Endowment crisis deepens

The endowment policy crisis, which is expected to emerge in 2012 when millions of policies taken out to repay a mortgage mature far short of their target, could be far worse than experts expect.

Clive Cowdery, a specialist in 'closed funds', predicts that the amount of assets held in these funds will double to £400 billion in the next five years as more insurers shut off their funds to new money. Closed funds - such as the Equitable Life fund - no longer take in contributions, surviving only to pay existing liabilities. They have given up seeking new business because they cannot make it pay and so are winding down, with the general expectation being that closed funds will offer poorer returns to policyholders than open ones.

Cowdery, chief executive of Resolution Life, predicts that closed funds will switch from being net accumulators of money (including investment returns) to being net payers-out by 2011, by which time they will account for 15 million policies. 'That's when the letters will start arriving on the doormats of MPs,' he says, predicting complaints from distraught policyholders. 'This is going to be a phenomenally important issue.'

More than one in four adults could be disappointed by the returns they get on their plans in these funds, whether they are endowments, pension plans, with-profits bonds or some other investment. Returns are likely to be far lower than the projections that persuaded so many to buy in the high-inflation days of the 1980s and early 1990s. 'When that happens we all look for people to blame,' says Cowdery. 'It would be natural - even if misguided - to place some of the blame on the fact that a fund has closed. The government - both at Treasury and Financial Services Authority level - has recognised that this is a serious social issue, which is why it has encouraged consolidation.'

Resolution Life, established two years ago, buys up closed funds, promises good customer service and active, long-term fund management and makes its money from the fees and charges levied on the policies it handles. Last week, it rubber-stamped a merger with Britannic Life, bringing its assets from £22bn to £40bn and making it easier to take over more closed funds in future. Swiss Re and Resolution Life are the two main consolidators in the market, likely to buy up many funds in the next few years.

Policyholders do not necessarily get a poorer return in closed funds, but there is a big danger they will. The temptation for insurance companies is to run them conservatively, thereby increasing the chances of meeting any guarantees they offer but reducing the likelihood of generating extra returns above that. Customer service is often neglected, too, as insurers will focus on growing business areas.

For the 15 million people likely to end up in closed funds, Cowdery says: 'Don't panic. But you should probably assume that you have to work a bit harder to get good information about your policies. Stay active.'

Cut on the cards

Eight credit card providers have been given three months by the Office of Fair Trading to adjust the 'disproportionately high' charges they levy on customers who are late with payments or miss them completely.

Andrew Hagger, of Moneyfacts, says: 'While it is good news for the consumer that these punitive charges are being scrutinised, it is astonishing that at the end of an 18-month investigation, the OFT has failed to name the eight card companies.' Richard Mason, of Moneysupermarket.com, advises all consumers to set up a direct debit for at least the minimum payment each month.

MBNA, the Co-op Bank and American Express are some of the higher chargers.

Singular failure

The Child Support Agency has failed to collect £1bn in maintenance owed to single-parent families.

The agency's recently published accounts were qualified by the Controller and Auditor General for the tenth successive year because of 'errors in maintenance assessments' and because 'a significant proportion of individual debt balances were incorrect'.

The CSA was due to collect about £850m in maintenance payments to pass on to single parents (usually mothers) in 2004/05. But it says that more than £1bn from 2004/05 and previous years is 'probably uncollectible', usually because it cannot trace the other parent.

Travel trouble

One in three holidaymakers does not check exchange rates when going abroad, according to research published by the Post Office. And one in two does not recognise euro notes - even though 51 million visits are made to continental Europe from the UK each year.

All credit to you

Credit Action, the money charity, is urging consumers to check their files with the three personal credit rating agencies to check that they have not become victims of identity fraud. Checking will also ensure that you are not being overcharged for credit or even turned down because incorrect information is being kept on you. The charity advises: 'If applying by post, include your full name, address, date of birth, any addresses you have lived at in the last six years and any other names you have been known by. Include a postal order or cheque for £2 made out to the [relevant] agency.'

What you can do

· If you have an endowment you cannot transfer it but you could consider selling it on the traded endowment market. This is possible for some policies and some companies - but not all. The best thing to do is to get quotes from a handful of different companies.

· Another option is to stop making payments but leave it to grow and invest the contributions elsewhere.

· With a pension, there is more choice as you can transfer between providers. 'If you have got quite a few years left to retirement, you could be better off putting it somewhere with lower charges and more flexibility,' says Garry Spencer of Wilbury Financial Management.

· Contact Experian on www.experian.co.uk or 0870 241 6212; Equifax at Equifax Credit File Advice Centre, PO Box 1140, Bradford BD1 5US; and Call Credit via the Call Credit consumer services team, PO Box 491, Leeds, LS3 1W2. Credit files can also be applied for online.