to re-mortgage.

"Should I hold onto my endowment policy or go for a full repayment mortgage?"

The easy answer is to say that if you can afford to do both then that is absolutely the best thing to do.

By switching your entire mortgage to the repayment basis you will liberate the endowment policy into being a freestanding savings policy.

Any pay out made upon maturity would then not only be tax free, but yours to do exactly as you please with.

Douglas Woodburn, Lancashire: "I have four endowment policies with Scottish Provident maturing in 2004.

"How can I find out if it is better to cash them in now or wait until maturity, bearing in mind bonus cuts and early surrender charges?"

These policies are almost certainly with-profits policies and they are very close indeed to maturity.

Assuming that you have held these policies for the long term then it is likely that any payout in 18 months time will be good.

The bonuses already added are guaranteed and although terminal bonus payments have been falling you are almost there now.

You could make enquiries in the traded endowment market and compare these to the surrender value that Scottish Provident are quoting, but I have to say it is normally not in your interests to get rid of this type of policy so close to maturity.

Sandra Walker, West Midlands: "When my mortgage 'matures' do I have to use the endowment to pay the mortgage off or can I keep it going until interest rates and market conditions improve, thereby raising its value?"

Unlike a pension plan all endowments have fixed maturity dates and therefore it is not possible to defer it for any reason.

On the specified maturity date a payout will be made and the life cover will cease and there is nothing that anyone can do to alter this.

David Kemp, Cumbria: "I have an endowment policy with Barclays Life which I took out in 1992 for 13 years.

"It's only worth £11,600 and is decreasing in value.

"Barclays has offered me three options - to make changes to the loan, start an Isa or savings plan, extend the policy or top it up.

"I can't see the point in 'throwing away' £111 every month.

"Should I not just cash it in and put the money towards a repayment?"

This policy was taken for a relatively short term of 13 years and will almost certainly be unit linked.

As such the value of the policy on any given day is the value of the units times the number of units held.

Converting all or part of the endowment policy to repayment are sensible options to consider and if you are worried about the future outlook for the policy's performance then you could consider surrendering the policy, using the payout to pay down the mortgage, and then rescheduling the balance left over a sensible term that will meet your budgetary requirements.

This shouldn't be difficult, as lenders these days are pretty keen to help worried borrowers like you.

Richard Carroll: "My endowment, which started with National Mutual and was bought out by Friends Provident, is due to mature in 2007.

"I was horrified to find that the terminal bonus is only 12%, a reduction from last year's 40%.

"Can I check this figure anywhere or find out if both National Mutual and Friends Provident's policies are being treated equally?"

Terminal bonuses paid on with-profits endowment policies have traditionally accounted for the largest part of the total policy payout upon maturity.

These bonuses have been under severe pressure over the past few years and because they are discretionary and set by the insurance companies themselves the insurers have opted to cut them in the light of the relatively poor performance they have achieved.

You are absolutely right in thinking that the terminal bonuses for each of your policies are different.

Without getting too technical this is true and the older National Mutual policy has different terminal bonus calculations to Friends Provident.

The actual size of terminal bonuses that you will receive for each will be influenced by how long you have held the policies and the amount of any annual bonuses that have been added previously.

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Louise answers more of your queries...

Louise Hanson shares her knowledge

Paul Layzell, Essex: "My wife and I took out our first endowment with Friends Provident and within a very short period of time had to relocate and move.

"We subsequently went into a well-known High Street bank for advice and a new loan and were told at the time that we couldn't use the existing policy for a number of reasons.

"What then happened, was when moving once again, we found that we could have used the initial policy and simply topped it up.

"Armed with that information, we went back to the bank to seek an explanation and after much correspondence, the bank said that without the evidence that that was what had happened at the time, there was very little they could do.

"So consequently, what we decided to do was write to the FSA and they referred us to the ombudsman and 10 months later, they wrote back and said that because our policy had been taken out just a few months prior to the Financial Services Act of 1988, there was nothing they could do. Where can we go from here?"

Depending on when you were sold your endowment policy affects whether your complaint can be dealt with by the Financial Ombudsman Service or if the business is no longer trading, the Financial Services Compensation Scheme.

Financial Services legislation was introduced in 1988 and since then consumers have been able to take complaints to the Financial Ombudsman Service (or one of it's forerunners) if unhappy with the outcome of the complaint to the company.

If the company has gone out of business, they have been able to take their complaint to the Financial Services Compensation Scheme.

However, because sales and advice was not regulated before this legislation, endowment policies sold before 1988 and in early 1988 do not fall automatically under the safety net of the Financial Ombudsman or Compensation Scheme.

There are some important dates to consider if you were sold before 1988 or in early 1988.

If you were sold your policy before 29 April 1988, unfortunately you do not automatically have the right to take your complaint to the Ombudsman if you are unhappy with the outcome of the complaint from the company.

However, many large companies have voluntarily agreed to allow complaints about policies sold before this date to be dealt with by the Ombudsman.

If you were sold your policy before this date and are not sure whether your complaint can be dealt with by the Ombudsman, you can contact their helpline on 0845 080 1800.

If the company who employed the adviser who sold you the policy has gone out of business or is no longer trading, you can take your complaint to the Financial Services Compensation Scheme.

Unfortunately the rules don't allow the Financial Services Compensation Scheme to investigate any potential claims that relate to policies sold before 28 August 1988.

The website explains more about how the Compensation Scheme handles complaints and can be found at www.fscs.org.uk.

Gillian Bromley, South Yorks: "I was mis-sold an endowment mortgage in 1992 but the company who sold it no longer exists. Where do I stand with them - will I miss out on compensation?"

The Financial Services Compensation Scheme (FSCS) is an important safety net for customers of financial services firms.

They pay compensation if an authorised firm is unable to pay claims against it, usually because it has gone out of business. The scheme is funded by the industry and covers deposits, insurance and investments.

The scheme will consider complaints in a similar way to companies and the Ombudsman, and during the investigation, they will make a judgement based on your grounds for complaint.

Just as with companies and the Ombudsman, not every complaint is upheld as the investigation will judge whether the advice to buy an endowment was correct or not.

There are various grounds for complaint which you should use if you believe you were mis-sold - see answer to Diane Marquis' question below.

Tracey Brake: "In October 2000 our endowment faced a possible shortfall of £10,000 (now at nearly £16,000), so I complained to the Personal Investment Authority Ombudsman.

"No proper financial fact-find had been done and we not offered a repayment option, which we could have afforded.

"But our complaint was not upheld because there was 'no evidence of financial loss'.

"When I telephoned, I was told off the record that if we had a piece of paper with our names and the promise to repay our mortgage sum in writing, it would be a different story.

"Is there anything more we can do?"

It is the case that even if an endowment mortgage is found to be mis-sold, unless you have suffered financial loss, you will not be entitled to compensation.

The Financial Ombudsman Service has set out guidelines that companies should use to work out how much compensation you should be given.

Compensation is normally worked out by comparing your current financial position with the position you would have been in had you received suitable advice.

It may be that correct advice would have been to take out a repayment mortgage instead of an endowment mortgage.

If so, the amount of capital that would have been paid off on a repayment mortgage will be compared with the value of the endowment plan.

If this figure is more than the endowment's value, you have made a loss.

Compensation may include surrender or sale of your endowment policy so you can switch to a repayment mortgage should you wish to.

Compensation will not be calculated to cover any shortfall you have.

David Francis believes he was mis-sold an endowment by Abbey Life in the 80s and wants to know what course of action he should take? Working Lunch has received a number of similar e-mails to this.

If you believe you have grounds for complaint about being mis-sold then you should make a complaint to the company who employed the adviser who sold you the policy.

Abbey Life has voluntarily agreed to extend its review of mortgage endowment sales back to 1988, so depending on when you were sold may mean that Abbey Life contacts you directly.

If you were sold an Abbey Life policy before 1988, then contact the Financial Ombudsman Service to check that the company who sold you the policy falls under their voluntary jurisdiction for endowment mortgage complaints.

Diane Marquis, West Glamorgan: "We took out two endowment policies but our branch manager didn't warn us of any risk.

We sold the second policy seven years ago but were advised to keep the first one going 'to keep things easy' and take out a life policy to cover it.

I expressed misgivings but they were allayed by the estate agent's financial advisor.

Were we mis-sold at any time, and if so how do we prove this to be the case?"

You should consider what grounds you have for making a complaint about being mis-sold.

The Endowment Action website runs through them and can be found at www.endowmentaction.co.uk, but there are certain things that the adviser should have done to ensure the sale met the rules.

For example -

Was the endowment suitable for you?
Your adviser should have made sure an endowment was the best way of repaying your mortgage depending on:
- Your financial circumstances at the time and your attitude to risk

These are some of the reasons why the mortgage may not have been suitable for you:
- Other options for repaying the mortgage were not discussed fully with you
- The adviser didn't explain how your endowment would be invested and explain the risks involved
- The adviser didn't explain that an endowment policy is a long-term commitment that gives a poor return if you cash it in early
- The adviser didn't check you were comfortable with the risks of stock market investment. The adviser should have explained that the amount you would get back depended on the performance of the policy
- The adviser may have said the policy was guaranteed or would definitely pay off the mortgage. This may be a grounds for complaint if you can prove it (in writing). If you have no proof, still include it in your complaint as it may strengthen your case if that is what you were told.

The sale didn't follow the rules
Financial regulators set out what should happen when an endowment is sold to you, but some advisers didn't follow all the rules.

These are some of the reasons why the mortgage sale may not have followed the rules:
- The adviser didn't explain any fees and charges and how they affect the return you get on your savings
- If you bought your policy before 1 January 1995 you should have been given product particulars including charges and cash-in values for the first five years.
After that date, you should have been given a Key Features document detailing fees and charges and their effect over the longer term.
- The adviser didn't complete a fact-find during the sales process.

Payments into retirement
If your mortgage and endowment was set up to continue past your expected retirement age, your adviser should have checked that you would have enough income in retirement to continue to pay the mortgage and endowment premiums.
If this wasn't discussed or you were told not to worry because the endowment would pay off the mortgage before retirement, you have grounds to complain.

Churning
Any endowment policy you held at the time of your mortgage was recommended to you should have been used to back your loan.
Any advisor who told you to cash in the endowment, and then sold you another one to replace it, was guilty of "churning".
Not only is this appalling advice, it's also against the Financial Authority rules and gives you grounds for complaint.

One viewer's written in to say he's recently sent a letter of complaint to his bank and they've acknowledged receipt of it. But what happens now? How long will it all take?

Once you have sent in your complaint, the firm will investigate and should send you a final response letter.

This will explain the outcome of their investigation and should also explain that if you are unhappy, your complaint can be taken to the Financial Ombudsman Service.

Companies should provide you with a response within eight weeks of receiving your complaint.

If you are not satisfied with the results of the complaint dealt with by the firm, you have the right to take your complaint to the Financial Ombudsman Service.

This is a free service and you can find out more about how they can help you by going to the Financial Ombudsman Service website.

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The opinions expressed are Pat's and Louise's, not the programme's. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.