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Endowment as a savings plan

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Hi I do not know if anyone can offer advise. I have had an 25 year endowment policy for since July1998 that has index linked options for the first 15 years, which i have taken out every year so far. My question is that it started by costing me 86.00 a month is is costing me £115.26 per month at the momment and will obviously increase over the next 7 years. This is no longer attached to my property as I changed my mortagage type 18months ago.The projected payout is £40,000 and I wonder if there is a better savings plan for me.

The policy is called an acceralrated investment mortgae plan and was originally with London and Manchester but was transfered to Freinds Provident

Comments

  • dunstonh
    dunstonh Posts: 119,640 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    It depends on the investment funds available, charges and your tax status.

    With the bulk of the charges likely to have already been paid, if there is a decent fund range available, then it could still be good to keep.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Mrs_Bond
    Mrs_Bond Posts: 32 Forumite
    Part of the Furniture 10 Posts Combo Breaker
    Thanks for the info, how can I tell if it is still worth keeping. Can you give me any guidance?
  • dunstonh
    dunstonh Posts: 119,640 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    There are a range of questions which could be asked but 2 of the things to look at are:

    Projections - give an indication of what the return may be if x% rate is achieved. This can be a realistic rate but it can also understate of overstate the potential of the product and should not be relied upon by itself.

    Fund(s) invested in and others available - As an investment product, this is the most important thing but usually the most overlooked point as well. Most endowments were set up in an era when single funds were selected for the whole amount. This is old fashioned nowadays and many providers do allow multiple investment funds. Switching to a more suitable portfolio can be the best option.

    You get this information from the provider. You can choose to do it yourself or ask an IFA to do it for you. A simple: "can you give me current value, surrender value, projections until maturity and let me know what fund(s) I am invested in, what others are available and how much it costs to switch" should suffice. 2-3 weeks later and you get the info you need come back.

    The important thing to consider is that if you are invested in a UK equity fund in the endowment, then performance is not going to be significantly different from an ISA investing in a UK equity fund. So paying charges to surrender the endowment to go into an alternative product but using same investment sector/funds can be very expensive. So picking the funds on the old product can end up much cheaper. It can also be tax efficient for higher rate tax payers or have little or no impact on those with means tested benefits (which an ISA may well do).
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    Hello Mrs Bond

    If this is a With profits policy post the following info and we can have a look:

    Guaranteed sum assured
    Declared bonuses so far
    Surrender value
    Monthly premium
    Maturity date


    If it is a unit linked endowment post the fund(s) it is invested in and the projected values at maturity.
    Trying to keep it simple...;)
  • Hi guys, sorry for the delay in getting back but I have been to Ireland. Weather godd, walking brilliant but my it is expensive to eat there.

    With Freiends Provident used to be London and Manchester
    As of August 2005
    Guaranteed sum assured £40,000
    Declared bonuses so far 2% from August 2003 2.0% from Feb 2004 1.75% from August 2004
    Surrender value August 2005 Cash in value £5,039.89
    Monthly premium 115.61 increase every year by approx £5.00
    Maturity date July 2023
    This is a with profits Accelerated Investment Mortgage Plan
    LMA with Profits 1 Accumlation No. of Units 2,330.71 Bid Value £4,458.65
    LMA with Profits 1Capital No. of Units 2,190.28 Bid Value £2,188.09
    Does this make sense
  • Sorry about the spelling I am tired
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    Looks like this is a unitised with profits plan and thus has no guaranteed value.

    May I suggest you get updated projections for the maturity value?
    40k sounds a little unlikely.

    The projections should be @4%,6%,8% or similar figures.
    Trying to keep it simple...;)
  • What do you think is a realsitic projection. If it is not making the grade what should I do.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    If you surrendered the policy and put the money in a bank account@ 4% interest, also paying in the (new) premiums until maturity, you should end up with 43,222 which beats the 40k projection you received and involves no risk.

    So I would surrender this policy and find somewhere else to put the 5k - if you move quickly before April 5, you can get 3k into this year's cash ISA and the rest into next year's at 3k apiece.

    See the Savings articles on the left for the best ISA accounts.

    These days with the returns on investment products fairly low compared with cash, IMHO it's better for people who don't understand anything about investment to use cash accounts until they have time to sit down and put a bit of time and effort into getting informed about investment strategies.
    Trying to keep it simple...;)
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