How is my endowment getting worse?

dander

I wonder if one of the financial whizzes on here can explain this. I have just recieved my first red letter about my endowment policy. I have a unit-linked policy that is performing very poorly. It was supposed to make £30k, but highest projection now stands at £20k. Current cash in value, after 12 years, £5.5k

What puzzles me is that, if I understand it correctly, a unit-linked policy is entirely based on the value of shares that have been bought with my money. So, since I took it out in 1993 things have been bad in the stock-market - so things look grim for my policy - that much makes sense. However, the stock-market has been improving for a while now - surely my prospects of a shortfall should now be shrinking, not growing?

Pretty much decided to cash the thing in now, just to get rid of it, but would love to know if anyone can explain what's going on! :rolleyes:

ReportInvestor

The company may have been guilty of paying out too much on other people's maturing or encashed policies and so you are picking up the tab.

The company may have been forced, by market conditions, guarantees on policies and the FSA to reduce the % of your policy invested in the stock market. So you might have suffered on the downside 2000-03 but have less opportunity to benefit from the upside.

If bonds have been bought then the yields on these are much lower than when projections were made on your policy in 1993.

dunstonh

Check the projection rates being used. Over the years they have varied and this really messes up how the endowment is doing in the mind of the consumer. One year you get 4, 6 & 8%, another you get 4,5 & 6% some even lower. Projections are not a true reflection of the performance on the investment funds. They are indications only if x rate is achieved.

As it happens, the stockmarket crash in the early years of a unit linked endowment is a very good thing. Sure, it make a mess of early values and projections do appear to go off a bit but you are buying those units much cheaper and at the end of the day, it will be the units in the years following the crash that will make the most money.

Of course, that assumes you are invested in the stockmarket. Your fund(s) may not be linked to the stockmarket. Ideally, your unit linked portfolio would be a spread. Unusual in older plans but nothing that cannot be changed going forward.

Do not be too hasty calling it a day with this. You could have a good one but just misreading the information.

EdInvestor

dander wrote:

What puzzles me is that, if I understand it correctly, a unit-linked policy is entirely based on the value of shares that have been bought with my money.

Other than deductions for charges and life assurance, it should be.

So, since I took it out in 1993 things have been bad in the stock-market - so things look grim for my policy - that much makes sense.

Actually from 1993 to 2001, things went very well in the stockmarket But from 2001 on, there was a crash, and quite a lot of those 90s gains would have been lost.:(

However, the stock-market has been improving for a while now - surely my prospects of a shortfall should now be shrinking, not growing?

Yes. If they are not, one reason for this might be that the original projections for the maturity value when you invested in the policy were wildly optimistic. There may also be expensive penalties for cashing it in early.

Pretty much decided to cash the thing in now, just to get rid of it, but would love to know if anyone can explain what's going on! :rolleyes:

Perhaps you could tell us which company it's with and what fund(s) it is invested in. This might make it easy to see what is happening and if there is a solution other than dumping it.

dander

That's very kind Edinvestor - it's a Countrywide Assured Enterprise policy - originally Hambro Guardian when I started it, it's worked its way through a few companies or company names since then.

I don't have the fund details on me right now - will have a look when I get home tonight.