Back in the rather less regulated days of the late 1980s when tax relief on endowment premiums was abolished, some firms were looking for clever interest-only alternatives.
Some offered the personal equity plan (Pep) mortgage while others turned to pension mortgages.
The latter offered tax relief on premiums, but had two distinct downsides: the mortgage would not be paid off until the buyer gained access to their pension, and they would be digging into a hefty portion of their retirement money.
So while it kept ongoing costs down, the pension mortgage was not generally considered to be a sensible option for most people.
A pension mortgage crept up in a recent Financial Ombudsman Service (Fos) case involving St James’s Place Wealth Management (PCIS). It was leaped on with such vigour by some internet commentators that I decided to take a closer look.
The client appears to have brought a fairly preposterous claim suggesting that he believed attached life insurance was free – even though he could show no evidence of this.
The client appears to have brought a fairly preposterous claim suggesting that he believed attached life insurance was freeSaid client had just passed his “professional exams”. We might therefore expect him to have the nous to check the cost of life insurance when signing up, but as the Equitable Life affair proved, being a “professional” does not necessarily mean you can count to 20 without taking off your shoes and socks.
The life insurance case was thrown out. However there are other aspects, not least that he would be tied into 31 years of interest payments – surely a dubious proposition.
What concerned the ombudsman was whether he understood how the pension was supposed to pay off his mortgage.
So was this a horrendous miscarriage of justice with Fos bashing another vulnerable adviser?
Well, no, actually.
St James’s Place admitted to failings and calculated the difference between the pension mortgage and repayment options – and found the pension costs were lower, but offered to ignore this gain.
They offered £500 for distress and inconvenience for giving the wrong advice.
Fair enough said the adjudicator.
The client complained, the ombudsman reviewed the case and described the latest offer as “fair and reasonable”.
So the clocks have not been turned back.
The ombudsman has, broadly, backed the adviser. Specifically, he said: “I haven’t seen any evidence to support the complaint that Mr D was told that the life cover wouldn’t cost him anything.”
But St James’s Place did make mistakes, not least in failing to inform their client of the costs of the life cover on a regular basis – and these costs rose with age because they were paid by unit encashments.
These rulings are all available to read on Fos’s website, so before moaning, why not use your energy looking them up? You never know, you might even learn something.
___________________________________________________________________________
Good reasons why people don’t shop around
One of the mysteries of personal finance remains the reluctance of people to shop around for the best deals for certain products.
For example, a Citizens Advice survey suggested that only 57 per cent who bought annuities shopped around.
So why do people remain so reluctant to pick up the phone when their choice of annuity will affect their income for the rest of their life?
It could be argued that some may be so small that it is not worth the effort – but surely they will be taken as cash, so annuities do not even come into play.
It is not just annuities and pensions. Some estimates suggest as many as 2.5m households have never changed energy supplier.
Perhaps it is because when people do shop, they can find the product has been loaded with booby-traps.
I am thinking here of travel insurance, where it has almost reached the stage where some policies have exclusions against booking holidays and car hire where we will soon be charged extra for seats. In fact those with young children already are.
At times it can feel like a no-win situation, where the only sensible advice is caveat emptor.
__________________________________________________________________________
Proof fund managers get rich on performance fees
The sustainability of fund performance fees has been questioned, as funds find it difficult to hit targets in current market conditions.
RBC Capital Markets recently warned that three managers Gam, Man Group and Henderson had material exposure to such fees.
Amazing isn’t it, that when markets are soaring, managers line up to tell us how performance fees are fairer, yet in rockier markets they suddenly go out of fashion.
It merely suggests that managers tend to make money on these fees – not through stellar performance or some secret investment formula, but just through riding the wave of a bull market.
Tony Hazell writes for the Daily Mail’s Money Mail section. He can be contacted at t.hazell@gmail.com
