Unit Linked Endowment - Re-assurance????

DAVEYROBBO

Money Saving People, I am after a little guidance after receiving my yearly statement today from Guardian. I have had a Unit Linked Endowment Policy with them since August 1990 which is due to mature in 2015. I moved house in July 1998 and 3 months later took out a New Mortgage on a Repayment basis therefore using the Endowment as a savings plan (rightly or wrongly!). My current mortgage is a fixed term and ends in Dec 2012, I overpay by my 10% maximum each year (don't want to pay any fees) and therefore do not need the endowment to repay the mortgage.
The Fund has lost £500 in value over the past year, £1300 when you add the premiums paid in this year (£66.06 x 12). I am wondering whether to jump ship as the projected value at start was for £44950 and, whilst I realise I have no chance of that, the last projection figure at 6% was £33900 in Feb 2007. I am wondering whether it is worth continuing to line Guardian's pockets through the "economic downturn" or sit tight and make a small profit on my investment. A similar thing happened in 2000-2002 when the fund lost £1200 only to comeback in 2003 but the World economy seemed a little different then. My apologies for raising this subject to those of you in far worse situation than myself. But I hate the idea of losing money when I could have done something about it. Luckily enough I had a payout from them after they initially refuted a mis-selling claim from 2004 in 2006.:rolleyes:
Regards
Davey

DAVEYROBBO

DAVEYROBBO wrote: »

Money Saving People, I am after a little guidance after receiving my yearly statement today from Guardian. I have had a Unit Linked Endowment Policy with them since August 1990 which is due to mature in 2015. I moved house in July 1998 and 3 months later took out a New Mortgage on a Repayment basis therefore using the Endowment as a savings plan (rightly or wrongly!). My current mortgage is a fixed term and ends in Dec 2012, I overpay by my 10% maximum each year (don't want to pay any fees) and therefore do not need the endowment to repay the mortgage.
The Fund has lost £500 in value over the past year, £1300 when you add the premiums paid in this year (£66.06 x 12). I am wondering whether to jump ship as the projected value at start was for £44950 and, whilst I realise I have no chance of that, the last projection figure at 6% was £33900 in Feb 2007. I am wondering whether it is worth continuing to line Guardian's pockets through the "economic downturn" or sit tight and make a small profit on my investment. A similar thing happened in 2000-2002 when the fund lost £1200 only to comeback in 2003 but the World economy seemed a little different then. My apologies for raising this subject to those of you in far worse situation than myself. But I hate the idea of losing money when I could have done something about it. Luckily enough I had a payout from them after they initially refuted a mis-selling claim from 2004 in 2006.:rolleyes:
Regards
Davey

Sorry missed out the important bit I am swayed towards Surrendering the policy hence the "Reassurance" in the title that it makes sense as an option.

dunstonh

The Fund has lost £500 in value over the past year, £1300 when you add the premiums paid in this year (£66.06 x 12).

Not unexpected and to be honest a good thing.

I am wondering whether to jump ship as the projected value at start was for £44950 and, whilst I realise I have no chance of that,

Why?

Most 25 year unit linked endowments in balanced managed funds are expected to hit target or come fairly close if they have a typical 6 or 7% target growth rate.

Remember the projection rates are typically 4, 6 & 8%. However, for most of the last 6 years you would have seen growth in excess of 10%.

the last projection figure at 6% was £33900 in Feb 2007.

6% is on the cautious side for a unit linked. What was the 8% figure?

I am wondering whether it is worth continuing to line Guardian's pockets

You may not be lining their pockets now. Many unit linked endowments had front loaded charges and after a point in the plan the charges often got wiped out with higher allocations or a smaller annual management charge meaning there isnt much in it for them later in the policy life.

A similar thing happened in 2000-2002 when the fund lost £1200 only to comeback in 2003 but the World economy seemed a little different then.

Yes. We had terrorists flying into the pentagon and the world trade centres. The American accountancy scandels. The tech stocks crash. All accounting for a 43% drop in the UK stockmarket. This time round we are only down 21% at this time. A fairly typical amount for a market crash/correction.

What the cost of surrender?
What are the ongoing charges?
do you need replacement life cover?
are you a higher rate taxpayer?
are you on benefits?
how is it invested?
what other investment funds are available?
what would you do as an alternative?

DAVEYROBBO

dunstonh,
Thanks for the reply I have obviously had a little bit of a knee jerk reaction to todays statement.
I take it that:

The Fund has lost £500 in value over the past year, £1300 when you add the premiums paid in this year (£66.06 x 12). Not unexpected and to be honest a good thing.

is because it could have been a lot worse than that.

The last 9 statement values have been as such:
2000 9595, 2001 8948, 2002 8302, 2003 9401,
2004 10498, 2005 13460, 2006 15755, 2007 17987 2008 17566

The 8% figure was £39100

As for

What the cost of surrender? No cost
What are the ongoing charges? £2.63 month? (Premium - Allocation Amount)
do you need replacement life cover? No life insurance on myself and my wife for our current mortgage and substantial benefits from work pension scheme (Shell)
are you a higher rate taxpayer? Yes
are you on benefits? No
how is it invested? Unit fund sorry not sure which one!!!!
what other investment funds are available? perhaps several will check
what would you do as an alternative? Enjoy life and also already have maximum investment in company Sharesave and AESOP
Hope this helps
Thanks
Davey

dunstonh

The Fund has lost £500 in value over the past year, £1300 when you add the premiums paid in this year (£66.06 x 12). Not unexpected and to be honest a good thing.

is because it could have been a lot worse than that.

No. Its because when you are paying monthly you want the unit price to be lower. So periods of lower unit prices may hit the capital value in the short term but allows you to make monthly payments buying more units. So, when it goes back up again you make more money.

Zig zags are expected. A major one averages at least once every 5 years. We have seen a 20% drop although recent trend has been growth again as things currently do not appear to be as bad as the media are making out.

The endowment is not liable for higher rate tax. So, whilst not as tax efficient as an ISA, it more efficient than unit trusts.

what other investment funds are available? perhaps several will check

There will be more. You may decide to spread the money around differently. You should find lower and higher risk options to suite your risk profile.

The endowment is obsolete by todays standards but you are already in it and have already paid the bulk of charges. Unit linked ones are not usually that bad. However, they are more reactive to market conditions so zig zag in value frequently in the short term. If you are willing to use share saves then you should appreciate that they can zig zag more (although they also have tax benefits).

payless

Whilst dunstonh covers most points ( the bit about charging structure does need to be considered as I don't remembe this as being one of the lowest charging fims - and whilst charges were mainly front loaded do check what charges are being applied to new contributions & to fund)

Life cover a % of your premium ( or by unit cancellation) is going towards the cost of life cover, so this is a cost that might otherwise be invested if you don't want it ( also note the cost is often costed monthly - based on insurers decisoion of cost of the cover - so if product is no longer sold it may well be that they aren't overly bothred if competitive)

DAVEYROBBO

dunstonh, payless
Thanks for the advice you have given me a greater understanding of the workings of a unit linked product, which may be why i had the compensation payment as I did not fully understand its workings.
I will endeavour to find out the fund used and review alternatives.
I am saving like mad for a new car and was waying up alternatives i.e dispose of Endowment, take money, reinvest savings etc etc as i do not want to take out a personal loan. Ok realise it could have cost me more in the long run but its one of those personal no debt things!
Once again thanks.
I will report back on my findings again with which fund i am invested in.
Cheers
Davey;)

DAVEYROBBO

DAVEYROBBO wrote: »

dunstonh, payless
Thanks for the advice you have given me a greater understanding of the workings of a unit linked product, which may be why i had the compensation payment as I did not fully understand its workings.
I will endeavour to find out the fund used and review alternatives.
I am saving like mad for a new car and was waying up alternatives i.e dispose of Endowment, take money, reinvest savings etc etc as i do not want to take out a personal loan. Ok realise it could have cost me more in the long run but its one of those personal no debt things!
Once again thanks.
I will report back on my findings again with which fund i am invested in.
Cheers
Davey;)

wrt costs:
found some paperwork issued at outset of policy
Amount allocated to units 25% of first years premium followed by 89% of future premiums, presume the 11% goes towards fees and/or life cover.
I am assuming by your comments then that the policy is not that bad after all and a recommendation would be to continue with it.
My only other concern is the 5yr cycle dunstonh refers to. This could then give us a low cycle just before maturity.
Just one last thing I received £4500 compensation for mis-selling in August 2006 after an initial rejection in 2003 this came out of the blue and from there correspondence it appears that the FSA instructed them to review there systems for handling claims, so in a strange sort of way would it be fair to assume that the fund is in effect £4500 up (BTW Money which has long gone on Home Improvements!!!)
Regards
Davey:beer:

EdInvestor

DAVEYROBBO wrote: »

Amount allocated to units 25% of first years premium followed by 89% of future premiums, presume the 11% goes towards fees and/or life cover.

Er yes. That's awful.

I suggest you cash it in and either use the money on the car in lieu of a loan or open a couple of stocks and shares ISAs at a discount broker such as https://www.h-l.co.uk

There you will be able to invest 100% of your money in top quality funds or shares and pay a charge of only 1.25% a year, all the other charges are rebated. You also won't pay any tax on the gains as you will with the endowment .

payless

I doubt that the 11% goes towards life cover- thats normally a seprate charge over and above!

DAVEYROBBO

EdInvestor wrote: »

Er yes. That's awful.

I suggest you cash it in and either use the money on the car in lieu of a loan or open a couple of stocks and shares ISAs at a discount broker such as www.h-l.co.uk

There you will be able to invest 100% of your money in top quality funds or shares and pay a charge of only 1.25% a year, all the other charges are rebated. You also won't pay any tax on the gains as you will with the endowment .

What!!! I am also liable to CGT when the endowment was to mature?

I would quite happily invest the maximum allowable this year in a s&s ISA and continue to do so using the money I am saving towards a car & will save from the endowment