Endowment Projections?

Robert_Tycelyn

Having requested an updated projected values of my three NU endowments (all ending within the next three years) there has, naturally, been a noticeable drop in their values. To be precise,

August 2008 the 4% projections for my three policies were:
£48900
£3380
£22400

Now, March 2009 4% projections are:
£41800
£2860
£18900

I have followed several threads on the site and appreciate these are only illustrations but in terms of working out what I might get back from these policies when they mature and to, therefore, plan for a further shortfall in value how, do I begin to really estimate what the final payout might be?

Any thoughts on this matter would be most welcome. Thanks.

dunstonh

NU's WP fund has enough quality to achieve the 6% or even the 8% going forward if a return to recovery occurs in the coming years.

What you decide to budget on is your preference based on risk profile but it does no harm to work on the 4% basis. Anything extra that comes above that is in your pocket then.

EdInvestor

First you have to check the investment mix of each WP fund- how much is invested in equities, bonds, property and cash.

Then you have to make your own assumptions about how these markets might perform over the next 3 years to maturity.

Then you have to factor in 'smoothing' - the process where WP policies have a time lag between market falls and a drop in policy value, and market rises and an increase in policy value.This could work against you as most insurers only started to cut policy values late last year, whereas market falls commenced more than 2 years ago, so there are still more cuts to come even if markets start a sustained recovery soon.

If this all sounds too complicated you could also consider surrendering now and paying a large chunk of your mortgage.You won't lose terminal bonus by doing this, though there may be n exit penalty. Depending on the cuts still to come, you could still be better off by surrendering, especially if you are paying a highish interest rate on your mortgage.

Robert_Tycelyn

Many thanks to both of you for your comments. To add further information.

Investment mix is as follows:
UK Shares 24.5%
International Shares 5.9%
Property 17.8%
UK Fixed Interest 21%
Corporate Bonds 24.2%
International Bonds 3.8%
Cash 2.8%

Also, I do not consider surrendering the policies as I should be eligible for the NU 'Promise' (which should add a total of about £13000).

Thanks.

dunstonh

Also, I do not consider surrendering the policies as I should be eligible for the NU 'Promise' (which should add a total of about £13000).

Too right. less than three years payments to get £13k means its logical to stay put.

The projections do not include the mortgage promise value. So, adding that to the 4% projection would be logical.

Robert_Tycelyn

As I know the basic sum assured, the total bonuses so far and the additional NU promise it seems that the main problem is trying to foresee what will happen to terminal bonuses. I know that NU slashed the 2008 bonuses by approx. 15% - are the terminal bonuses likely to deteriorate further?

EdInvestor

Robert_Tycelyn wrote: »

I know that NU slashed the 2008 bonuses by approx. 15% - are the terminal bonuses likely to deteriorate further?

'Fraid so, see my note on 'smoothing' above.

If ypou post surrender values, interest rate on your mortgage and total monthly premiums a better estimate can be made.

Robert_Tycelyn

Thanks EdInvestor. Unfortunately I do not have surrender values, only the projected maturity values(see earlier posting). The mortgage interest is HSBC's lifetime tracker (BoE + 0.38%) currently 0.88%. My monthly premiums total £187.

EdInvestor

Robert_Tycelyn wrote: »

Thanks EdInvestor. Unfortunately I do not have surrender values,

You'd have to ring up and ask.