Endowment Projections... can we believe them?

[Deleted User]

Like many others 15 years ago we took out a 'with-proffit' endowment to run for a 25 year period. But, probably unlike many we still have the same endowmemt.
After 5 - 6 years the minimum guaranteed amount was approx £35k, which was not bad considering it's target is £58k. But since then as you can guess it has hardly moved at all, less than £1.00 (100p) in the last year.
However my concern is regarding the projections that all companies must provide (ie, what your policy might be worth if it grows at 4%, 5.5% or 8% per year) to comply with the FSA rules. What they don't make totally clear though is that these projections come from the surrender value of the day not the minimum guaranteed amount (MGA). Their reason is that the MGA is only guaranteed if the policy matures & all premiums are paid.
My point is that at the lower projection my endowment is almost going to mature at the figure that is guaranteed today!
How can anyone take notice of these misleading projections? Why can't they offer projections based on the MGA with a footnote stating that they assume all monthly premiums shall be met?
Has anyone else experienced this? Have these misleading projections led to many people selling cancelling their endowments under false pretences?

dunstonh

Endowment Projections... can we believe them?

By themselves, not usually. They have limitations and flaws which can result in the figures understating or overstating the likely outcome. They are a guide only.

What they don't make totally clear though is that these projections come from the surrender value of the day not the minimum guaranteed amount (MGA).

Not all of them do but some do. For those with surrender penalties that can mean that the projection is understating the likely outcome. Standard Life used to do it with their old conventional with profits plans and you had the daft situation where the lower example illustration would result in a value that was less then the guaranteed minimum.

Has anyone else experienced this? Have these misleading projections led to many people selling cancelling their endowments under false pretences?

Its almost certain that people have surrendered on that basis.

Also, the example projections are before charges, not after. So, when you see 4%, 6% and 8% then it really means 4% gross, deduct charges (say 2% in this exmaple) and that leaves you with 2% net growth. Yet the fund may be turning out 7% a year after charges. So, if someone sees 6% growth, that doesnt match with the 6% projection but more likely the 8% projection.

hedgehunter_2

An endowment projection is what it says it is, it is an estimate of a possible future value based on assumptions that may or may not turn out to be accurate as the future has to unfold.

They start with the policies current value (and surrender value is as good a term as any) this value is increased by various assumed rates of growth for the remaining term. From this sum assumed future costs are deducted. This is then compared with the already guaranteed benefits and the higher of the two sum are quoted as the projection.

A zero (or very small) annual bonus does not mean the policy is not growing in value it means that the guaranteed benefits are not increasing. The policy must grow by the difference between the current surrender value and the already guaranteed benefits whether or not further bonuses can be added over the remaining term.

If the policy is worth more at maturity than the guaranteed benefits, any excess can be paid paid as terminal bonus.

Newly_retired

Our 25 year Pearl with-profit endowment is due to pay out on maturity in a few days. A lot has happened in the last couple of months given the economic climate since our last projection ( which we were reasonably pleased with) so we are wondering how much to expect in our terminal bonus. Anyone else had pay out recently from Pearl?

dunstonh

Pearl dropped their terminal bonus by an average of 10% in July.