Norwich Union Endowment Surrender - help!

splatt23

Hi all.

I've drafted a letter to surrender my endowment policy with Norwich Union but I just don't know if I should post it or keep the policy....

The policy is :-

With Profits
Started Dec 1997
Matures Dec 2022
Premium £101.82pm
Value on Death : £57K
Total regular bonus : £2101

I am not relying on this policy as I've converted to a Repayment mortgage, and have other plans in place for the life insurance provided by the policy.

I have around 10K in a mortgage current account which is costing me £50pm in interest so I really wanted to pay that off by surrendering this. That'll save me £150pm. HOWEVER : I've just called for the surrender value and got a shock!

Quoted surrender values :-
23/06/08 : £8832
11/08/08 : £8951
16/09/08 : £8962
06/10/08 : £9012
29/11/08 : £9143
Today : £8650!!!!

As you can see, the surrender values were fairly stable over the last 6 months, and I just wanted to hold out until 1/1/09 to receive the second special bonus (of 3.6%) - so was shocked when I called to find the damn thing had dropped by £500 AND the bonus had been applied. What a difference a month can make.

So - should I surrender? - My worry is that the surrender value is falling through the floor and by the time they surrender the policy it'll be another £500 gone (or worse).

I've read a couple of posts on here which have implied that the markets are actually up during the last few weeks (surprisingly?), so I'm really surprised I'm seeing such a drop - could this be a mistake and by applying the special bonus, that they've messed up? - Is this wishful thinking...

The other thing in the mix here is that the policy is elligable for the NU reattribution pay out (if there is one). That would mean keeping the policy even longer (at least 6 more months) to get the payment which may only be a £400 to £1000 payout.

Any thoughts would be really appreciated.....What are my options?

Matt

Let me know if you need any more info - I've got it all here I think....

dunstonh

As you can see, the surrender values were fairly stable over the last 6 months, and I just wanted to hold out until 1/1/09 to receive the second special bonus (of 3.6%) - so was shocked when I called to find the damn thing had dropped by £500 AND the bonus had been applied. What a difference a month can make.

NU have imposed MVRs on those surrendering. If you look at the current value, you should find that has gone up.

My worry is that the surrender value is falling through the floor

Why? Markets are up 20% on their low point. I expect MVRs to start reducing during this year.

I've read a couple of posts on here which have implied that the markets are actually up during the last few weeks (surprisingly?)

Not suprising at all. Markets act in advance of events. They tend to go up too much after periods of sustained growth and down too much in a crash. The recession is largely priced into the markets already and its just unknown or unexpected events that will hit it harder of if it turns out worse or longer than expected.

so I'm really surprised I'm seeing such a drop

I'm not. The stockmarket cannot drop over 40% without your value being hit as well.

The other thing in the mix here is that the policy is elligable for the NU reattribution pay out (if there is one)

There was some doubt last year that it would go ahead but with things settling down and looking better going forward, they have said it is still going ahead.

Let me know if you need any more info

Do you havea mortgage promise value? look at your 2001 or 2004 statements.

EdInvestor

I'd expect terminal bonuses and surrender values to continue to fall - after all you have hardly been hit by any of the market fall yet.

What interest rate are you paying on the mortgage and can you post NU's updated maturity forecasts?

splatt23

Wow - thanks for the speedy reply.....

Does that explain the drop in surrender value between end of Nov and now then? Have the MVRs increased recently? Just seems a bit sudden in one month if the market conditions have already been smoothed as you describe (and are on the up again).

I do have a mortgage promise - if NU earn 6% a year from Jan 2000 to maturity they will pay out up to £11,800 to help cover a shortfall. Also - the policy also has critical illness cover built into the LA.

One other Q. As the policy is >10yrs old, I am assuming I will not be taxed on the surrendered amount. Is this right?

I don't want to surrender during a shot time low - but also don't want to keep throwing money at this on the gamble that the surrender value will go back up (whilst being hit by interest on the 10K which needs paying off). Realistically, do you think the MVRs will reduce within the next 6 months?

Also - If the reattribution goes ahead, and the majority take it then surrender, what is the risk of the policy nose diving at that point?

I'm well out of my depth here!

Thanks for your help....

dunstonh

Does that explain the drop in surrender value between end of Nov and now then? Have the MVRs increased recently? Just seems a bit sudden in one month if the market conditions have already been smoothed as you describe (and are on the up again).

MVRs tend to come in on one day. Its like they hold on as long as possible before finally making the decision to add one and NU did that and it was between 10% and 20%.

I do have a mortgage promise - if NU earn 6% a year from Jan 2000 to maturity they will pay out up to £11,800 to help cover a shortfall. Also - the policy also has critical illness cover built into the LA.

That £11,800 wont be included in the projection and you will lose it on surrender. Its important you include that in any decision.

One other Q. As the policy is >10yrs old, I am assuming I will not be taxed on the surrendered amount. Is this right?

Yes.

Realistically, do you think the MVRs will reduce within the next 6 months?

It depends on market conditions. Fixed interest sector is looking attractive. Equities are on the op but remain volatile in the short term. Property will probably bottom out during the year. Thats the general feel. If that feeling turns out correct then I expect the MVR to reduce/remove during the year. If not, it will remain in force.

Also - If the reattribution goes ahead, and the majority take it then surrender, what is the risk of the policy nose diving at that point?

MVRs help the surrender values reflect the underlying investments. There is no indication that there will be a mass outflow. Indeed, NU have been reporting massive inflows into the WP fund as new investors seek security of the WP range. So much so that they are reducing terms on new business because they have been getting too much.

splatt23

In reply to EdInvestor.....

EdInvestor wrote: »

I'd expect terminal bonuses and surrender values to continue to fall - after all you have hardly been hit by any of the market fall yet.

What interest rate are you paying on the mortgage and can you post NU's updated maturity forecasts?

Interest rate on the 10K mortgage (current account reserve with the woolwhich) is 5.5%. The main mortgage which the endowment was taken out to cover is now covered by repayment (currently paying 2.19%). It would be nice to get the current account reserve rolled into the main mortgage so I can pay 2.19% on all of it but I guess fees would be involved there (but that's another issue).

Against a target amount of 57K

In 2005
Project final amount at 4% £33,000, 6% £42,300, 8% £53,900

In Dec 2006
Project final amount at 4% £33,800, 6% £42,900, 8% £54,200

In Dec 2007
Project final amount at 4% £34,300, 6% £43,600, 8% £54,900

In Dec 2008
Project final amount at 4% £35,100, 6% £43,600, 8% £53,800

More details on the policy :-
Basic sum assured £20,976
Critical Illness, Waiver of Premium, Flexibility Option included

More Data from last statement if it helps :-
Returns achieved in the With Profit fund (after tax)
2000 -0.7%
2001 - 8.0%
2002 -6.8%
2003 10.4%
2004 9.9%
2005 14.8%
2006 10.2%
2007 4.8%

Matt

EdInvestor

splatt23 wrote: »

In Dec 2008
Project final amount at 4% £35,100, 6% £43,600, 8% £53,800

If you cashed it in now and stashed it in the mortgage fund @ 5.5% also paying in the prmeiums to maturity you would end up with 40,394.So not much of a premium for risk in the policy.

Critical Illness, Waiver of Premium, Flexibility Option included

You need to cost how much it would be to replace this insurance, which would reduce the eventual return for the policy.

Returns achieved in the With Profit fund (after tax)
2000 -0.7%
2001 - 8.0%
2002 -6.8%
2003 10.4%
2004 9.9%
2005 14.8%
2006 10.2%
2007 4.8%

Re the mortgage promise:

if NU earn 6% a year from Jan 2000 to maturity they will pay out up to £11,800 to help cover a shortfall.

It seems probable they will make 6% over the period, but not a lot more on average as there are several nasty years in the pipeline. It's also hedged around with ifs and buts.

Not really a clear-cut decision.

dunstonh

If you cashed it in now and stashed it in the mortgage fund @ 5.5% also paying in the prmeiums to maturity you would end up with 40,394.So not much of a premium for risk in the policy.

NU at 6% = £55,400. Thats £11k more.

NU have the potential for 6-8% within their fund (projections are based on gross return but their net performance typically comes in that level). You have a good mortgage promise as well which is funded for.

I would hold with NU but review in future.

EdInvestor

dunstonh wrote: »

NU at 6% = £55,400. Thats £11k more.

The OP posted as follows:

In Dec 2008
Project final amount at 4% £35,100, 6% £43,600, 8% £53,800

So about 2k more, not 11k. But no guarantee it might not be somewhat less, so not much of a premium foir taking the risk.

splatt23

Thanks both for your help.

Life policy with critical illness will cost me about £32 pm.

Had a quick look into the MVR theory. Not sure MVRs have been added to mortgage accounts by NU. Found plenty of info of MVRs being added to
pension and life bond policies though. So still not sure why the drop in surrender value has occurred (unless it's just due to the market drop).

Got to admt, I'm not really liking the thought of paying in another 17K into this. Tempted to get shut of it, and try to pay off the majority of the 10K and continue to overpay on the morgage by the £69 pm.

If I surrender - I hope the value will not drop more in the next 2 weeks while it goes through.

Any other thoughts or info would be much appreciated.....

dunstonh

So about 2k more, not 11k. But no guarantee it might not be somewhat less, so not much of a premium foir taking the risk.

How do you get your figures?

The mid rate projection at 6% (which really means around 4% net), gives £43,600. Plus the mortgage promise value of £11,800 which takes it to £55,400. Just £2k short of the target but £15,000 more than your calculations.