Endowment Compensation Offer

DaveT1602

Hello Everyone,

Please bear with me as this is my first post on this, or any other, forum!
My problem is that I have 2 endowment policies which have predicted shortfalls. I complained to the FSA in 2004, and was told that the one was not eligible (started in 1985), but that I could make a claim on the other. I did so through the Financial Services Compensation Scheme (FSCS) as the original firm were no more.
I have received an offer of compensation from them (in full & final settlement of the claim) of £514 (which may be liable to tax!!), although the projected loss looks likely to be about £2500.
My questions are:
1. Does anyone have any knowledge/experience of whether an offer from the FSCS can be challenged in an effort to get it increased? Or is it a one-off 'take it or leave it' thing which I might lose altogether if I argue??

2. Can anything be done about a pre-1988 policy which is also predicted to fail? They were both sold to me by the same IFA.

I have to accept the offer from the FSCS by Feb 4th or lose it by the look of the accompanying letter.....

Anybody have any words of wisdom for a totally-virgin Newbie??

EdInvestor

1.It's take it or leave it.

2.No.


The compensation is not designed to make up a shortfall, it's designed to put you in the same position as if you had a repayment mortgage.It assumes you will be surrendering the endowment, using the proceeds to reduce the mortgage amount, and overpaying your mortgage by the amount of the endowment premium until maturity.

dunstonh

My problem is that I have 2 endowment policies which have predicted shortfalls.

Many endowments above track are showing shortfalls. The rates used are just examples and not predictions.

DaveT1602

Thanks for reply

I always thought that it wasn't wise to surrender an endowment policy, as you would lose any terminal bonuses accrued?

Would your advice be to take the money from the FSCS, surrender the policy, and put the proceeds into the mortgage account then?

DaveT1602

dunstonh wrote:

Many endowments above track are showing shortfalls. The rates used are just examples and not predictions.

There are shortfalls showing even using the lowest growth (prediction) or 3% - what's the current rate?

dunstonh

There are shortfalls showing even using the lowest growth (prediction) or 3% - what's the current rate?

The projection at 3% shows you a shortfall. What is the actual fund/bonus rate? It could be higher than 3%, it could be lower.

The investment side of the endowment is the most important thing to find out as the projection figures do not tell you enough by themselves. You could be in a fund averaging 7% pa. with potential to continue or you could be in a duff 0% pa. with it unlikely to return to paying bonuses again. In either case a projection example at 3% is useless.

EdInvestor

Posyt some figs about the endowments.

Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date

and we can give a better view.If surrendered, you will get any TB, though there may be a surrender penalty.

DaveT1602

EdInvestor wrote:

Posyt some figs about the endowments.

Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date

and we can give a better view.If surrendered, you will get any TB, though there may be a surrender penalty.

Thanks Ed,

Sum Assured (Target amount/death benefit) = £6500
'Cash-in value'/Surrender value = £2620 (no declared bonuses stated)
Monthly premium = £16.50
Maturity date = 1st July 2010

This is a Friends Provident 'Homebuyer Plus' Plan - it consists of a number of units in 2 types of funds (UK Equity & European) - apparently bonus units are added, and are included in the 'Cash-in value'

Does this make sense?

dunstonh

That suggests it is unit linked and with those two funds the potential for growth is certainly at the 7/8% p.a. mark.

10 year past performance with the UK equity is 5.34% p.a. and with the European is 8.43% p.a. They are doing nicely with the recovery with double digit returns on both funds over the last 3 years. 15 year past performance is 7.82% and 10.78%p.a.

3% is certainly unrealistic. Not impossible. Just unrealistic.

Some unit linked endowments do benefit from the addition of bonus units or have an increased allocation on them later in the plan. Little things like that can often get overlooked in quick and dirty checks like this. Yet they can be beneficial.

Have you got a current value on there? That would indicate what sort of penalty exists (difference between current and surrender). It would also let us see how close you are to target.

edit: note that the performance figures are no guide to future returns and are taken on the FP UK equity and European life funds. There are other versions from companies FP have purchased, such as London and Manchester or National Mutual which have slightly different percentages. If yours is an ex L&M or NM policy, then please say so as that may result in a different view being taken.

DaveT1602

dunstonh wrote:

That suggests it is unit linked and with those two funds the potential for growth is certainly at the 7/8% p.a. mark.

10 year past performance with the UK equity is 5.34% p.a. and with the European is 8.43% p.a. They are doing nicely with the recovery with double digit returns on both funds over the last 3 years. 15 year past performance is 7.82% and 10.78%p.a.

3% is certainly unrealistic. Not impossible. Just unrealistic.

Some unit linked endowments do benefit from the addition of bonus units or have an increased allocation on them later in the plan. Little things like that can often get overlooked in quick and dirty checks like this. Yet they can be beneficial.

Have you got a current value on there? That would indicate what sort of penalty exists (difference between current and surrender). It would also let us see how close you are to target.

edit: note that the performance figures are no guide to future returns and are taken on the FP UK equity and European life funds. There are other versions from companies FP have purchased, such as London and Manchester or National Mutual which have slightly different percentages. If yours is an ex L&M or NM policy, then please say so as that may result in a different view being taken.

The paperwork states
Cash-in value on 20 May 2005 = £2620.07
Current value without deductions = £2620.07
Cash-in value on 20 May 2004 = £2262.44

Also:
PLAN VALUE

Fund: UK Equity
Units you have: 284.64
Price of 1 unit at 19 May 2005: 664.2p
Current Value: £1890.58

Fund: European
Units you have: 150.07
Price of 1 unit at 19 May 2005: 486.1p
Current Value: £739.49

Total curerent value before deductions = £2620.07
Total cash-in value on 20 May 2005 = £2620.07

Payments into Plan: Paid in the period 21 May 2004 to 20 May 2005 = £198.00
Amount paid in since start (July 1992) until 20 May 2005 = £2557.50

Does this help at all??

When you say "3% is unrealistic", do you think it might perform better? (just your opinion as one who knows more than me, will do - Thanks!!)

Thanks for this - it's great to have some help trying to make sense of it all!

dunstonh

When you say "3% is unrealistic", do you think it might perform better? (just your opinion as one who knows more than me, will do - Thanks!!)

No-one can tell you what will happen in the future. 3% is a possibility, -20% is a possibility, 100% is a possibility. Anything is possible. However, when looking at them sensibly, the funds you are in are invested in sectors where 7% per annum would be considered the expected mid range over the long term. Although past performance is no guide to future returns, you can at least see from past performance that they have been achieving those sort of returns. And that includes a period which covers the stockmarket crash.

I don't think they would hit your target amounts but looking at the potential for growth from this point forward, they certainly do have the potential to grow at 7% p.a. Possibly more, possibly less.