Endowment - Terminal Bonus

EdInvestor

That was calculated on the basis of a net return.

If the mortgage rate you're paying is higher, you will achieve a higher guaranteed return by applying the money to paying it off .

If you want a risk return like the endowment, you should do better with a modern investment with (much) lower charges and the funds invested in shares, not half in bonds, as at FP.

Supernova

OK thanks. How about flogging it and using the proceeds in an offset mortgage? Oh and should the future annual bonuses increase the maturity above the current guaranteed value?

Supernova

Received the yearly statement yesterday. Surrender is £24,900.

Annual bonus last year £27.21 - so guaranteed is still £32K against a £56K mortgage.

I asked what the terminal bonuses were historically and was told they only had this years figure 27% and last years 13%.

Anyone know what is the highest they are ever realistically likely to be?

And 27% of what figure? They said of the bonuses to date (27% of £11,000 = £3K). Is that correct.

Ta

M

dunstonh

27% of the basic sum assured is the usual calculation. 27% of bonuses to date doesnt make sense.

Historical terminal bonuses have been much higher. However, the stockmarket crash wiped out most of it. There has been a steady return to increasing terminal bonuses with many providers and it is expected that in future, this is where the bulk of the return will be. The annual bonuses are likely to remain low.

If i read this thread correctly, the basic sum assured is £21k so that would make the current terminal bonus £5670.

So you have 21k plus annual bonuses of 11k and terminal bonus of £5670 = £37,760 (give or take any changes since you started this thread)

Supernova

Thanks for that dunstonh. Makes things a lot clearer.

Yeah, strange, the woman at FP definitely said it was % of the bonuses to date.

Any idea what is the highest the TBs have ever been? Then if I can beat that by selling it & switching to offset I might be able to make a reasonable decision.

dunstonh

20 years ago you could be looking at 150%

EdInvestor

IIRC TB percentage at FP is based on declared bonuses only.

Elsewhere TB percentage can be X% of basic sum assured OR X% of basic sum assured plus declared bonuses.

Best to double check.

Do you have any updated maturity projections from FP?

How about flogging it and using the proceeds in an offset mortgage?

I doubt if you'll get an offer but why not try.

https://www.apmm.org.uk

If the interest rate for the offset is 5% or more, sounds good to me.UNlikely the endowment can beat that.

Supernova

Thanks EI, projections are slghtly worse than last year - £16K shortfall @ 5.5%.

Offset rate will be Base + .59% with Abbey.

dunstonh

IIRC TB percentage at FP is based on declared bonuses only.

I logged on to FP and here is a copy and paste.

For most plans, we currently calculate final bonus as a percentage of the increase in unit value from the end of the plan year in which units were purchased. (Your plan year runs from the anniversary of the date you took out the plan.) To help achieve fairness, rates of final bonus may vary according to the plan year when each unit was purchased.

For FPLMA plans, UKP plans and Demutualisation Terminal Bonus we currently calculate final bonus as a percentage of the unit value (which includes regular bonus). The final bonus rate depends on when the plan start.

This method suggests unitised with profits or a with profits fund that is run with an underlying "hidden" unit based system.

It is fair to say that I would have little confidence in FP's bonuses meeting the required amount. Of course, only time will tell but I wouldnt have mine there.

Supernova

Yes, I read that on their website too, but I didn't have a clue what it meant in terms of coming up with a real figure. The other thing I don't get is 'what' exactly is growing at 4%? Presumably the underlying investments but then the yearly and final bonuses are seemingly plucked out of the air.

It's all a bit ethereal isn't it? No real numbers to latch onto.