Savings endowments

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.

Execution-only sales

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.

There are charges and deductions on qualifying savings plans such as endowment savings policies, and these can impact the ability of the plan to generate a worthwhile return for a customer.

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.

Older customers

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.