Endowments: terminal bonus rates falling

setmefree2

Hi:hello:

Excuse me for being abit thick - but I thought the reason returns on endowments were poor was because the funds were no longer invested in the stock market.

I have a Norwich Union Endowment - due to finish in 2012. Do you think there is any chance it won't even pay out 4%?

Thanks

SMF2

dunstonh

Excuse me for being abit thick - but I thought the reason returns on endowments were poor was because the funds were no longer invested in the stock market.

Too much of a generalisation. The tends to be less equity content but some providers are well over the 50% mark still.

I have a Norwich Union Endowment - due to finish in 2012. Do you think there is any chance it won't even pay out 4%?

NU are typically a good provider. Subject to qualifcation, they are paying a 3.6% special bonus on top of the normal bonus each of the next 3 years starting december this year. You also have the reattribution payment coming as well (minimum £400, average £1000).

Their bonus rates have typically been exceeding the mid projection figure and many of their plans have a mortgage promise value as well.

That doesnt mean it is necessarily worth keeping or not as there is more to it than that but they do have some very good ones, a lot of average and some bad.

EdInvestor

dunstonh wrote: »

NU are typically a good provider. Subject to qualifcation, they are paying a 3.6% special bonus on top of the normal bonus each of the next 3 years starting december this year. You also have the reattribution payment coming as well (minimum £400, average £1000).

This only applies to former CU and GA policies.

The markets have been very poor in the past 18 months (up to -20%) and this is only now starting to show up in policy values due to "smoothing", so it's by no means impossible that they would average less than 4% growth over the next 4 years.

That's why terminal bonuses are falling.

setmefree2

We don't qualify for a windfall bonus. With less than 4 years to go it's worth sticking around for the terminal bonus now isn't it? Pesky endowments:rolleyes:

Thanks

SMF2

EdInvestor

setmefree2 wrote: »

With less than 4 years to go it's worth sticking around for the terminal bonus now isn't it?

You get the terminal bonus either way.Post a new thread with the usual details of your endowment and we can check it.

setmefree2

EdInvestor wrote: »

You get the terminal bonus either way.Post a new thread with the usual details of your endowment and we can check it.

I thought you only got a terminal bonus at the very end? Confused

Dick_here

setmefree2 wrote: »

I thought you only got a terminal bonus at the very end? Confused

If the surrender value is higher than sum assured + declared bonuses then you're getting some already. With terminal bonus rates declining, you could end up better off surrendering now when compared to paying x years more premiums and getting the full (but probably further reduced) terminal bonus at the end.

dunstonh

terminal bonuses accrue as you go along. Some providers dont like giving the TB information out as you go along and hold out until the end. Others tell it to you on request or make it clear what you have so far.

Dick_here

dunstonh wrote: »

terminal bonuses accrue as you go along.

So what happens if your policy matures when they're at a lower rate than in the past ? Are your previous years' TBs reduced or not ?

dunstonh

!!!!!!_here wrote: »

So what happens if your policy matures when they're at a lower rate than in the past ? Are your previous years' TBs reduced or not ?

Depends. Conventional with profits plans have TBs adjusted annually or twice a year. The degree of the adjustment will depend on the term and the year of commencement.

Unitised with profits plans can see the terminal bonus change daily much more closely reflecting the performance of the underlying assets.