Shortfall solutions

By DAILY MAIL REPORTER
Updated: 19:00 EST, 22 July 1999

Britannia Life has come under serious criticism from investors who are fed up with the poor returns they are receiving from savings policies.

There is little hope of any improvement as the company is classified as financially weak by ratings agency Standard & Poor's, and the latest figures show that it is getting weaker.

The beleaguered life company, owned by Britannia Building Society, is under attack from all sides. City watchdog the Financial Services Authority this week fined Britannia Life £500,000 for serious failings over the pensions mis-selling review.

Britannia BS is rumoured to be actively looking to sell it off, and Standard & Poor's believes the society cannot be counted on to provide capital support. It blames the poor performance on high costs.

Actuarial consultant AKG comments that, with Britannia Life having closed to new business in 1997, the most likely buyer is a closed fund specialist such as Century Life or Life Assurance Holding Company. That means policyholders cannot even look forward to an injection of capital from a new owner to improve bonus payments.

Overall, AKG takes the view that the future prospects for with-profits endowment and pension policyholders are poor in comparison with competitors.

This presents policyholders with a difficult decision. They can't transfer to a better company, so do they keep paying into their policies, knowing that they are getting a poor return? Or do they jack them in, in disgust?

The second option is certainly tempting. Why throw more money down the drain? It could be put to better use in a decent savings scheme, or go towards paying off your mortgage, if your policy is expected to fall short.

The problem is that you are penalised if you stop a with-profits mortgage endowment early. Advisers always insist it is best to keep an endowment going, even one as bad as a Britannia Life policy.

It is rarely worth cashing in altogether, but with a poor performer, it may be worth just suspending payments, and keeping the policy to maturity.

The drawback is that your life cover is reduced if you stop paying premiums, which could be an important consideration if your endowment is the only life cover you have. You can replace it, but it could be costly if your health has deteriorated since you first took out your endowment.

Ask the company for an estimate of what you will get back both if you keep your policy going, and if you stop paying premiums.

Look at the difference between the figures and compare it with how much more you are due to pay in premiums.

If there isn't much difference, consider whether it is worth carrying on. Check how much you lose in life cover before making up your mind. The figure shown under 'death benefit' on your policy projection is the one to look at.

It may fall substantially if you stop paying in, but the payout on death will also include all bonuses earned on the policy to date.

In general, if you're concerned about your endowment, ask for a projection of how much it should pay out.

If it is insufficient to pay off your mortgage:

• Don't increase your savings into the endowment policy.

• Ask your lender to convert part of the loan to a capital repayment basis. Your monthly payments will increase and part will be used to reduce your mortgage.

• Consider using alternative savings vehicles such as individual savings accounts.

• Complain to your endowment company about your policy.

• Take your complaint to the PIA Ombudsman if you believe you were mis-sold.