More bad tidings for endowment policy holders

Mortgage endowment policyholders were dealt another blow this week when Standard Life reneged on its promise to guarantee that customers' policies would pay out in full.

Two of the smaller companies, Liverpool Victoria and NFU Mutual, reiterated their guarantee to cover the full amount.

Norwich Union said its promise was safe for the time being and that it would give customers three years' notice if this were to change.

As part of the ?repositioning' in its life and pensions business ahead of the planned demutualisation, Standard Life announced on Thursday that it is cutting bonuses on its with-profits products, abandoning its endowment promise to homebuyers, and is also setting a deadline for policyholders to complain about endowment mis-selling.

The withdrawal of the ?mortgage promise?, made four years ago as it first became apparent that some policyholders' endowments would not grow by enough to pay off their mortgage, will save the company ?100m a year.

For more than 600,000 customers whose endowments are due to mature after the end of next year, the company will no longer meet its commitment to pay off any shortfall between their policy's final value and their mortgage.

The company says it is likely to be able to cover between 40 and 60 per cent of any shortfall. The change will not affect customers who complain that they were mis-sold their mortgage endowment policy; they will receive full compensation if their cases are upheld.

It is also implementing a time-barring policy on all mortgage endowment complaints from May 2006, after which customers will only be able to make a mis-selling complaint if they can prove they were made aware of their shortfall in the previous three years.

It also announced changes to how it will pay bonuses to its with-profits customers. Previously, the company has topped up with-profit fund bonus payments using group profits. That will be phased out, leading to further bonus cuts, but saving the company up to ?200m during the next few years.

Endowment policyholders who were not victims of mis-selling must decide what to do. They have several options; they can top up the policy by paying extra money each month in the hope of meeting the target; invest in a separate savings scheme; or convert part or all of their mortgage to a repayment basis, which is likely to mean an increase in monthly payments.

They could also go the surrender route, whereby they take the cash now and end the contract.

Other possibilities include selling the endowment policy on the second-hand market and extending the terms of the endowment policy and loan.

If you feel that you were sold a policy without fully understanding the risk, you may be able to claim compensation. The first step is to complain to the provider of the policy, or the intermediary. If that fails, consumers can take their complaints to the Financial Ombudsman Service, which can issue a adjudication binding on companies.