Detailed research by MORI, carried out on behalf of Norwich Union, into the views and attitudes of endowment policyholders.
Detailed research by MORI, carried out on behalf of Norwich Union, into the views and attitudes of endowment policyholders across a range of providers in the industry has shown that:-
- The vast majority of policyholders (96%) say they have heard about the current situation with endowments, with 78% mentioning shortfalls and/or recent performance as being their understanding of the key issues.
- The majority of policyholders (53%) still remain confident that their mortgage endowment will hit its target amount at maturity. 36% say they think this is unlikely.
- Where a shortfall was anticipated by policyholders, the average amount of shortfall was Ł7,661. No policyholders felt they faced real financial difficulties due to a shortfall in their endowment policy. One policyholder described the situation as causing ‘shattered dreams, rather than financial nightmares’.
- Most policyholder disappointment stems from the potential loss of the hoped for tax free lump sum.
- Of those who felt that they might be facing a potential shortfall, 70% had either already taken steps to deal with the situation, or intended to do so.
- None of the policyholders said they would be panicked into surrendering their endowment policy at a loss.
- Once the impact of house price increases in recent years is considered, 59% of people say they are either ‘not very concerned’ or ‘not concerned at all’ about their endowment policy’s ability to pay off their mortgage.
- Consumers appear focused mainly on cash and property at the moment to secure their future, until they have more evidence that equities are a better bet than in recent years.
- The majority of policyholders had not been using the money saved on their mortgage repayments to set up a separate savings plan or to reduce their mortgage debt – most (53%) had simply spent it. Only 8% had repaid mortgage capital.
Commenting, Mike Urmston, Chief Actuary at Norwich Union said: “The vast majority of people are aware of what is happening with mortgage endowments and are satisfied with the communications they are getting on the subject.
“This research also highlights that whilst there are some concerns out there amongst policyholders, as you would expect, the majority of them facing a shortfall say that the situation will lead to disappointment rather than financial hardship.
“Confidence in equities comes across as being low at the moment. The fall in world stock markets and the slump in investment returns are something that don't just affect endowment policyholders - they affect all investors. What we need ultimately is a sustained improvement in the markets and the return of investor confidence in equities.
“At the end of the day, the same external factors that have hit investors hard have also resulted in the lowest mortgage rates for more than forty years. Many homeowners are already using some of the money saved on their mortgage interest payments to repay some of their outstanding mortgage debt or to start a separate savings plan. This is sensible, as doing nothing is no longer a realistic option for those facing a shortfall but with only a few years left to run on the policy.”
-ends-
Notes for editors
The research, which was both quantitative and qualitative, was carried out in December 2002 by MORI Financial Services on behalf of Norwich Union, amongst a total of 201 endowment policyholders, and examined their awareness of, and reaction to, the recent performance of endowment policies, in particular those linked to mortgages.
The research was not confined to Norwich Union policyholders, but covered policyholders from a range of providers.
The objective of the research was to help Norwich Union Life gain a deeper understanding of the attitudes of homeowners who are facing a potential shortfall in their mortgage linked endowment policy to the current situation, and then to explore the options they might consider for addressing this.
The detailed findings of the research were:
Awareness of the endowment problem
- 86% of policyholders say they are aware of the current situation surrounding mortgage endowments, with 8% saying they know ‘a lot’, and 40% ‘a fair amount’.
- Endowment providers are perceived to be issuing competent communications, with the majority of policyholders feeling well served by their provider in terms of frequency and clarity of letters, and the range of options which could be considered for making up a shortfall.
Expectations
- 36% of policyholders think it is unlikely that their endowment policy will pay out the target amount.
- Among those expecting a shortfall, the anticipated amount was Ł7,661.
- 53% of policyholders are more confident and think that it is likely that their policy WILL pay out the target amount. Those most confident that their policy will do this:
- Are based in Scotland/North (66%)
- Have had their policy for more than 16 years (64%).
- Have a mortgage of less than Ł30,000 (63%)
- Are female (62%)
- Are aged 45+ (61%)
- 15% of people were ‘very concerned’ about the endowment policy’s ability to pay off their mortgage, and 23% of people were’ fairly concerned’.
- 27% of people were ‘not very concerned’ and 25% were ‘not concerned at all’. Those least concerned were broadsheet readers (25%) and those who had held their policy for more than 15 years (26%).
- Once the impact of house price increases in recent years is considered, 59% of people said they were either ‘not very concerned’ or ‘not concerned at all’ about their endowment policy’s ability to pay off their mortgage (up from the 52% who initially said this).
- No policyholders felt they faced real financial difficulties due to a shortfall in their endowment policy.
- None of the policyholders questioned seemed likely to panic and surrender their endowment at a loss. Some had checked the surrender value, found that they would lose money if they surrendered at this stage and decided to maintain their payments in the hope that they would eventually have a substantial nest egg, even though an insufficiently large one to pay off their mortgage in full.
- Most policyholder disappointment stemmed from the potential loss of the hoped for tax free lump sum, rather than the potential failure of the endowment to fully pay off their mortgage. Policyholders felt that it was bad enough to be left with a shortfall, but the absence of any lump sum would amount to ‘shattered dreams’, particularly for older consumers whose pensions/investments had also been adversely affected by the fall in equities.
Action being taken
- Of those who felt that they might be facing a potential shortfall, 70% had either already taken steps to deal with the situation, or intended to do so.
- The most popular options for those addressing a potential shortfall were:-
- Cash savings plan (20%)
- Switch shortfall to repayment (20%)
- Repay some or all of mortgage early (18%)
- Convert mortgage to repayment (18%)
- Older policyholders had smaller projected shortfalls, but felt they could bridge these by one means or another.
- Younger policyholders had larger projected shortfalls, but were fairly relaxed about any deficit, saying they had plenty of time to take action and didn’t foresee problems switching part/all of their mortgage to a repayment basis.
- When asked what they had done with the money they had saved on their mortgage repayments, 53% of policyholders had simply spent it. Only 18% had started a separate savings account and only 8% had repaid capital on their mortgage.
Impact on attitude to risk
- Consumers of all ages and social classes are cautious about equity-linked products for the time being. In addition, some consumers don’t understand the difference between cash and equity ISAs, and have included ISAs generally in the ‘would avoid at the moment’ category.
- Consumers are mainly focused on cash and property at the moment to secure their future until they have more evidence that equities are more reliable than in recent years.
- Norwich Union is the UK’s largest insurer. It is a leading provider of life, pensions and investment products and one of the leading IFA providers. IFAs provide around 75% of the company’s long-term savings business.
- Norwich Union has strategic alliances with building societies and other leading UK brand names including Tesco Personal Finance and The Royal Bank of Scotland Group.
- Norwich Union’s news releases are available on the Aviva plc website at www.aviva.com
- A selection of images are available from the Norwich Union Newscast site at www.newscast.co.uk
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