The "More" Gauge
“Congratulations, Mr Quinn; you are now the proud owner of an endowment policy to pay off your newly acquired mortgage!”
I was slightly confused as I shook the unindependent financial advisor’s hand, not least in part because my surname is not Quinn, and it would still be some years before I would decide to adopt that moniker for my online shenanigans. How was I to know that she would call me by my future pseudonym to ease the telling of this story? Still, my confusion was as nothing compared to the apprehension I felt at buying a house and taking on an accompanying twenty-five year mortgage single-handedly; but I had done my sums, I thought I could afford it, and unless I wanted to live with my parents for the rest of my natural it was something that just had to be done.
There was a sharp knock at the door which then opened. A fresh-faced member of staff stuck his head into the room and blurted breathlessly,
“Stop selling endowment policies. This minute. We’ve just found out…they’re crap.”
The unindependent advisor’s face changed from the beam of financial wizard who had just earned a bundle of commission to the scowl of a cheap conjurer who had realised she had been rumbled.
“Get out…GET OUT!” she screamed, as I was ushered from the room.
And so it was that I became the last person in Britain to take possession of an endowment mortgage.
But you know, things didn’t turn out too badly for me. A few years later I sold that house and moved in with my then girlfriend. The equity on the house paid for all of our wedding and half of the purple Rover 200 that still adorns our drive. And even though I’d flogged that house and rid myself of that mortgage, I still kept on paying into the endowment policy as an investment, anticipating a tidy lump sum in the eventual future. If I had taken out a repayment mortgage rather than an endowment then on selling the house I wouldn’t have had much to show for it, having done little more than to have paid off a few years worth of interest on a mortgage for a house that was no longer mine.
Over the years the name of the company that runs my endowment policy has changed as often as that of a firm of dodgy builders you may see on an edition of Rogue Traders; from Black Horse, to Lloyds TSB, to Scottish Widows. The name has changed, but what has stayed the same has been the nature of the regular letters I’ve received from them, reporting on their progress in investing my cash is a way that should – in theory – earn me a sum of money capable of covering the cost of the mortgage they still believe I possess. Despite the many fluctuations in the economic outlook over the past decade, my provider has consistently warned me that they are failing to earn a sufficient return on their investments to meet the price of my old house (minus deposit). Since there would have been no such concerns if I had taken out a repayment mortgage, then another way of putting it could be that I have been paying money to some so-called financial experts in the hope that they would invest it wisely, but the return on that investment currently seems to have failed to match – or has in fact been outperformed by – the returns on a simple repayment loan set at an extremely low level of interest.
So what to do? Well, nothing, basically. After all, as I said, even if my endowment policy doesn’t cover the cost of my mortgage when it matures, that mortgage and house are long gone as far as I am concerned, and so any shortfall is irrelevant in that regard. But recently there has been a change of tone in Black Horse Lloyds TSB Scottish Widows’ correspondence. Sure, they are still admitting that they’re not going to get anywhere near hitting their nominal target, but now it seems the time for prevaricating is over: action is needed, and needed NOW! I concur of course; if they are failing in their job then they really should take action to sort things out. Yet strangely, rather than detail the actions they are taking to put things right, instead the letter informs me of the sort of actions I should be taking; rather than it being a case of them getting their act together, instead it seems that I am the one who needs to pull up my socks and make arrangements to cover this shortfall that they have created (although apologies and an acknowledgement that it is their failures that have led to this shortfall, there are none).
They are nothing if not helpful, though, my endowment policy provider, whatever it is they’re called today. They haven’t just abandoned me to try to find my own way out of this crisis. Oh no; their letter runs through a number of options I can take so to aid me in my plight. They suggest I could change part of my mortgage to a repayment loan (not feasible in my case, since I don’t have that mortgage any more), I could set up an additional savings scheme (to pay for a house I no longer own) or I could vary my endowment plan by increasing my payments into it (or, in other words, they are saying “look, I know we’re not on track to get anywhere near to earning you the lump sum we said we would do, but you could always bung us a load more money to see if we can get it right this time, eh?”) None of these options seem to me to be worthwhile, tempting, or in some cases physically possible.
But Scottish Widows hasn’t finished yet. They’ve clearly read up on Nudge, and want to help me to make the right choice. For them. So they say that all they require is a simple signature on a piece of paper and in a trice they are willing to authorise an increase in my payments into the policy by some 25%, and that should solve all my shortfall problems. Perhaps. Well, at least until the next set of circumstances conspire against them and their smart investing ways. Oh yes, and smuggled away in the small print it mentions in passing that if I refuse to give them any more money they will in turn refuse to “lifestyle” my endowment policy; in other words, in the closing years of my policy they will no longer transfer some of my units into lower risk investments, so to protect against sudden drops in the stock market in my policy’s final days. Which is nice of them.
Now, giving these folk another wedge of my cash is the last thing I want to do, frankly, but I would quite like to keep that lifestyling bit if you don’t mind. A conundrum then. Which options should I choose? I need a second opinion. Fortunately Scottish Widows are also forced to include a leaflet from the FSA with their correspondence, and that leaflet also handily goes through all the options I can take to deal with my theoretical shortfall, indicating the pros and cons for each choice by a selection of ticks, crosses and question marks. Repaying my mortgage early by paying a lump sum or overpaying each month, for example, earns two ticks ( “this will reduce the amount you owe…” and “it may be better value that saving up separately…”) and two question marks ( “you should check whether your lender will make an early repayment charge…” and “you should check when your lender will give you the benefit from extra payments…”). So, converting part of the mortgage to a repayment loan earns 3 ticks; converting the whole mortgage to a repayment, 2 ticks, 1 cross and a question mark. Starting an additional cash savings plan gets another 3 ticks, while doing the same with a stocks and shares ISA gets 1 tick, 2 crosses and a question mark. As for altering the endowment policy: extending the term gets just 1 tick, 3 crosses and 2 question marks, while bringing up the rear with 3 crosses, 2 question marks and not a single tick is the option to pay more into my existing endowment policy. Even though I could suggest a fourth cross I feel the FSA has omitted there – that “it’s probably not a great idea to shovel yet more money to the people whose investments have created your shortfall in the first place” – this is still the option the FSA feels is the worst possible available, and it is also the option that Scottish Widows wants to bully me into taking. And indeed will punish me if I don’t take it.
As I say, this isn’t a major problem for me as my endowment policy is designed to pay for a house that is now owned by other people (although as my wife’s endowment policy is also currently going south we may need mine to swing into action to pay for the house we do live in.) Still, it will be pretty annoying if my continued investment suffers due to a lack of lifestyling should my endowment policy happen to mature the day after a Lehman Brothers-type bankruptcy and accompanying stock market collapse. More annoying is the principle; that Scottish Widows feels it can just request I pay more money into an endowment policy that by the very nature of the request they admit is to some degree failing, and unilaterally alter the terms and conditions on that policy should I refuse to comply.
All of which is a rather roundabout way of saying that I really must get around to digging out the helpline number and giving the FSA a ring. What do you reckon? It’s not as if they have any more pressing matters to deal with at the moment.