Prudential Payout

The Telegraph reports that the Prudential is writing to 39,000 customers to tell them it issued incorrect valuations of their pension funds up to seven years ago, and offering them a total of £4M in "correction payments".

The Prudential said most of the affected policyholders would receive payments of less than £100, but 9,000 will get up to £500 while 100 others will be paid £2,000 or more.

Apparently, the mis-pricing errors affected Scottish Amicable unit-linked pension plans between June 2004, and December 2008.

Prudential, according to the Telegraph, assumed that ScotAm did the same but discovered as part of a routine audit that this was not the case.

There are a few questions popping into my head about this eg:

1 Why has a "routine" audit only now discovered an error dating back to 2004-2008?

2 Why is a "routine" audit being carried out on transactions that are several years old?

3 Why did Prudential "assume" that ScotAm followed the same procedures?

4 Did Prudential not perform a due diligence on ScotAm when the business was transferred several years ago?

I suspect that more will come out on this issue, and that the story will not quietly fade away.

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A Massive Fraud on The Taxpayer

Fresh embarrassment for the government, as its economic "credentials" and "honesty" have been once again found wanting. This time the shortfall between government spin and reality has been highlighted by The National Audit Office (NAO), which has refused to sign off part of the Treasury's annual accounts.

For why?

Seemingly there are some quite serious problems relating to the government's insurance scheme, which was designed to help banks with bad loans.

The scheme was announced in February, and was designed to provide banks with protection against future credit losses on certain assets in exchange for a fee, its ultimate goal was to kick start the lending process.

However, the NAO states:

"In 2008-09, HM Treasury incurred some £23.8BN more resources than Parliament had authorised in the Supply Estimate. This represents an 'excess' for which further Parliamentary authority is required."

In other words the government and Treasury attempted to act "ultra vires" (outwith its authority), its promises vastly exceeded its powers/reality.

Vince Cable, Liberal Democrat Shadow Chancellor, used a more picturesque language and described the scheme as "quite simply a massive fraud on the taxpayer".

Quite how many "frauds" of this nature the government has tried to foist upon the taxpayer is unclear.

However, yesterday's much trumpeted Nissan deal, re electric batteries and the possibility of producing an electric car in the UK, may yet be blocked by the EU.

I fear, wrt the workers who have been told their jobs are safe, it may still be too early to pop the champagne corks.

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FSA Tries To Pull Its Head From The Sand

Our ever "vigilant, pro active and respected" Financial Services Authority (FSA) has attempted to pull its head out of the sand and has proposed that financial advisers should no longer receive commission from selling investments, pensions and insurance products.

Doubtless this will come as welcome news to the millions of hapless endowment policy holders who were mis-sold these useless products in the 80's by commission hungry salesmen!

The FSA said:

"We propose to ban product providers from offering amounts of commission to secure sales from adviser firms and, in turn, to ban adviser firms from recommending products that automatically pay commission."

This being the FSA, even if the rule changes are implemented, they won't come into effect until 2012.

Given that millions of consumers (aside from the endowment holders) were also wrongly advised to opt out of occupational pension schemes, and were conned into buying precipice bonds and split-capital investment trusts, one wonders why it took the FSA so long to pull its head out of the sand and act.

Asleep at the wheel as ever!

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Setanta

Setanta, the over hyped sports channel, went off the air last night at 6PM when it went into administration.

Despite the fact it was long teetering on the edge of administration, it happily continued advertising right up to the bitter end. Quite what happens to the subscriptions of those foolish enough to have bought into the hype in the few days before it went bust is not clear.

In theory, if they bought via credit card, they should have nothing to worry about as card companies offer insurance for just such occurrences. However, some credit card companies are more than happy to look for any excuse to not pay up; the fact that it was obvious that Setanta was going into administration may provide them with just such an excuse.

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The PPI Rip Off

The financial services industry doesn't seem to yet get the point that its reputation is in tatters; not just because of the recession brought about by the greed and stupidity of the banks, but because of a number of issues over the years that impugn its integrity and honesty eg endowment misselling, payment protection insurance (PPI), bank charges, debt collection, credit agreements etc.

Not content with having already severely tarnished its reputation wrt PPI, the insurance industry is seeking to further gouge its own self inflicted wounds by increasing the cost of PPI policies and reducing the actual cover provided.

The Times reports that millions are facing a 50% rise in the cost of PPI cover. Indeed the cost of some PPI policies has already increased by 170% over the last year. The Post Office has written to its PPI customers warning them that it plans to cut the maximum payment in the event of redundancy, and double the cost of some premiums.

Those who clamour for greater regulation of the financial services industry should remain calm, the addiction of those in the industry to destroying their own reputations will ensure that there will be very little remaining of the UK's financial services industry to regulate in ten years time.

By then people will have finally woken up to the fact that they have been ripped off on a continual basis, and will simply resort to putting their money under their mattresses as their grandparents used to do.

The financial services industry will be the author of its own downfall.

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The PPI Rip Off

The Competition Commission is finally looking to get its teeth into the con trick of payment protection insurance (PPI), as it issued a statement yesterday calling for a ban on sales of the policies when people take out loans and credit cards.

The Commission wants banks to wait for 14 days before approaching borrowers to sell PPI, and wants to ban financial providers increasing interest paid by charging for the entire cost of a policy at the start of a loan.

Martin Lewis, the personal finance campaigner, estimates that half of the policies in force may have been mis-sold (estimated to be worth £10BN).

Needless to say the Association of British Insurers isn't best pleased, and claimed that the Commission would "kill the PPI market".

So what?

The policies rarely pay out (the Competition Commission said only 14% of premiums are returned to policyholders, compared with 54% for home insurance and 78% for car insurance) so what is the point of them?

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An Inequitable Life

Following on from the recent report by Ann Abraham, the parliamentary ombudsman, in which she called for compensation for more than a million policyholders in Equitable Life there are now concerns that more than half of them may in fact get no compensation at all.

The Equitable Members' Action Group (Emag) has estimated that the cost of compensation could be around £4.6BN.

Many thousands of Equitable savers have gone through the Financial Ombudsman Service (FOS) to claim compensation for mis-selling. However, only 50% to 60% received any.

Given this, and the fact that the Treasury will not respond to the report until the autumn, it is unlikely that all the policyholders are going to come out of this scandal with the result that they would wish for.

Emag has threatened a judicial review in autumn, if the government does not satisfy them.

This will be a long battle, by which time many of the policyholders may well have died.

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Apology Demanded

Ann Abraham, the parliamentary ombudsman, in a long delayed report has called for Britain to apologise to more than a million policyholders in Equitable Life and offer them compensation.

The apology, not that it will ever come, will be a tad late as the Equitable Life scandal occurred in 2000.

Equitable Life almost collapsed in 2000, after being forced to honour unsustainable guarantees stretching back 30 years. It eventually closed to new business in one of Britain's most dramatic financial scandals.

Ms Abraham has been investigating the scandal for four years, and is quoted in The Guardian:

"(Those) responsible for undertaking financial regulation should act in a way that is compatible with the duties and powers which parliament has conferred on them.

Those responsible for the prudential regulation of Equitable Life failed to do so throughout the period covered in my report."

Vanni Treves, who became chairman of Equitable Life in 2001, said that the regulators' failure to tackle problems at the society meant the government should compensate policyholders who suffered losses as a result.

"Year after year, the regulators failed to do anything about problems that were absolutely evident to them.

We have paid all the bills we felt we had a duty to pay. Now the government must pay the bills for its own failures."

Abraham noted that the bodies overseeing the insurer were "passive, reactive and complacent", allowing one person to be both chief executive and appointed actuary for more than six years thereby neutralising the appointed actuary's "whistle-blower" role.

Abraham's report recommended a compensation scheme to redress losses, and called on the government to act swiftly, as tens of thousands of policyholders have already died since Equitable Life closed to new business.

The FT estimates that the cost of compensation will be around £4BN.

It is all very well calling for compensation. However, there are two issues that will ensure none is given:

1 The government is broke and cannot afford to pay any.

2 The regulatory regime that failed the policyholders was set up by Gordon Brown, to pay compensation would be an admission of failure. Brown does not do "failure" or "apologies".

Given the recent financial scandals, eg Northern Rock, it is evident that the regulatory regime in the UK has not improved one jot since the days of Equitable Life.

There are other scandals waiting to break.

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The Great PPI Rip Off

Those of you who have been screwed by your bank or other financial organ into taking out an unnecessary and expensive payment protection insurance (PPI) policy should read this article in The Times, which shows that you can claim back up to £24K.

Quote:

"The insurance, which is bought by one in four people and is supposed to cover your mortgage or loan repayments if you are unable to work, is described as one of the last big rip-offs in the industry after endowment mis-selling and overdraft charges.

Banks often add the cover to your loan automatically, with many borrowers never realising they have it. Even when they do, most consumers are unaware of the extent of overcharging.

Mortgage cover from Halifax, for example, would add £103 a month to the cost of a typical £200,000 home loan, or £2,472 over two years. The cheapest cover on the market can cost two-thirds less."

However, as I have noted before, banks are not charities. The money that they repay to customers in the form of compensation will be made up for elsewhere, via increased rates on loans and mortgages.

They simply do not care about their reputations, or their customers.

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PPI Slammed

The Competition Commission has slammed the £5.4BN payment protection insurance (PPI) industry in a report issued this morning.

The Competition Commission states that consumers are paying more than £1.4BN a year too much for PPI; it also noted that banks, mortgage and credit card providers made it difficult for customers to compare PPI policies or switch to change their insurance.

Up to 7.5 million policies are taken out every year, with about 14 million policies active at any one time.

Peter Davis, deputy chairman of the commission, is quoted in The Times:

"We've found serious problems with the PPI market and customers are paying for the lack of competition. The way PPI is sold as an add-on to a loan or other credit product means that distributors escape the pressure they should face from competing suppliers".

Mr Davis has recommended a ban on selling PPI at the same time as a loan, or even within a fixed time after the loan, is taken out.

This is yet another nail in the coffin of the reputation of Britain's beleaguered financial services industry.

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The PPI Scandal

The British financial services industry seems to have a death wish as far as it reputation with the consumer is concerned. Not content with foisting underperforming and useless endowment products on the unsuspecting public in the 1980's, it managed in more recent years to do the very same thing with PPI (Payment Protection Insurance) products.

The payback from this wanton mis-selling is now coming back to bite them.

Brunel Franklin, a claims specialist, has written to the Financial Services Authority (FSA) highlighting a number of serious problems in the PPI mis-selling sector, including what it believes is a deliberate statistical manipulation of the mis-selling figures by the PPI vendors.

According toe Brunel Franklin, Lloyds TSB and Welcome are some of the worst offenders and are offering gestures of goodwill across the board.

Anthony M. Sultan, managing director of Brunel Franklin said:

"We believe that vendors are using gestures of goodwill to mask the true scale of PPI mis-selling from the regulator. If the significant percentage of complaints are being dealt with as gestures of goodwill, how do we know that these are being declared to the FSA as complaints and showing up as incidences of mis-selling?

Lloyds TSB are pretending that there has been no mis-sale and no formal complaint, and are hoping to sweep thousands of complaints under the carpet under the guise of gestures of goodwill.

Our suspicion is that they are not being declared to the regulator and never appear in any FSA statistics on PPI mis-selling.

This mis-selling crisis may be bigger than endowment mis-selling in terms of the numbers of people affected and the total amount of compensation due, so it is perhaps not surprising that the vendors want to play it down in the hope that it will go away.

It will not go away and we are determined to get people the compensation they are entitled to."

As if endowments and PPI were not enough, the financial services industry also has "blood on its hands" wrt extortionate bank and credit card charges, credit refusals for people with good credit ratings, excess bonus payments to underperforming directors, excess management fees for underperforming investment funds and the destruction of Northern Rock.

Hardly a "stellar" performance so far!

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Speculators Target Sterling

Speculators are targeting Sterling, in the belief that the Bank of England does not have enough money to head off the continuing credit crunch, and that it will be forced to cut interest rates.

Bloomberg notes that the UK's Financial Services Compensation Scheme has £4.4M to protect deposits, compared with $49BN in a similar fund in the US.

It will be interesting to see how the Chancellor's plans to offer a £100,000 guarantee to all savers will be financed. The banks will most assuredly target their customers for any "perceived" increase in their cost base arising from the implementation of this scheme.

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Zurich Sells Insurance Arm

It is reported that Zurich Financial Services is preparing to sell part of its UK life insurance business, in order to release up to £1BN.

The money released would allow Zurich to make a bid for Friends Provident, which recently agreed a highly controversial £8.3BN merger with Resolution.

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Insurance Premiums To Rise

Adding to the woes of many of Britain's beleaguered homeowners (beset as they are by rising mortgage costs and flood damage in some parts of the country) is the announcement by two insurance companies that they will put up the cost of household insurance by an average of 10%.

Norwich Union has increased premiums this week, and Lloyds TSB is also expected to follow suit. The companies blame the recent floods.

The higher premiums will affect existing Norwich Union and Lloyds TSB customers who renew their buildings and contents insurance policies, as well as new customers. The price increases will apply to all customers, not just those who were flooded.

It is also reported that Direct Line and Churchill will also be raising premiums. However, it is not clear by how much.

The lesson here is, don't build homes near rivers!

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Friends Financial

UK life insurance companies Friends Provident PLC and Resolution PLC are to merge.

The companies' boards have agreed to an all-share combination creating Friends Financial Group PLC, the United Kingdom's fourth-largest insurer with an approximate value of £8.6BN.

The deal is contingent on shareholder and regulatory approval, and is expected to be finalised in the fourth quarter of 2007.

The firms say they expect cost savings of at least £100M, by the end of 2010.

Doubtless the market will be alive with gossip as to other possible mergers.

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Government Rules Out Theft

The government has ruled out topping up a pensions lifeboat fund with surplus unclaimed pensions cash from life insurers, ie it has ruled out theft of private money for use in public expenditure.

Andrew Young, of the Government Actuary's Department, said that non-tax sources of funding for the Financial Assistance Scheme FAS (inherited estate orphan assets, windfall taxes or an extension of existing levies on solvent occupational pension schemes) were largely unsuitable.

He noted that there would be:

"substantial legislative and administrative barriers to establishing such a scheme".

How annoying when the law blocks government plans for theft!

You can be assured that this will not be the last that we hear of this scheme, and that the government will be doing its best to try to find a way around these "legal obstacles".

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EU Condems Government Role in Equitable Life Crisis

The EU will today savage the government's handling of the Equitable Life crisis, and its failure to protect Equitable Life policyholders.

Equitable Life had to close to new business in 2000, after it emerged it could not honour its policies; it went on to dramatically cut the value of customers' life savings, leaving many thousands of policyholders in deep financial trouble.

Today's report marks the culmination of an 18 month inquiry by the European parliament in Equitable Life, and will call for government compensation for the many thousands of investors who lost part or all of their savings and pensions when the company ran into trouble.

The report castigates the government's "light touch" approach to regulating the life insurance business, especially Equitable Life, which was seen by the authorities as "too reputable" to run into trouble.

The report notes that the UK's light touch:

"went a step too far and thereby contributed to a weak regulatory environment, which allowed the difficulties at Equitable Life to grow unchecked".

The report then states:

"There have been a significant number of statements to the effect that the UK regulators failed to prevent Equitable Life from steering into its crisis, and therefore failed to protect policyholders in the UK and other member states from suffering financial losses as a direct consequence.

It is also apparent that the UK regulators behaved with undue awe or deference towards Equitable Life, particularly given its long history and hitherto highly reputable status, leading them to consider it as the top pick of the life insurance industry and apparently believed to be too good and too reputable to make mistakes.

In view of the UK government's failure to comply with the requirements of the (EU's) third life directive, and given the absence either of accessible legal redress through the courts or of effective alternative means of redress, the committee firmly believes the UK government is under an obligation to assume responsibility.

The committee therefore strongly recommends the UK government devise and implement an appropriate scheme with a view to compensating Equitable Life policyholders within the UK, Ireland, Germany and elsewhere."

Unfortunately, for the long suffering policyholders, the committee cannot order compensation. However, the report's author, Liberal Democrat MEP Diana Wallis, said:

"For the victims of the Equitable Life failure, the report delivers an analysis of the UK's flawed process of implementing EU law which, combined with the imminent report of the UK parliamentary ombudsman, should arm the victims with powerful findings," she said.

It is absolutely critical to the future of the pension industry and to all of us as savers and people who hope eventually to see our retirement, that there is confidence in this sector. I hope our report will assist that process."

Tory MEP Robert Atkins, an inquiry committee member, is quoted in The Guardian as saying:

"I believe that due to its failure to adequately protect policy holders in accordance with EU legislation, the UK government is obliged to devise an appropriate scheme to ensure full compensation for victims of the debacle.

Having categorically proven that the UK and EU financial redress systems are unsatisfactory and lack the requisite level of security one would expect from the single market, the EU institutions and British government must urgently combine forces to ensure that higher standards of investor protection and security are legally enforced.

This is imperative if people are to be expected to save judiciously for their retirements."

There will also be a report from the UK parliamentary ombudsman, Ann Abraham, on the Equitable collapse. However, as befitting the "speed" of government processes (doubtless to ensure that Equitable has long been forgotten), this report will not be issued until October at the earliest.

Too little too late for the 1 million policyholders affected by the Equitable scandal.

Maybe they should consider launching a class action?

Is it any wonder that people do not bother to save for their retirement?

How can anyone possibly trust the pensions industry, or the government, to look after their money or their future?

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Get a Grip

The Financial Services Authority (FSA) has launched a £2M campaign, to help consumers "get a grip" on insurance matters.

A recent FSA survey showed that consumers haven't a clue about insurance. Quite why they needed to conduct a survey to find that out is beyond me. According to the survey:

-49% of people are confused about what their insurance covers;
-52% of people find it difficult to compare insurance products;
-45% don't know if they're getting a good deal;

Vernon Everitt, Director of Retail Themes at the FSA, said:

"Insurance plays an important part in protecting our families, homes and possessions. But as with all financial products, consumers need to be capable and confident in making the right choices, including shopping around for the best deal and asking the right questions. Our jargon-free information will help them do just that.

We want to help consumers ask the right questions of themselves and the insurance market when it comes to buying products. The market as a whole will benefit from more capable and confident consumers."

The FSA website can be accessed via www.moneymadeclear.fsa.gov.uk/insurance

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