Personal Finance: Less abject surrender

FOR YEARS and years, unsuspecting members of the public have been subjected to a big rip-off by insurance companies.

Anyone who took out an endowment or a pension policy and was then forced to cancel it early on in the policy's life, perhaps because they were made redundant or had hit some other form of financial hardship, would only be repaid a fraction of their premiums.

They would suffer this severe penalty when they were already in financial difficulties.

As there was no requirement to tell the hapless investor about this hidden charge, many people who bought policies would have been completely ignorant until it was too late.

Bizarrely, life insurance companies said that the high surrender penalties were to pay for the marketing costs associated with the policies. These costs include the life insurance company's expenses and the commission paid to the salesperson. The Office of Fair Trading has been haranguing the industry for years about this iniquitous situation.

Last week, Standard Life, one of the UK's biggest insurers, said that it intended to improve surrender values for its policyholders from the beginning of next year.

This means that policyholders will get nearly all their money back if they have to cancel their policies.

Standard Life claims that it is doing this in response to OFT's criticisms.

But perhaps a more pertinent reason is that from the beginning of next year all life insurance companies will have to tell potential policyholders about the penalties for early surrender.

Whatever the reasons for Standard Life's actions, it is good news for the consumer and should be followed by others.

OVER the last year, millions of pounds have been poured into emerging market unit trusts and investment trusts.

The investment story looked great. Growth in the developing regions of the Far East and Latin America was predicted easily to outstrip that in the more developed economies. With some markets rising by more than 100 per cent last year, it was easy for fund managers to make a quick killing on behalf of their investors.

But according to Fund Research, a company that analyses fund managers' performance, the time for easy pickings is over. It said that from now on the fund managers that will be the most successful will be those that dedicate a lot of resources to finding exactly the right companies to invest in.

Fund Research said that it will now be crucial for any new investors to take careful note of the commitment and experience of the group managing the fund before making cash commitments to what is still a highly volatile and risky sector.

THE Halifax Building Society has become the latest high- street name to fall foul of the rules governing the selling of financial services products. Last week, it decided to ban temporarily its 600-strong salesforce from selling unit trusts, personal pensions and personal equity plans to the public.

It said that it had done so because it failed to meet certain regulatory requirements. This does not augur well for its plans next year to set up its own life insurance company.

Vivien Goldsmith is on holiday