Projected endowment shortfalls - 'shattered dreams' rather than 'financial nightmares'

Article date: 31 March 2003

Detailed research by MORI, carried out on behalf of NorwichUnion, into the views and attitudes of endowment policyholdersacross a range of providers in the industry has shown that:-

  • The vast majority of policyholders (96%) say they have heardabout the current situation with endowments, with 78% mentioningshortfalls and/or recent performance as being their understandingof the key issues.
  • The majority of policyholders (53%) still remain confidentthat their mortgage endowment will hit its target amount atmaturity. 36% say they think this is unlikely.
  • Where a shortfall was anticipated by policyholders, theaverage amount of shortfall was £7,661. No policyholders felt theyfaced real financial difficulties due to a shortfall in theirendowment policy. One policyholder described the situation ascausing ‘shattered dreams, rather than financialnightmares’.
  • Most policyholder disappointment stems from the potential lossof the hoped for tax free lump sum.
  • Of those who felt that they might be facing a potentialshortfall, 70% had either already taken steps to deal with thesituation, or intended to do so.
  • None of the policyholders said they would be panicked intosurrendering their endowment policy at a loss.
  • Once the impact of house price increases in recent years isconsidered, 59% of people say they are either ‘not veryconcerned’ or ‘not concerned at all’ about theirendowment policy’s ability to pay off their mortgage.
  • Consumers appear focused mainly on cash and property at themoment to secure their future, until they have more evidence thatequities are a better bet than in recent years.
  • The majority of policyholders had not been using the moneysaved on their mortgage repayments to set up a separate savingsplan or to reduce their mortgage debt – most (53%) hadsimply 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 happeningwith mortgage endowments and are satisfied with the communicationsthey are getting on the subject.

“This research also highlights that whilst there are someconcerns out there amongst policyholders, as you would expect, themajority of them facing a shortfall say that the situation willlead to disappointment rather than financial hardship.

“Confidence in equities comes across as being low at themoment. The fall in world stock markets and the slump in investmentreturns are something that don't just affect endowmentpolicyholders - they affect all investors. What we need ultimatelyis a sustained improvement in the markets and the return ofinvestor confidence in equities.

“At the end of the day, the same external factors thathave hit investors hard have also resulted in the lowest mortgagerates for more than forty years. Many homeowners are already usingsome of the money saved on their mortgage interest payments torepay some of their outstanding mortgage debt or to start aseparate savings plan. This is sensible, as doing nothing is nolonger a realistic option for those facing a shortfall but withonly a few years left to run on the policy.”


Notes for editors

The research, which was both quantitative and qualitative, wascarried out in December 2002 by MORI Financial Services on behalfof Norwich Union, amongst a total of 201 endowment policyholders,and examined their awareness of, and reaction to, the recentperformance of endowment policies, in particular those linked tomortgages.

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 Lifegain a deeper understanding of the attitudes of homeowners who arefacing a potential shortfall in their mortgage linked endowmentpolicy to the current situation, and then to explore the optionsthey 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 currentsituation surrounding mortgage endowments, with 8% saying theyknow ‘a lot’, and 40% ‘a fairamount’.
  • Endowment providers are perceived to be issuing competentcommunications, with the majority of policyholders feeling wellserved by their provider in terms of frequency and clarity ofletters, and the range of options which could be considered formaking up a shortfall.


  • 36% of policyholders think it is unlikely that their endowmentpolicy will pay out the target amount.
  • Among those expecting a shortfall, the anticipated amount was£7,661.
  • 53% of policyholders are more confident and think that it islikely that their policy WILL pay out the target amount. Thosemost 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 £30,000 (63%)
    • Are female (62%)
    • Are aged 45+ (61%)
  • 15% of people were ‘very concerned’ about theendowment policy’s ability to pay off their mortgage, and23% of people were’ fairly concerned’.
  • 27% of people were ‘not very concerned’ and 25%were ‘not concerned at all’. Those least concernedwere broadsheet readers (25%) and those who had held their policyfor more than 15 years (26%).
  • Once the impact of house price increases in recent years isconsidered, 59% of people said they were either ‘not veryconcerned’ or ‘not concerned at all’ about theirendowment policy’s ability to pay off their mortgage (upfrom the 52% who initially said this).
  • No policyholders felt they faced real financial difficultiesdue to a shortfall in their endowment policy.
  • None of the policyholders questioned seemed likely to panicand surrender their endowment at a loss. Some had checked thesurrender value, found that they would lose money if theysurrendered at this stage and decided to maintain their paymentsin the hope that they would eventually have a substantial nestegg, even though an insufficiently large one to pay off theirmortgage in full.
  • Most policyholder disappointment stemmed from the potentialloss of the hoped for tax free lump sum, rather than the potentialfailure of the endowment to fully pay off their mortgage.Policyholders felt that it was bad enough to be left with ashortfall, but the absence of any lump sum would amount to‘shattered dreams’, particularly for older consumerswhose pensions/investments had also been adversely affected by thefall in equities.

Action being taken

  • Of those who felt that they might be facing a potentialshortfall, 70% had either already taken steps to deal with thesituation, or intended to do so.
  • The most popular options for those addressing a potentialshortfall 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 feltthey could bridge these by one means or another.
  • Younger policyholders had larger projected shortfalls, butwere fairly relaxed about any deficit, saying they had plenty oftime to take action and didn’t foresee problems switchingpart/all of their mortgage to a repayment basis.
  • When asked what they had done with the money they had saved ontheir mortgage repayments, 53% of policyholders had simply spentit. 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 aboutequity-linked products for the time being. In addition, someconsumers don’t understand the difference between cash andequity ISAs, and have included ISAs generally in the ‘wouldavoid at the moment’ category.
  • Consumers are mainly focused on cash and property at themoment to secure their future until they have more evidence thatequities are more reliable than in recent years.
  • Norwich Union is the UK’s largest insurer. It is aleading provider of life, pensions and investment products and oneof the leading IFA providers. IFAs provide around 75% of thecompany’s long-term savings business.
  • Norwich Union has strategic alliances with building societiesand other leading UK brand names including Tesco Personal Financeand The Royal Bank of Scotland Group.
  • Norwich Union’s news releases are available on the Avivaplc website at
  • A selection of images are available from the Norwich UnionNewscast site at

Minimum property values apply. Equity release is a lifetime loansecured against your home. CHECK THAT THIS MORTGAGE MEETS YOURNEEDS IF YOU WANT TO MOVE OR YOU WANT YOUR FAMILYTO INHERIT IT. IFYOU ARE IN DOUBT, SEEK INDEPENDENT ADVICE. A personal illustrationand full terms and conditions are available on request. NorwichUnion equity release limited No. 3286484. Registered at 2 RougierStreet, York YO90 1UU. Not available in Northern Ireland, theChannel Islands and the Isle of Man

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