Socialist Worker

They gambled our future

by Neil Hodge and Paul McGarr
Issue No. 1821

SIX MILLION people in Britain have had letters this year warning that they may not be able to pay off the mortgages on their homes. Millions more with similar 'endowment' mortgages will get such letters in the coming months.

This comes on top of threats to workers' pensions as crisis grips the insurance industry. These scandals flow from governments' attempts to push people's future security into the turmoil of the stockmarket. Endowment mortgages were promoted in the 1980s as Margaret Thatcher's government pushed the idea of 'property owning' and 'share owning'. The key difference was that your ability to pay off the money borrowed became dependent on the ups and downs of the stockmarket. With these policies the monthly mortgage repayments only covered the interest on the money you borrowed.

So mortgage companies teamed up with insurance firms to get people to pay extra money into an insurance policy - the endowment. That money was then to be invested on the stockmarket. The dream was that as shares rose there would be enough money after 25 years to pay off the original lump sum borrowed and supply a nest egg on top. Many more people took out endowment mortgages instead of repayment mortgages that were the majority until 1983.

Some mortgage companies insisted people took out endowments - or not get a mortgage at all. The image was of a booming stockmarket that could only bring prosperity and security. Now things look very different.

Share prices have tumbled globally, with Britain's FTSE share index hitting its lowest level for six years. Naked profiteering by the insurance companies has added to the crisis.

With most endowments the projections of what people would get were based on figures claiming that insurance companies took around 0.3 percent of annual payments in 'charges'. The real amount was usually five times higher - a scandal which was perfectly legal until 1995. Insurance companies pocketed some £150 million a year for over a decade as a result.

This alone meant that many promises of future payouts would be all but worthless. The slump in the stockmarket has now made this a near certainty. The result will be worry and potential poverty for millions, and for some losing their homes when they cannot keep up payments after retiring. Millions of people have had warning letters telling them their endowments may not now pay off their mortgages, and suggesting they pay in more money. Even if they could afford this, it could prove futile if stockmarkets continue falling.

The endowment scandal is merging with a wider crisis of the whole insurance industry. Successive governments have held down both the basic state pension and the SERPS earnings-related extra pension. They have pushed millions onto a variety of pension schemes, which ultimately are run by insurance companies. There are some 900 such companies in Britain.

They take people's contributions, invest most of the money in shares, and offer the promise of a decent pension. Again the slump in the stockmarkets has meant that the value of the 'assets' held by the insurance companies has crashed over the last two years. This has left many with insufficient funds for the promised future payments.

Insurance company assets in Britain stood at £130 billion in 2000. They had crashed to £40 billion at the start of 2002, and have gone down more since. Some companies have already responded by hammering the people who looked to them for future security.

Standard Life, for example, has slashed the 'bonus' payments on some policies and imposed huge 'exit penalties'. This boils down to cuts in the amount policy holders will get paid, and fining anyone who tries to escape by cashing policies in. Insurance analyst Ned Cazalet says the whole industry is like 'a man at the roulette wheel who has been through his gambling money, then through his housekeeping and then the money for his daughter's birthday present. Now he's down to his taxi fare.'

Incredibly, Tony Blair's New Labour government wants to push millions more people's futures and the fate of public services onto the stockmarket. The New Labour government's 'stakeholder' pensions are based on gambling by insurance companies.

And the government also wants to put our schools and hospitals in hock to firms and finance deals that also depend on the gyrations of the stockmarket.

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Article information

Sat 12 Oct 2002, 00:00 BST
Issue No. 1821
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