Cash In Endowment or Not?

francs2

Hello

Wonder if anyone can advise me. I have a Guardian Financial Services unit linked Endowment I took out in May 1991 - matures May 2016. This was for £35,000 mortgage I had at the time. I've now got a larger mortgage mainly repayment but with £25,000 interest based. My latest statement dated May 2008 says the unit value is £13376. I got a surrender value yesterday of £12533 (I've paid in £11007 so far). Projected growth at 4% would give £22500 at maturity. Monthly premiums are £58.24. Is it worth me cashing this in now and re-investing the money in ISAs or a high interest account - I've seen some paying as much as 7.2% at the moment. I also have about £6000 debt I could clear and invest the rest.

Anyone any suggestions. I don't think I can sell the policy as it is unit linked.

Thanks to anyone with any comments.

dunstonh

Is it worth me cashing this in now and re-investing the money in ISAs or a high interest account

How is it invested? What funds? That will give an indication of whether the 4% target growth rate is realistic or not (its its unit linked then its probably better to use the 6% projection or even 8% depending on funds).

francs2

Hi Dunstonh

I'm not absolutely sure how or what it is invested in. I've gone through all the bumf I have going back to 1991 and it says it is a Managed Fund and the investment objectives are: "the weighting between the various investment sectors is decided on your behalf by the investment managers in accordance with their views of curent and prospective market trands. The comosition of the managed fund will therefore vary from time to time. The managed fund will appeal especially to those investors who wish to rely on the overall expertise of GREs investment team. The managed fund is invested in a mixed portfolio of UK and overseas ordinary shares, fixed interest stocks, property and when appropriate, cash or short-term deposits. The fund may also be invested in GRE unit trusts or in units of other funds". My latest statement says I have 990.32 units at a bid price of 13.507 resulting in a value of £13376.25. They haven't given me a projected 6% figure but the 8% figure is £29,500. Its called a Homebuilder plan. I don't know if any of this answers your questions but hope it does.

EdInvestor

Please post the 6% projection for the policy and the interest rate payable on your mortgage.

francs2

Hi EdInvestor

The last time I was given the 6% projected figure was in Feb 07 - then it was £26,400. I have just renewed my mortgage as the fixed deal finished so i'ts now fixed for a further 5 years at 5.86%. Thank you for responding.

EdInvestor

Sorry really do need an updated figure, there has been a lot of market activity since then.....

francs2

I'll contact them tomorrow to see if I can get an updated figure. Their office is closed just now. Thanks again.

francs2

I have spoken to Guardian Financial Services this morning and got updated maturity figures:
4% - £20,800
6% - £23,700
8% - £26,900

Today's surrender value is £12294.30.

Hope this is of help. Thanks

EdInvestor

francs2 wrote: »

I have spoken to Guardian Financial Services this morning and got updated maturity figures:
4% - £20,800
6% - £23,700
8% - £26,900

If you cashed in the policy and used the lump sum to reduce the mortgage also increasing the mortgage payment by the amount of the endowment premium to maturity your total return would be 26,458

This is almost the same as their projected return at 8% but with no risk.

Is there any reason for thinking this policy will perform at a level higher than 8% on average so you get some return for taking the risk of keeping it?

If not I would consign it to the bin.

dunstonh

This is almost the same as their projected return at 8% but with no risk.

Is there any reason for thinking this policy will perform at a level higher than 8% on average so you get some return for taking the risk of keeping it?

Of course, the projected figure of 8% is probably closer to 6% in reality due to the charges. So, if the fund has performed at 8% after charges you would need a 10% example to match it.

Not saying the Guardian one is worth keeping but just clarifying that comparing 8% on the projection is not the same as getting 8% as an actual return. Example:

If you are in the Guardian managed fund, that returned 6.2% in 2007. So, the 8% projection would be the closest one to that as that is 6.2% after charges but the 8% example is before charges. In 2006 the Guardian Managed fund returned 9.47% so the example projections would need to be at around 11-11.5% to match that.