Money: Come back in three months

Thousands of investors face a three-month delay before they can find out how much their investment and pension policies are likely to be worth ... because their life insurer is moving offices. The astonishing admission comes from GAN Life and Pensions, which was taken over by Windsor Life last year.

GAN has written to some customers who have asked for an estimate of the value of their with-profits policies, telling them it has suspended the service until September (see box).

This hold-up comes just as the City's new regulator, the Financial Services Authority (FSA) has imposed tougher rules on how life companies project the potential returns for their with-profits investors. This affects millions of endowment policy holders and many personal pension holders.

From 30 June, the FSA will demand that all life companies show lower rates. On endowments, for example, the new "standard" growth projections are 4, 6 and 8 per cent. (The old rates were 5, 7 and 10 per cent.) Personal pensions and other policies where there is no tax to pay are now shown with projections of 5, 7 and 9 per cent.

If you have an endowment or personal pension with a life company you should keep a close eye on its possible value.

"Projections are basically an intelligent estimate of how much your policy might be worth in the future and they are vital for financial decision- making," says Tim Johnson of independent financial advisers BMS Millsmith. "The average client would want to get a projection as part of his or her on-going financial planning."

He says someone considering transferring a pension to another company wouldn't be able to make a comparison without a projection.

"In order to make an informed decision, you would want to compare how much it might cost you to leave the policy provider, by way of redemption penalties, versus how much your old and new providers reckon your fund could be worth in years to come," he explains. "You can only get an idea of this by having a projection."

The reason that a projection is so useful is that it is designed to give the investor a realistic idea of how the fund is progressing. It reflects prevailing economic conditions because the product provider has to use the standard projection rates set down by the regulator. Projections also show the effects of charges on performance.

Full regulation of financial products only came into force in 1988. Before that, companies could use whatever projection rate they wanted. Not surprisingly, some companies used unsustainably high rates to bamboozle potential investors. Amazingly, it wasn't until the beginning of 1995 that companies had to take their own charges into account when calculating projections.

Before January 1995, and the introduction of "disclosure" (which meant that consumers had to be told in cash terms how much they would pay in charges and commission for a product) a company with high charges could make its potential returns look identical to one with the lowest! This was hardly conducive to helping consumers get good value.

Despite all the regulation surrounding the way projections are calculated and presented as information to investors, there is nothing in the rules to suggest how regularly a company should provide projections or valuations.

A spokeswoman for the FSA says: "We deal with the regulation of the sales and marketing of financial products not ongoing administration. Investors should refer to their contracts with the company concerned to find out how often they can expect projection information."

Windsor Life says its current problems only affect non-urgent inquiries from 3,000 policy-holders, but if it - or any other company - stopped providing this information, it would not be breaking any rules laid down by the financial regulator.

Don't wait for the life company to contact you: if you have an endowment mortgage and are concerned that the policy may fall short of paying off the mortgage loan, then you should call the firm or contact your IFA to get an up-to-date projection using the new, more realistic growth rates.

THE GAN PROBLEM

GAN used to sell its policies via a direct sales force, and was very active in the late 1980s and early 1990s as General Portfolio. Since its takeover by Windsor Life, GAN has not taken on any business, but is still servicing 500,000 "live" policies.

Windsor Life says that the suspension of its projection service only affects a small number of policy-holders whose projections were calculated manually, and that cases it believes are urgent, such as those involving a mortgage, will be dealt with. But if a policyholder simply writes in and asks for a projection, without spelling out what it is for, they will be told that the service will not be available until September.

In the letter, the company says that the suspension of its projection service is a result of a move to Windsor Life's Telford headquarters, which "regrettably requires the temporary redeployment of scarce skilled technical staff within the company".

GAN's move is very unusual, according to Jon Minchin of independent financial advisers Pensionline. "I've never heard of a life company stopping its projection service in this way, even if it is only temporary and only affects what Windsor Life sees as non-urgent cases."