Can anyone think of any grounds that this sort of policy could have been 'mis-sold', my friends has just matured after 10 years and is offering only £1400 against £2000 in. (when I say matured, it is a 40 year plan with ability to withdraw after 10 years)
I know the majority of the discrepancy will be the stock-market, but even if the the owner keeps paying in , only 95% of premiums paid towards savings as well as charges to boot. In the earlier years this was a sliding scale up to 95%
Bit of a wounder for a 'tax-efficient' super savings plan!
It's intended to run for 40 years. The early years bear most of (or all of) the charges and commissions. Since LAPR was abolished, you need about 15 years minimum to break even in most cases. The last few years have probably lengthened this period.
The 10-year point is where it becomes a qualifying policy, and not liable to tax on the proceeds.
So, could a possible 'mis-sold' ground be that the client stated categorically that she wanted a 10 year savings policy (which was to replace another savings plan which she had just cashed in after 10 years) NOT a 40 year plan that she could cash in after 10 years?
(I have been unable to track down exactly what the previuos plan was, other than it was a T2 and it performed pretty well - HoA don't have the original sales brochure for it)
Basically, the girl saved succesfully for 10 years , cashed in and wanted something that would do exactly the same and the second 10 year plan has been crap so i'm hoping to show that this plan was not the best thing she could have been offered for 10 years.
Door to door salesman type rep. Dunno about the first time, but the second time she filled in a 'fact-finder' which I have a copy of - this the salesman has completed as
Recommend T50 Savings Plan to take over from T2 maturity.
So I guess she was 'sold it' rather than make a choice from products or even other vendors.
The more I look at the original brochure and paperwork , the more I think 'stitch up' The maximum amount going into units up and including year 10 is 90%
1st year 40, 2nd year 70%, rest = 90% So in the first 10 years only 74% of total premiums buy stock! After year 10 this remains at 95% for as long as you keep it. So the underlying stocks would need to make 5%pa just to break even!
The 'potential growth' chart in the brochure shows Lautro approved 8.5% and 13% rates and correctly says that it may not be as high or low as these figures show depending on stock market. But sneakily as an aside it adds that these figures 'do not take into account the effect of charges' so it shows what you would get if there wern't any charges (let alone 26% of premiums) applied! To achieve the figures shown for the 8.5% projection, the average growth for the premiums reduced by charges would have had to have been 15% or more according to my simple spreadsheet. This can't have been allowable as a sales pitch can it?
The figures for anyone who wants to follow/check my calculations are: £18.25 per month in = £219 per year = £2190 paid in over ten years £1 per month policy charge (although it contradicts and says £1.2 in another place), plus the % above Actual amount used to buy units (74%) - £1620
8.5% Lautro projection after 10 years = £2760 Amount offered as payout £1628
So effectivly they played with her money for ten years, used £600 of it in charges and are offering back what's left.
To be fair to the insurer, in those days they were not allowed to use their own charges in a projection, just standardised charges (and growth rates) as dictated by Lautro. Nowadays, the regulator has seen the light (PIA, now FSA) and insist on standardised growth rates but company-specific charges.
However, that aside, if your friend can show that she was not made aware of the risks and/or suitability of the product she could have a case. She should write to the insurer and say she was mis-sold this policy (giving the reasons for her opinion) and let it come back to her.
I take the view that the duty of utmost good faith required a company whose charges were above the "standard" to disclose that fact. Failure to diclose means that the transaction is voidable i.e. a fooled policyholder should be ent itled to the return of all premiums plus interest.
not made aware of
a case. She
policy (giving the
And ask if the charges in the projection were above or below the actual level for Hearts of Oak.
AIUI, the position was that the LAUTRO regulation obliged companies to prepare projections according to a rigid format with standardised charges and growth rates. IIRC, the companies wee not allowed to suggest that they would in fact exceed the projections, whether because their investment performance would be better, or because their charges would be lower.
There was no "law" AFAIK requiring them to discard their fundamental duty under uberrima fides to disclose adverse information within their peculiar knowledge, to wit, the fact that their own charges were higher.
Does this apply to a savings plan which isnt an insurance policy? I know there might be some life cover, but its not underwritten, its just there to give ensure a tax regime exists within the plan.
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