endowment forecasts

ukcarper

Is it about time the growth rates of 4, 5 & 6 % used to inform you if your endowment will pay your mortgage off are changed?

E.g. My Norwich Union policy target amount £25000 had the Projected amounts

4% £24700 5% £25000 6% £25300 in Feb 2008 and is about to pay approx. £23500
Leaving me with a shortfall of £1500 instead of the £300 shown by the worst case.

Which combined with the fact that it matured 11 days ago and still hasn’t been paid has left me very unhappy

dunstonh

Is it about time the growth rates of 4, 5 & 6 % used to inform you if your endowment will pay your mortgage off are changed?

4, 5 & 6% is actually spot on for NU WP endowments. Remember that with life funds, the projections (not forecasts - that means something different) are gross of charges. So, NU's long term return would be expected to be higher than mid rate used.

Remember that the projections on many NU plans does not include any terminal bonus. It depends on the plan version as to whether it si included or not. Staff on the phone at NU dont seem to know a lot of the time if the TB is included in the projections either. You need to get it confirmed in writing. This is important as the terminal bonus is likely to be where the biggest chunk of the return is over the long term.

Its not the projection percentages that are the issue but more likely the target growth rate used when it was set up. That cannot be changed as it was set at the start.

EdInvestor

dunstonh wrote: »

This is important as the terminal bonus is likely to be where the biggest chunk of the return is over the long term.

I'm afraid that's not the case any more.

dunstonh

EdInvestor wrote: »

I'm afraid that's not the case any more.

Yes it is.

You dont measure the overall returns on the basis of a short term downturn. Plus, many plans still have terminal bonuses. Its just that the MVR cancels much of them out if you surrender.

ukcarper

Just to clarify myself the £23500 figure is the figure on my Maturity statement including final bonus which is very close to the figure obtained by using the latest final bonuses January 2009, and is £1200 less that the 4% projection which surely is the projection most people would use to see if there endowment was on target. I of course do not know what I will actaully get because Norwich Union have not paid it but I would image it is fairly accurate. So if there policies are not achieving 4% growth a lower % would give policy holder a more accurate indication of what they are likely to get.

dunstonh

So if there policies are not achieving 4% growth a lower % would give policy holder a more accurate indication of what they are likely to get.

They have typically been performing at around the 6% mark. Some years more, some years less.

The projections are an indication of average not of individual years.

ukcarper

Mine obviously hasn’t as my update at 4% (prepared last feb 2008) was £1200 more than I am going to get. According to update and my policy was on track to meet the target amount of £25000

dunstonh

ukcarper wrote: »

Mine obviously hasn’t

It probably has as the 6% is gross of charges, not net.

Gorgeous_George

dunstonh wrote: »

Yes it is.

You dont measure the overall returns on the basis of a short term downturn. Plus, many plans still have terminal bonuses. Its just that the MVR cancels much of them out if you surrender.

My friend's Standard Life policy matured in 2008 and had no additional terminal bonus over and above that already included in earlier surrender values.

Maybe some do but it would be nice if it was clearer.

GG

EdInvestor

Phoenix endowments (covers a multitude of companies) typically don't now have TBs and nor do other zombie companies like Equitable life. Friends Prov - and Standard Life - TBs have disappeared in many cases or shrivelled to virtually nothing.

Between them these account for well over half of the endowment market.

Only the Pru/Scot Amic and a few smaller cos like LV,Royal London and the little friendly societies can really be relied on to provide a decent TB these days.

dunstonh

Maybe some do but it would be nice if it was clearer.

Actually, it would probably have been better if no attempt had been made to make them clearer. Terminal bonus figures never used to be known until maturity. Now you see them as you go along, people that understand how they work feel its an advantage. However, many people dont understand how they work and get confused with values going up and down in different market conditions.