Advisable to surrender Friends Provident endowments?

sleeping_giant

Hi,

I'm a first-time poster here. Would anyone be kind enough to advise on the wisdom or otherwise of surrending two poorly-performing Friends Provident endowment policies? Neither is tied to my current mortgage except as life assurance cover.

Here are details of the two policies:

Endowment Plan #1

Plan type: Conventional Life
Start date: August 1987
Maturity date: August 2012
Target amount: £47,500.00
Guaranteed amount for bonuses: £16,340.00
Bonuses added in previous years: £10,647.87
Bonus added this year: £26.62
Total guaranteed amount plus all bonuses: £27,014.49
Regular payment: £58.95 monthly
Surrender value on March 6, 2006: £20,047.00

Projected value in August 2012:

£29,300.00 assuming 4% annual growth
£31,900.00 assuming 5.5% annual growth
£36,700.00 assuming 8% annual growth

Endowment Plan #2

Plan type: Conventional Life
Start date: April 1991
Maturity date: April 2013
Target amount: £6,500.00
Guaranteed amount for bonuses: £2,743.00
Bonuses added in previous years: £991.71
Bonus added this year: £2.48
Total guaranteed amount plus all bonuses: £3737.19
Regular payment: £11.47 monthly
Surrender value on March 6, 2006: £2,397.00

Projected value in April 2013:

£3,970.00 assuming 4% annual growth
£4,340.00 assuming 5.5% annual growth
£5,040.00 assuming 8% annual growth

One option that I'm considering is to cash in at least the larger of the policies, which would enable me to pay off my mortgage immediately. Another option is to continue with the monthly mortgage payments until it is paid off -- I'm on schedule to do this a year from now -- and then surrender the policies and bank the money in a decent savings account, with the intention of using it towards a new car and kitchen in the next year or two. The third option is obviously to sit tight until the policies mature in six or so years' time, and in the meantime save hard for the items that I'd otherwise have bought with the surrendered policies.

What calculations should I be doing to determine which way to jump? These policies have clearly under-performed; even with the most optimistic projections, neither policy will get anywhere near its target amount on maturity. Also, this year's bonuses seem especially paltry, which suggests to me that I can't expect to see anything more than very modest improvements in performance.

Many thanks,
Pete

EdInvestor

Hi sleeping giant

If you surrendered endowment 1 and put it on deposit @4% also paying in the premiums to maturity, you should end up with 30,163, which is higher than the guaranteed value of 27,014 and also of the projected return @4% of 29,300.

Similarly, with policy 2, you would end up with 4,219, higher than the G/V of 3737 and the projection @ 4% of 3970.

There seems little point in sticking with policies where even if you take a risk, it's unlikely you will beat a cash return.

If you surrender both policies you could pay off the mortgage, thus getting a return of whatever the interest rate on the mortgage is, presumably higher than 4%.

Most of the smaller policy will fit in this year's cash ISA and then you can save up the mortgage and endowment premiums every month to build up your savings pot.

If you need to repalce the life cover do it before you surrender the policies.

sleeping_giant

Many thanks, EdInvestor, for the great advice.