Who knew what and when did they know it? These questions have always plagued me with with-profits endowments.
Tens of thousands maturing every year are falling far short of what their investors and, I suspect, financial advisers expected them to produce.
Back in 1993 when the current crop of 25-year ones would have been sold, advisers and their clients were looking at published figures showing six-figure pay-outs for a £50-a-month savings endowment.
Yes, there are differences with mortgage endowments but those were the published figures.
Even while publishing these and topping up terminal bonuses to scramble up the tables, those at the top of insurance companies must have known these numbers were not sustainable – as would the actuaries.
Yet, to my knowledge, that message was never relayed to those who were actually selling the products. Financial advisers were left with egg all over their faces while clients scrambled to find other ways to repay the mortgage.
As for that tasty lump sum to pay for the holiday of a lifetime… well they will be lucky if they can afford a weekend in Bognor.
Why am I so certain that those at the top of insurance knew a fall was imminent?
Consider this. Endowments paying out in 1993 had reaped the interest rate returns from two periods of hyper inflation – the first in the mid 70s and the second in the early 1980s.
They had enjoyed unprecedented property and solid stock market returns with just a couple of blips.
But the inflation and high interest rate were the key. By 1993 we were entering a period of much lower inflation and interest rates. Actuaries and economists should have known this would have a big effect on returns.
So they could only continue to manipulate the high returns as long as income from new business kept flooding in.
Once this dried up they would be in trouble.
In effect with-profits endowments were a quasi Ponzi scheme, which would collapse as soon as investors saw through them and stopped signing up.
That is what happened. Those at the top of the insurance industry who must have known what was on the horizon – even if they did not guess how bad it would be.
So why have regulators never asked them: how much did you know?
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We're failing school leavers
Bank of England chief economist Andy Haldane appeared on BBC News visiting a secondary school to meet students and discuss the economy. He highlighted the huge gulf between the amount of resource and effort put into core literacy and numeracy, which are fundamental, and what we put into economic and financial literacy.
He should know. He’s the one who admitted last year to not understanding pensions.
There has been some excellent work done over the past couple of decades, not least by the personal finance education group.
