Standard Life Final Bonus Update

mleonard79 · 2 February 2007 at 9:10PM

Hi everyone,

Some of you might remember my past threads (HERE and HERE) on the Standard Life Endowment policy we have in which I was trying to work out whether to keep or sell it. In the end I decided to hang onto it until the next installment of the Final Bonus was paid into it which was due to happen this month. I've just checked the account and the bonus is there. I'm a little confuesd by the way it's been laid out by Standard Life though and was wondering if anyone could clarify things for me. I also thought others with similar policies might find an update interesting.

The previous installment which went in last August was £310.65 so when I logged in and saw the Final Bonus amount up at £638.35 today I assumed the bonus added for this month came to £327.70 but from looking at the figures this doesn't add up. It actually looks like they've added the full £638.35 on today - if that's the case why is the final bonus part not displayed as £949 (ie including the £310.65 from Aug last year)?? Do the previous final bonus amounts just get merged into the basic total?

The figures for the last 6 months (taking a £50.75 p/m premium into account) to follow on from what I've posted previously are:

12 AUG 06: £11,344.60 (£129 growth plus £310.65 final bonus added)
12 SEP 06: £11,407.70 (£12.35 growth)
12 OCT 06: £11,470.85 (£12.40 growth)
12 NOV 06: £11,534.05 (£12.45 growth)
12 DEC 06: £11,597.30 (£12.50 growth)
12 JAN 07: £11,660.55 (£12.50 growth)
02 FEB 07: £12,386.60 (£36.95 growth plus £638.35 final bonus added)

As you can see from the figures there was a large leap in Aug and although I felt it growing by £129 was an aberration I didn't expect it to grow at such a low rate as £12 p/m for the next 6 months either. To be honest I was getting a little concerned at this paltry growth as at that rate it was not worth keeping (I'd previously worked out selling it and paying it into the mortgage would save us arond £55 p/m in interest so it would have to grow more than that p/m to be worth keeping.) With this bonus spread over the 6 months, however, that pushes the growth up to aroung £123 p/m which is more than double what I'd have saved by selling it.

The hard part of course is relying on these bonuses for this growth as I know that these can fluctuate and it's prefectly feasible that the next installment of the final bonus could be significantly smaller. Just to check, I'm sure Dunstonh told me before that there will be further final bonus installments every six months - have I got this right? If so then the next bonus installemnt will be in August. If this is the case I think I'm willing to take the chance for another 6 months to see what they add on then. Any help greatly appreciated (and a big thanks to Dunstonh for previously advising me to hang on til Feb - it seems it was the right choice :T .)

Regards

Michelle

EdInvestor · 3 February 2007 at 10:39AM

Payouts are still falling

Looks like I was right, sad to say. Had hoped for better by now - the other big firms (Pru, NU, L&G) appear now to have bottomed out.

But of course SL is in a much worse position - we need to remember that.

dunstonh · 3 February 2007 at 11:09AM

Standard Life have two annuouncments a year on bonuses. The main one in Feb and an interim one in August. Many other providers have just one announcement. So expecting a big jump from SL in Feb was unlikely to happen. It would be an increase but not at the Norwich Union level for example as some of the increase had been taken into account in August.

More than 80% of Standard Life mortgage [URL="javascript:self.name='main';PopUp('you_popup','/pages/jargon/index.html?in_jargon_term=endowments','350','150')"]endowments[/URL] maturing this year will not pay off the home loans they are secured on - leaving homeowners with a typical shortfall of £2,800.

Whilst not as good as Pru, who are at 100% hitting target (Scot Am 96%), it does mean that those maturing this year with a shortfall of £2800 are still likely to be better off than a repayment mortgage. If you consider the average endowment mortgage was £10-15pm cheaper then 25 years of £10pm saving works out at £3000. More than the shortfall.

Standard Life said future payouts may be boosted by cash released from its inherited estate - so-called orphan assets that have lain dormant for years. The inherited estate is worth £500m and the company says if and when it is able to distribute some or all of it, the money will go to policyholders and not to shareholders.

Dont bank on it. It will happen but when is not known and £500 mill is not a lot.

Looks like I was right, sad to say. Had hoped for better by now - the other big firms (Pru, NU, L&G) appear now to have bottomed out.

Dont see anything in that article to suggest that Ed. Plus you are comparing annual announcers with SL who do it twice a year. Factor in both of SL's increases to compare like for like.

SL, arent on par with the big three though so you still shouldnt expect more than 6% p.a. going forward and would be safer working on 4-5%.

mleonard79 · 3 February 2007 at 4:14PM

Hi Ed and Dunstonh,

Thanks for the replies.

Standard Life have two annuouncments a year on bonuses. The main one in Feb and an interim one in August.

I thought that was the case - just wanted to have it confirmed. Since the Feb one is the main one it would stand to reason it would be larger than the interim one so it makes sense that the Aug one was £310 and the Feb one is £638. Have you any idea why they haven't kept the £310 in the final bonus figure though Dunstonh? That confused me a little - it's definitely still included in my total but the final bonus only shows as £638 now.

The former [URL="javascript:self.name='main';PopUp('you_popup','/pages/jargon/index.html?in_jargon_term=mutual','350','150')"]mutual[/URL] insurer has announced the 2007 bonuses on its conventional [URL="javascript:self.name='main';PopUp('you_popup','/pages/jargon/index.html?in_jargon_term=with-profits','350','150')"]with-profits[/URL] life and pension policies will be unchanged from last year.

Is this referring to the Final bonus amounts added in Aug and Feb? If so does that mean we can expect the bonus in Aug to be the same as last year?

I know this endowment will never reach it's initial target - I don't think it'll even get close to be honest but all I'm really concerned about is whether or not it is growing more than I would save if I sold it and paid it into the mortgage and with those 2 bonuses (which I know are paltry in comparison to what they could be Ed!) it has performed quite a bit better over the last year than I would have got from paying it into the mortgage. So on that basis it seems it's worth hanging onto for another 6 months - of course if it turns out that the bonuses dry up and the monthly growth remains low then I'll be monitoring it closely and will sell it. I think it's worth the risk at the moment though.

Regards

Michelle

mleonard79 · 7 February 2007 at 5:56PM

Hi again,

I've just phoned Standard Life to see if they could explain what's happened with the Final Bonus and they've left me more confused than before! I asked why the £310 part of the Final Bonus that was added in August and remained there until last week seems to have been moved to the basic value part of the policy but the person I spoke to didn't seem to understand what I meant and kept insisting that they must just have added another £320 odd on to my bonus on 1st Feb if it's now sitting at £638 but this doesn't make much sense as the full £638 seems to have been added as you can see from the figures. She kept saying that the Final Bonus goes up and down so that's why but I already know that and I don't think it's a good enough explanation - I'm not complaining about having extra money, I'd just like to undestand it!! If they just add the Final Bonus portions they've put into the account onto the basic value when the next part of the Final Bonus is added 6 months down the line then that is great as it means those parts are at least guaranteed as I know anything that's sitting in the Final Bonus column is not guaranteed. I seriously doubt that's the case though which is why I'm a little confused as to why that's happened to the £310?? The only other explanation is that the account has grown by £347.60 this month which seems ludicrous when it's only been growing £12.50 p/m for the last few months! Anyone else had bonuses added to a similar with profits account recently? If so I'd appreciate any feedback. Thanks.

Regards

Michelle

EdInvestor · 7 February 2007 at 6:46PM

Hi Michelle

The final (terminal)bonus amount is not cumulative.Thus if it was 310 before, and then went up to 638, this includes the original 310.If it then goes back down to (say) 400, it means you have lost 238off what you had earlier.This reflects the state of play in the stock and bond markets in which your money is invested.Thus your TB value will wobble up and down.

The declared bonuses announced annually are guaranteed and will not fluctuate. However they will be low, because they have to be backed by bonds these days, and you don't want too much money invested in bonds because they produce low returns.

Rick62 · 7 February 2007 at 7:19PM

It goes up and down because they make it up as they go along, I think. Probably just gone back down as they've probably just paid it out as directors bonuses.

mleonard79 · 7 February 2007 at 10:33PM

EdInvestor wrote:

The final (terminal)bonus amount is not cumulative.Thus if it was 310 before, and then went up to 638, this includes the original 310.If it then goes back down to (say) 400, it means you have lost 238off what you had earlier.This reflects the state of play in the stock and bond markets in which your money is invested.Thus your TB value will wobble up and down.

Hi Ed,

Thanks for that. That is what I originally had assumed was the case but the amount that's been added on this month totally confused me leading me to question it. So you think the £310 is still in the Final Bonus and the bonus has only grown by £320 odd to make £638 then? That would mean that the basic value part of the policy has grown nearly £350 this month then instead of the £12.50 it's been growing for months (in Jan the value was £11,660.55 and now it is £12,386.60 a jump of £726.05 so taking away the premium of £50.75 and the bonus of £327.70 that's a growth of £347.60.) What do you think has caused that? Could it just be because of the bonus announcement? It just seems such a massive amount for it to grow considering how little it was growing before - this is what confused me and left me thinking the £310 from the previous final bonus announcement had been transferred to the basic value part.

Due to the fact the final bonus is not guaranteed and can go down again it's much better for the money to be added to the basic value anyway so I'm happy with that - I'm just amazed by the amount though! I'm now assuming it will go back to growing around £12.50 a month for the next 6 months but if I get a bonus like this in 6 months it'll still be worth it.

The declared bonuses announced annually are guaranteed and will not fluctuate. However they will be low, because they have to be backed by bonds these days, and you don't want too much money invested in bonds because they produce low returns.

The declared bonuses - when are they announced and where would I be able to see what they are? I'm assuming they're very small but it would be good to know what to look for. Thanks for the help.

Regards

Michelle

EdInvestor · 8 February 2007 at 7:52AM

The current value of the policy is made up of two components:the guaranteed value (consisting of the guaranteed sum assured and the declared bonuses added together) and the unguaranteed value ( the terminal/final bonus).

The bonus system works like this:

Declared bonuses are added annually ( and perhaps SL has a second one in the middle of the year, I forget.) They are usually a figure like 2.5% of the guaranteed sum assured, so they are somewhat of a lump. These bonuses cannot be removed.The total of these bonuses plus the guaranteed sum assured is the amount they must pay you at maturity if you keep paying the premiums.

The terminal (final) bonus reflectsthe performance of the markets your money is invested in. It fluctuates on a daily basis, but the company may update it only monthly, and if the outcome of the markets has been overall flat you may see little change.(If your money is invested half in bonds and half in equities this may have been the case this year as the bond market has gone down somewhat while the equity market has gone up: thus they cancel each other out, or produce only a small return.).

One thing possibly causing confusion is the addition of an extra payment last year after the DM. This extra one-off lump went into the terminal bonus.

If you have two lumps - one in August into the TB (the money from the DM) plus smaller amounts reflecting market returns, plus another lump just now into the declared bonuses,(the annual declared bonus) then that would be correct.

Standard Life Final Bonus Update

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