Do I Cash In Standard Life Endowment

opinions4u

Premium £46.30pm
Cash in value £15,500 (surrender - may get more from TEP)
Sum Assured £37,620
Guaranteed on Maturity Oct 2015 £19,500
3.75% > £22,800
5.50% > £25,700
7.25% > £28,800
MC80 with profits plan

I don't have any financial pressures and little need for life cover and the policy is no longer linked in any way to my mortgage.

I can't claim for mis-selling as I bought on an execution only basis in 1990.

I would use any proceeds to reduce mortgage debt where the interest rate is 5.3% (or invest in a 7% fixed rate savings account - 5.6% net - until returns are lower than mortgage rate).

The Standard Life endowment guarantee appears to have some funds behind it, but not enough to fulfil the original promise and the last letters were red.

Should I:
(a) retain the policy until maturity
(b) make the policy paid up
(c) cash it in, most likely via a TEP company or alternatively surrendering?
(d) any other option you can think of

Despite being reasonably savvy, this is one question I am struggling to reach a decision on.

EdInvestor

Please post the maturity projections.

EdInvestor

opinions4u wrote: »

3.75% > £22,800
5.50% > £25,700
7.25% > £28,800

If you cashed it in now and used the lump sum to reduce the mortgage @5.3% also increasing the mortgage payment by the amount of the monthly premium, then your return at maturity would be 26,915 with no risk.

It's pretty unlikely SL will make more than a 5% average return over the period so looks to me you'll be better to get rid and reduce the mortgage as there's no premium left for taking a risk with the endowment..

Let us know if the traders will give you anything extra for it. https://www.apmm.org

dunstonh

SL have been exceeding 7% p.a after charges and life assurance for many people. That would equate to around 9% on a projection if they were to show it that way.

Past performance is no guide to future returns but it worth noting as SL endowments havent been as bad as the projections suggest. Take a look at your old statements and projections and you will see that mostly the projection figures have been rising. Eds 5% figure is quite possible but that would equate to below the 3.75% projection. Personally, I dont think that is realistic and a higher figure is more likely.

There is also the mortgage promise value. Whilst SL did cap it, it does still exist and will pay out an amount if there is a shortfall. SL will provide this to you if you ask. They normally supply two figures to indicate the range the promise value is likely to fall between.

EdInvestor

The mortgage promise is not guaranteed, the fund must make a return of 6% every year for it to pay out. Negative figures for this year and last don't look promising.

dunstonh

That information is incorrect Ed. It was changed in the 2003 review. 6% is not required for a payout to be made (even when it was it was 6% average, not every single year)

To qualify originally, a shortfall had to exist if 6% or more was required to hit target. The maximum payout was that which would have been payable had a 6% return been achieved.

EdInvestor

The way terminal bonuses are going at the moment, I wouldn't advise anyone to hang around in the expectation there will be anything in the promise pot - far better to go now, rather than wait to see your TB cut - as has just happened..

dunstonh

The TB has already has been following the recent market declines. Pulling out now just crystallises that loss. Longer term monthly contributions, more so in the unitised version of the fund, could benefit very nicely from a few years of decline followed by recovery.

The promise pot is fully funded so no reason to think it will be withdrawn.

opinions4u

and so my indecision continues!

dunstonh

Its a judgement call you need to make and only time will tell if you were right or not. Some endowments are easy to decide whether to keep or not. SL are one of those who have good and bad making it harder to decide.

Whenever you invest, there are going to be good times and bad. We are now in a period when the markets have fallen back 20%. So, you are now buying monthly at 20% cheaper. In the short term, that has hit current values but in the long term, the cheaper investments now will make more than than those bought at any point in the last 2 years.

If yours is a unitised with profits fund then these are more reactive to market conditions and offer quite good potential. If its a conventional with profits fund then its less reactive and tends to lag behind the market somewhat. For example, if you had got out in June or July you wouldn't have seen the terminal bonus drop back. However, it has done so as it gets adjusted in August and February. You can more or less hold on to it until late December, early January and see what happens.

I would like to know what the mortgage promise value range is. They have been seen as high as £10k.

EdInvestor

It really depends on whether you want the certainty of paying off your mortgage or the risk of not paying it off, for which your return might be a very small additional payout.

The original risk/return premium of an endowment (allegedly) was somewhat more positive - the loan would be repaid and there would be a substantial surplus, for a new car, cruise,conservatory etc. In most cases that premium has disappeared and a shortfall on the loan has developed as well.

Looked at from the savings point of view endowment returns are taxed @ up to 20%. Many people are paying for unnecessary and expensive life insurance as part of the policy.The selection of funds available to invest in is usually poor and if With profits, incur high charges.

You would be much better off putting the money in quality funds via a tax free ISA wrapper through a discount broker who rebates charges. Endowments are an obsolete product, that's why they don't sell them anymore and why most people should move their money on.There are a few exceptions to the rule, but this is not one of them. .