Windfall blow for victims

Homeowners who were mis-sold an endowment mortgage and are then granted compensation by the ombudsman could see their award slashed if they have windfall shares.

The Financial Ombudsman Service says windfalls usually count towards a compen-sation award, otherwise people are compensated twice for the same loss.

Endowment holders who will be affected include those with windfalls from Scottish Widows and Norwich Union.

Spokesman David Cresswell says compensation is meant to put people back in the position they would have been in if they had never taken out the contract, so windfalls are taken into account. The exception is when someone was advised to go for a particular investment because a windfall was likely.

Cresswell says: 'If you were allowed to keep windfall shares and compensation, you would be in a win-win situation. Our thinking is that you cannot benefit from bad advice. Compensation is designed to eradicate the consequences of bad advice.'

This policy could be tested by a pensions review case which a group of insurers plans to mount. At the centre of the case is a Scottish Widows policyholder who is owed £20,000 in compensation from the life office because he was mis-sold a pension.

Financial services watchdog the PIA (part of the Financial Services Authority) has instructed the insurers to pay the man the full £20,000.

But the insurers, who wish to remain anonymous, want the man's £10,000 windfall shares to be deducted from his compensation.The problem has arisen because the original pensions review guidance does not cover windfalls. It is up to the life office whether they factor them into compensation.

A Scottish Widows spokesman says: 'The problem comes when the windfall is paid into the pension policy. Windfalls taken as cash do not count.'

The insurers are raising the money to bring the case. They say they are £30,000 short of the £100,000 required.

Tony Howe, managing director of insurance broker Collegiate, which represents the insurers, says: 'If you keep windfall shares on top of compensation, you are compensated twice. The outcome of this case could have repercussions for endowments.'

Cresswell says that the outcome depends on the final decision of the court, and on whether the judge puts any restrictions on which type of case is affected by a ruling.