Are guaranteed endowments really guaranteed?

Romablade

Hi all,
My wife has a with profits enowment policy that she took out with Royal London when she was 18. It's not linked to our mortgage and is due to mature in 2015.

In 2008 she received a Bonus Statement which suggested that at that time the Guaranteed Value of the policy was about £12,340, which included all the prviously paid bonuses since the policy began.

This morning we received a "Red Alert" warning from Royal London suggesting that with the anticipated 5% year on year future growth the policy would likely only deliver £12,500. Surely the growth is applied to the current guaranteed value isn't it, in which case I estimate the final value at 5% pa would be about £17k and a bit. It also said that with future growth of only 4% pa the policy would only be worth £12,300.

My question therefore is how can thier latest forecast be less than the "guaranteed" future value as per the bonus statement? Does this mean that actually it wasn't guaranteed and they have been lying to her in the 20 years' worth of bonus statements she's received or have they simply made a mistake on their red alert forecasts?

Am I wrong in assuming that any bonus payments made over the past 20 years are guaranteed, in the pot so to speak? If so, how can the value of the fund possibly reduce?

I'm going to write to Royal London about this, so any guidance in advance is much appreciated.

dunstonh

Surely the growth is applied to the current guaranteed value isn't it

No.

My question therefore is how can thier latest forecast be less than the "guaranteed" future value as per the bonus statement?

There are some limitations on some illustrations that has seen projections lower than the guaranteed minimum. That cannot happen of course but older plans were never designed to have illustrations and some providers could only project from the surrender value as there was no such thing as a current value. This automatically understated the likely returns. Std Life were the biggest provider that did this.

The guaranteed amount is the guaranteed sum assured and annual bonuses accrued to date. Only the terminal bonus can be removed.