Endowment (again!) - early encashment PENALTY...

[gordonhall]

Ok, its me again. By now you will realise we are thinking of cashing in our endowments as they are next to useless.

HOWEVER... I've just phoned one company and asked what the process is for cashing it in. The lady was very nice and she said that we were being offered £5800 for the early surrender of the policy (I also have that in writing.)

However, she also told me that the actual policy is worth £10,800 and that the £5,000
that I will loose is an "early encashment PENALTY". Made up of admin charges (although most of these will have been paid she tells me).

So in effect, this is simply a PENALTY for cashing in early.

I've seen similar threads to this for early mortgage repayment and wondered what the general thoughts were....

[pmhread]

Ouch!!! I knew there was a penalty for cashing in early but thats just silly.

Have you looked into selling the endowment. You can usually get far more for it this way.

EDIT... Sorry just read your thread about them being unit linked.

[gordonhall]

I have contacted a compnay, and they will get an offer in the post in the next couple of days, but its not going to be a great deal over what I've been offered is it?

I have contacted the OFT and they have asked me to send in the terms and conditions once I receive them from the endowment company.

I requested them a couple of days ago so hopefully in a week I'll be better informed.

Strangely enough, when I spoke to the OFT about the situation, their standard reply was "well, what does it say in your terms and conditions?". I reminded them that the banks terms and conditions tell us there will be costs/penalties, but that it doesn't make it legal!!!

Watch this space...

[johnmccallum]

Hi
Was the endowment covering an interest only mortgage , if it was did the adviser fully explain the contract to you at the point of sale if not i would consider complaining about the advice (not the performance) i have done this and recieved all premiums back plus compen , also were you aware that it was unit linked .Who is the endowment with?

[gordonhall]

Hi John,

thanks for all the advice in various threads.

Latest situation is...

1) Policy is with Phoenix (was Royal Sun Alliance
2) Surrender value is £5800
3) They tell me the actual policy value is £10,800 but because I am cashing in early (an early encashment penalty) then I loose £5K
4) I have put it up for sale and have been offered 8K

5) Don't quite know what to do now. Obviously, it would seem that financially, the best thing to do is to sell it rather than surrender, but I wondered if this "early encashment penalty" falls under the same legislation as the we are using against the banks. 5K seems like a lot of money to me.

I'm prepared to sell and cut our losses, but its still best part of 3K to be lost.

Any advice out there?

[gordonhall]

An update on this - I've attempted to sell the policy, but unfortunately, we can't find our original documents, and it's Phoenix's policy not to re-issue original documents, so we can't sell.

Our only three options now are

1) Cash policy in for £5800 - £5000 less than the policy is valued at
2) Freeze further payments and claim the £10,800 in 10 years when the policy is due
3) Continue to pay into a cr*p policy


I'm thinking option one is best, but I'd still like to pursue the idea of "early encashment penalties" as being possibly refunded.

I did have a letter of explanation as to why we were getting so little. If anyone is actually interested in what Phoenix had to say, let me know and I'll post it up on here. It runs to 2 poages, so I can't be bothered unless anyone thinks they can help me!

Sorry to be so glum!

[Movingon]

Dear Sirs

I now know that the Early Encashment Penalty you charge for early encashment of your endowment policies is a disproportionate penalty and therefore unlawful at Statute and Common Law. It is quite clear from it's title that this is a penalty for not carrying the agreement through to its full term which is clearly an unenforceable term in our agreement. If it is not a penalty but truly does reflect the costs to which you are put as a result of my early encashment activities, then you will be pleased to provide me with a full itemised breakdown of these costs detailing exact expenditures.

Failing this, I expect you to provide me with, and honour, a quotation for early encashment which does not include this unlawful and unenforceable penalty charge. I will accept a quotation which includes a reasonable and believable pre-estimate of your costs related to early encashment, whereupon I will make a decision as to whether to proceed. I remind you that I am protected by legislation which relates to the terms of our agreement to do business, and also to the appropriate, proper and professional selling of endowment policies, and I will if necessary pursue the fullest remedy possible within those laws.

Yours faithfully

Thoughts anyone?

[gordonhall]

Ok, someone has listened, so here is (most) of my letter to them - I kept it informal as I didn't want them getting a sniff at this stage that I may take it further ...

Dear sir,


I have recently written to you in regards to cashing in the above policy. However, I was more than a little disappointed in the surrender value of £5851.00. I phoned earlier today and spoke to a very friendly woman and asked what I needed to do to surrender the policy.
During the conversation, I also enquired about how the final value was arrived at. I was just given a general indication that the actual policy is currently worth £10,800, but because we are cashing in early, there is an “early encashment penalty” (did I get that right?) of approx £5K and therefore that is how the final figure is arrived at.

It would be immensely helpful if you could give me a breakdown of how that figure is arrived at and what the individual charges are (such as admin costs etc).
Also, could you please forward a copy of any original documentation in regards to this policy, and the information that specifically relates to early redemption/surrender charges.

I am also led to believe that there may be within the policy, set times where it can be redeemed without being charged an MVR (market value reduction). If this is the case, could you please inform me when this might be.
It’s difficult for us to know whether to surrender this policy now or to wait for it to mature, and this breakdown might give us the necessary info in helping us to make this choice.

Your immediate help with this matter would be deeply appreciated.

[Movingon]

LOL - I took a much blunter line with mine above didn't I?

[gordonhall]

And they replied with....


Dear gordonhall,


In order for us to answer the points you have raised, it is necessary for us to expalin how your policy works.

A life assurance policy is a long term contract where the policyholder pays premiums over a lengthy period, and Phoenix are due to make a payment to the policyholder on maturity or earlier death.

The policy does not contain guarantees regarding the amounts which would be payable on surrender before the maturity date. Indeed if the values were guaranteed it would be necessary for us to invest the premium in fixed-interest securities with guaranteed payments, and this would be expected to reduce the overall return to policyholders compared with the present position where we make substantial investments in shares and property.

Part of the premium received by Phoenix is used to meet the cost of the life assurance cover which is provided. This is a valuable benefit to the policy holder. Furthermore in addition to the cost of the life assurance risk, there are expenses incurred in the setting up and ongoing administration of a life assurance policy. These expenses need to be recovered whether the policy is continued for its full term or whether it is surrendered early.

We are unable to prepare a numerical breakdown of how the surrender value has been calculated. However, broadly speaking, the surrender value is calculated using an actuarial formula by discounting the basic sum assured plus bonuses from the expected date of payment back to the present date and deducting the discounted value of the expected future premiums.

Naturally the actual calculation method is somewhat more sophisticated. However the above description does give a good idea of the reasoning behind the calculations.

As detailed above the investment income and other expenses are not attributed seperately. These expenses include marketing and litereature costs, administration setup costs, regular administration costs such as premium collection and annual bonus mailings. Thus bearing in mind the above surrender value of the policy less the individually incurred costs is not available.

We trust this explains our position blah blah blah



So, what does it mean and do I have a claim??????

[gordonhall]

LOL. I just didn't want to spark off any suspicions. If I decide to make that claim , then I shall be as direct as you suggested and as much as I have been with the banks. I'll have nothing to loose so what do I care - I don't want to be friends with these people!

[Movingon]

I think you do; there's no way that marketing leaflets cost them £5,000. Also, the "Admin Charges" are paid out of your premium in these things in the early years of the policy... and they even show you this in the unit statements they send out each year in the early years and every five years later on. (Not specifically referring to endowments here, just generally to unit-based money-growth policies).


I think that the "Early Encashment Penalty" is precisely that; a penalty for you pulling out early... which means they don't make as much money out of you as they would have done. They can't charge you for that. I would still go with my letter TBH - but bear in mind the red in my sig and think what YOU want to think, not what I say you should think.

[gordonhall]

My Plan Of Action:

1) Cash in the endowment.
2) See if we get anywhere in regards to the mis-selling of the endwoment (totally seperate issue) - we are currently dealing it.
3) See if anyone else has any further advice on the matter
4) send them a letter regarding the amounts (again) and start the ball rolling with legal action.

I'd still appreciate opinions from a wider circle (no offense Stone, just that more heads are better than one (or two))

Nice that you agree, but will a judge?

[Movingon]

Originally Posted by gordonhall

I'd still appreciate opinions from a wider circle (no offense Stone, just that more heads are better than one (or two))

LOL! Don't forget that's what I specifically advised you to do...

[gordonhall]

thanks Stone.... not been made a mod yet?!?!?