Will our endowment ever make money?

bingo_2

Dont forget that you may be able to sell the endowment rather than surrender it, and get more money.
This from the FSDA web site

http://www.fsa.gov.uk/consumer/01_WARNINGS/endowments/mn_trading.html


"With-profit endowment policies are long-term investment products. They have been designed to be held through to maturity. If for whatever reason you're thinking of surrendering or cashing your policy in, make sure your endowment company tells you about ALL the options - that includes the option of trading the policy in as well as surrendering it if it has been running for at least five years.

What's the difference?

If you surrender your policy, the life office pays you a surrender value for it. If you trade it in, you sell the policy to a third party (usually via a traded endowment company, sometimes called a market maker). The new owner takes over the policy and pays the premiums but the assurance remains on the life of the original policyholder. So when it matures or if the original policy holder dies, the new owner gets the money. Depending on how long the policy has been running, you may get more money trading it in rather than surrendering it. "

It cost nothing to find out.
Google will return lots of web sites that will bid for your unwanted policy

EdInvestor

I doubt somehow that anyone will want to buy a Phoenix endowment

bingo_2

It costs nothing to find out.

leftieM

Noone wanted to buy our Phoenix endowment. Can't say I blame them after what I've read on this site!

Nick_C_4

I've just recently surrendered an old Sun Alliance endowment now managed by Phoenix. My wife bought it to cover the mortgage on her first flat. Luckily, we weren't counting on it to pay off a mortgage, although I was intending to use it to repay some of our current mortgage early, when it matured. However, having watched the projected rate of return slide to lower than the interest rate we're actually paying on the mortgage, we decided to take the money and pay it off the mortgage now. After just over 15 years, my wife / we paid in about £9K, and got back just over £10K. Obviously the money would have been better off in a savings account, but there you go!

bunking_off

EdInvestor wrote:

LeftieM

If you took the surrender value and put it in the bank @4% also paying in the monthly premiums until maturity you should get 27,442.[If you need to replace the life assurance you'd need to deduct the cost of that.]

...

So I should look to reinvest elsewhere - or to use the money to reduce the amount owed on your mortgage as that might generate a better return than saving at present as you pay no tax.

EdInvestor,

Wouldn't dispute your figures (well I would a bit as I get a slightly different answer, but it's within £1k so let's not get hung up on it!). However, in order that we compare apples with apples rather than pears, it is necessary to factor in the life assurance. If we say that costs, say, £20/month (depends on age, fitness, whether joint or single policy is needed), then the return on putting the money in the bank drops to <£20k. And that's assuming LeftieM can get something paying 4% net - again, depends upon their tax status and other investments (eg if they have any ISA allowance left).

Must admit that in my case, because of medical conditions that have arisen since I took out my endowment it's all but impossible for me to get life assurance at a reasonable level so I've left my endowment running as a "nest egg" and for the insurance component.

Personally, I can't see the logic in putting money into a risk free savings vehicle to pay off a mortgage. Either

-One is willing to take a risk, in which case a stock market based investment is the way to go...ISA or unit trusts is the ideal, although if you've got a "sunk cost" of endowment start up charges one needs to look very carefully at whether it's worth incurring the cancellation fees.

-Alternatively, one is risk averse, in which case the best way to go is to use the would-be-savings to pay the mortgage down (aka repayment mortgage). It makes no sense to invest in e.g. a building society account, if the net interest rate payable is lower than the saving that would be made in mortgage interest charges. There have been a few opportunities where it's been possible to get a better savings rate than the mortage interest rates, but they're few and far between - must be, otherwise everyone would max out their mortgage to invest in savings accounts!

Therefore, think there's a lot of logic in your last para...

dunstonh

-One is willing to take a risk, in which case a stock market based investment is the way to go...ISA or unit trusts is the ideal, although if you've got a "sunk cost" of endowment start up charges one needs to look very carefully at whether it's worth incurring the cancellation fees.

This is very important as many endowments allow a selection of funds across the sectors. Some endowments also have higher allocation rates in later years. So, if you can get either or both of these things, then surrendering in favour of a unit trust/ISA may not be the best option.

EdInvestor

Hi bunking off

It makes no sense to invest in e.g. a building society account, if the net interest rate payable is lower than the saving that would be made in mortgage interest charges.

Of course.

But when looking at how to deal with an endowment, I think it's helpful to try and compare one kind of long term guaranteed return (the gsa/declared bonuses on the endowment) with another (the interest on a deposit account over the same period.)

I think most people can understand that comparison quite easily. Then one can move on to mentioning potentially better guaranteed returns from early repayment of the mortgage.

Non guaranteed returns are a quite different matter.