Royal Life / Sun Alliance Endowment Shortfall - Keep or Sell ?

dunstonh

Both of those have limited growth potential for the future. I would even go as far to say that the 3% projection figure (the lowest one) would be hopeful.

Kellm9

EdInvestor,

Thanks for the figures.

So for both policies, unless future annual and terminal bonuses amount to more than ~£2500 it would seem best to surrender now and invest elsewhere.


dunstonh,

Last years bonus total was only £86. If future bonuses are as low these policies seem a pretty poor investment. Are you familiar with these policies ? given you say a 3% figure would be hopeful. The latest projected values (policy 1) I have are growth at 3.75% = £14600 4.5% = £15100 and 5.25% = £15600 and they say "our view is that 4.5% is currently a reasonable assumption" ... blah blah. I have similar figures for policy 2. All of these figures are above the cash in , stick in 4% account return. I'm obviously not very well versed in this area but it seems to me they can print any figures and then pay out anything they want.

Regards
kellm9

dunstonh

Last years bonus total was only £86. If future bonuses are as low these policies seem a pretty poor investment. Are you familiar with these policies ? given you say a 3% figure would be hopeful. The latest projected values (policy 1) I have are growth at 3.75% = £14600 4.5% = £15100 and 5.25% = £15600 and they say "our view is that 4.5% is currently a reasonable assumption" ... blah blah. I have similar figures for policy 2. All of these figures are above the cash in , stick in 4% account return. I'm obviously not very well versed in this area but it seems to me they can print any figures and then pay out anything they want.

I would say, they would be lucky to get 4.5% in the short term. Its certainly potentially possible to get higher than that in the long term but based on their current investment strategy, charges and having to recover past losses, it will take some time to get back up to 4.5%.

The figures are chosen by the regulator not the provider. There are funds with zero bonus out there with little chance of seeing much improvement which still use those rates. Equally, the good funds performing above those rates still use those even though they are not reflective of how they are really doing and what future potential they have. The situation isnt ideal with endowment projection rates and its something I mention a lot on these forums.

EdInvestor

dunstonh wrote:

The figures are chosen by the regulator not the provider. The situation isn't ideal with endowment projection rates and its something I mention a lot on these forums.

Quite right. Endowments were sold in the early 90s based on projection rates supplied by the regulator at the time which were also too high.

The projections bear no relationship at all to what might eventually happen to any given endowment ( unlike calculations on the interest payable on cash).

Only the guaranteed value is a known quantity with an endowment - and at RSA they are now saying they plan to impose cuts on that at maturity!

So what do we have: a fund in bonds, returning perhaps 4-6% max. High old style charges: that will take 2%. Retrieval of old losses and charges for guarantees: another 1.5%. Life cover: a small amount, plus maturity charges on guaranteed fund - another 1%?.Certainly you can forget any terminal bonus.

As DH says, some endowments (though not a lot IMHO) may perform better than the projections. But this is not one of them

Kellm9

Everything points to surrendering and putting it in a X% paying investment.

So that would leave me with, and forgive my lack of knowledge, questions.
1/ How do I surrender ? and how long does it take ?
2/ Where to invest ? What interest rate should I be able to achieve ? I currently have no ISA's etc so I suppose use this allowance first.

I have just renewed my mortgage with the Nationwide at 4.39% fixed for 2 yrs. I can only over pay £500 a month on this without penalty.

Regards
Kellm9

dunstonh

1/ How do I surrender ? and how long does it take ?

Letter to provider saying you wish to surrender policy and like it paid by cheque or directly into your bank account (give bank details). Some will act on that. Others will send out a surrender request form.

It can take anything from 10 days to 3 months depending on the quality of the service standards.

2/ Where to invest ? What interest rate should I be able to achieve ? I currently have no ISA's etc so I suppose use this allowance first.

Pay off the mortgage over a monthly basis to avoid penalty would probably be the best option. Investigating the penalties may also be worthwhile as they may not be that high against the interest you would save.

Kellm9

Hi dunstonh, EdInvestor,

Last question on this thread hopefully,

I've just been reading through another thread that you are both posting on. Income Tax !!! I never really gave it a thought, would I be liable if I surrender these policies ?

Regards
kellm9

bargainaddict

Please excuse my lack of knowledge, but what is a zombie fund? We have an endowment with Royal London who I believe is now Royal Sun Alliance. It has 4.5 years to run and is on track to pay out with a minimum profit of about £4000, nothing like the £70,000 we were quoted 1 year into our repayment mortgage when we were persuaded to change. But at least we are in the position of not facing a huge loss! What does it mean that RSA are saying they will impose cuts on the maturity?

dunstonh

I've just been reading through another thread that you are both posting on. Income Tax !!! I never really gave it a thought, would I be liable if I surrender these policies ?

If you are a basic rate tax payer and nowhere near higher rate tax bracket, then no. If you are close and there is a chargeable gain, then it can be worth waiting until year 10 when there would be no tax liability.

Please excuse my lack of knowledge, but what is a zombie fund?

A with profits fund that is basically dead with little chance of recovery. Likely to be on zero or virtually zero bonus for the short to medium term, if not until it is closed.

We have an endowment with Royal London who I believe is now Royal Sun Alliance.

Royal London has no link with Royal & Sun Alliance. RL is still a trading company, albeit in subsidiary form. It is also still a mutual.

The RL with profits fund is not great but its better than some.

What does it mean that RSA are saying they will impose cuts on the maturity?

Doesnt affect you. So dont worry about it.

bargainaddict

Thanks for that dunstonh. I remember getting mail from RL saying they were buying(?) sun alliance or something and assumed that was now who they were called. As hubby has just accepted voluntary redundancy was wondering about surrendering policy and paying chunk of mortgage or whether to keep going as such a short time left.