Should I cash this in?

Prudent

Nearly seven years ago I bought a policy with a friendly society (that has now become Engage mutal). It is a uk equities policy. I pay £25 per month into it, so have paid approx £2,100. I received a statement last December valuing it at £2279. I now know that these policies tend to give poor returns.
I intend to use the money to give as a gift to my daughter for her 18th birthday.She may need to put it towards college/uni if she chooses to go. She is 14 in a couple of months.
Should I cash in this policy - and put the money in a savings account- or wait until matures?

ReportInvestor

Can you give us more details about the exact fund the policy is invested in?

Is it 100% in equities?

Or is it the fund mentioned in this Telegraph article that has 37% of its holding in cash?

IIRC for other readers, Engage was formerly Homeowners FS.

What has been the rate of return so far? Assuming that you have now paid exactly 7 years contributions = £2,100 and that you had paid in £2,025 by December 31 2005 then your investment had returned just over 3.2% pa growth at December 2005.

Don't forget to add a potential 10% rise to date in 2006 if it is a 100% equity fund (although I doubt Engage will match the market ).

So it's not a disaster - although regular saving into the stock market from 1999 should have seen a better return than 3.2% pa as pound cost averaging should have helped you - i.e. some of your money would have been invested at or near the bottom of the market when the FTSE had fallen to below 3,500.

However, it's difficult to see what some of these small friendly societies are actually FOR (apart from paying their directors), when they produce disappointments for so many savers.

If your investment had been Stakeholder Child Trust Fund, it would now be in the process of gradually transfering from equities into safer investments. Given your 4 year investment time-scale you could do the same - by putting the money into a cash ISA at around 4.75% so that you can be sure of giving your DD a useful sum of money for college.

An alternative view is that you should hang on because you paid the bulk of the charges in the first year

".....The drawback of friendly society plans is their charges. Because the maximum contributions are so low, the charges are disproportionately high and the initial charges can wipe out all the first year's premiums.

Among the large providers, for instance, based on contributing £25 a month (£300 per year), Engage Mutual (unit-linked) and Scottish Friendly deduct the whole amount :eek: ...."

You should check out with Engage what charges you have paid and what charges are due in future. This extract from the Telegraph may or may not apply to your particular policy.

Prudent

The fund is named as T/E UK EQ index.

ReportInvestor

Good news.

It is an equity fund - not the Telegraph one - so you can add on 1% pa growth on the extra earned in 2006 alone.

I'm quite impressed that this Engage Fund has managed to beat the index from the lows of 2003 . [Sound of earlier words being eaten, here ] This could mean that it's a tracker with dividends reinvested or a fund that has been quite well managed.

And since it's a tax exempt fund I imagine that this is a 10 tax exempt savings policy and so it may be worth continuing.

So should you continue?

You need to be clear if there is any penalty / reduction in value for early withdrawal.
You need to know what the charges are and how they have been levied (eg if most went in the first year then you might be more inclined to continue). Or it could be that Engage only invest 95% of your monthly premiums (there is no bid/offer spread on the fund price which is the way a unit trust would levy charges.

daveonline

I recently had a friendly society bond mature which i also had paid in £25 each month for 10 years.
As per the previous points it hasn’t performed that good but for the last 5 years or so bonus rates have been bad.
I’m inclined to think that if you’ve got another 3 years to run then possibly the bonus rates may get better as the stock markets have had a better run in recent years. Its also worth remembering that most friendly bonds include a terminal bonus although this isn’t guaranteed.
You’ve also got to consider the friendly bond will normally have built in life cover, so if you do cash the policy in this life cover should be replaced.
I often thought about cashing mine in during the term but as i had a diverse portfolio of investments and cash anyway i was happy to let it run its course, having said that i wouldn’t take out another one.
Hope this helps.

ReportInvestor

This doesn't look like a fund with bonus rates, dave. It looks more like a unit trust / OIEC type fund.

Good point about the life cover.

Prudent

Thank you both. Perhaps on balance I will keep it. Almost all of the charges were payable early on. A lot was paid in the first year and they were then on a sliding scale. After year 5 I think (but will need to double check) they are 1%.
I had considered the life cover, but have provision through my teacher's pension scheme for life cover. I have also paid off my mortgage so don't need cover for that.

ReportInvestor

Prudent wrote:

Thank you both. Perhaps on balance I will keep it. Almost all of the charges were payable early on. A lot was paid in the first year and they were then on a sliding scale. After year 5 I think (but will need to double check) they are 1%.

I think that's probably the right choice given future charges are reasonable and given that it is a fund capable of benefiting from stock market performance.

The good news for you about the charges payable in the first year in terms of timing is that it meant you were buying fewer units when the market was at its highest .

FTD

I've had the same plan for 6 years (paying in £10 a month), however, I only took this savings plan as I thought Homeowners looked like a good candidate for a takeover/sell-off, hopefully paying a windfall.

FTD