norwich union endowment promise

wmike_2

N.U. has offered me compo for misselling plus opportunity to cash in all endowment policy and pay off part of mortgage before converting remainder to repayment.
However if I do this I will face a £1000 shortfall.

IF I take the compo and keep the endowment running then so long as the promise to make up the shortfall as it stood at Dec 1999 hold up then I can probably do better.
THE PROMISE requires 6% growth after tax but the N.U. call centre can't tell me how the fund is currently doing so I don't know how realistic maintaining 6% for another 12 years is.
Anyone with a view of insight -please share it with me.

ReportInvestor

Hi wmike and welcome to the site ,

The Investors Association is lobbying to have this sort of information available to investors so that they are in a position to make the sort of decision you want to make.

Unfortunately, even though we have used the Freedom of Information Act to put pressure on the Financial Services Authority, the FSA has bowed to industry influence and said that such information is "commercially sensitive".

The reason for the FSA's poor response is it's dual & often contradictory function - to look after individual investor interest but also to ensure stability in financial markets (they don't want a run on poorly performing funds).

I leave it up to you whether you will invest in an insurer again.

In the meantime your inability to get such basic information will probably drive you into the hands of an IFA (Independent Financial Adviser).

But please be warned that he or she probably won't give you an opinion on this one because they will be scared of future litigation if they get it wrong.

So what's a poor investor do do :mad: ?

FWIW the main Norwich Union fund achieved 17%+ growth in 2005 . But do you know which NU fund you are in?

The IA links below may give you a bit more background info:

NU endowment "promise" - How the disappointment all began

Forget about the "mortgage promise"?
It's not legally enforceable - and the only "guarantee" is that NU will give you three years' notice before withdrawing it :eek:

Guardian - NU pledges were "foolhardy, even arrogant"

Standard Life abandons mortgage promise - 2004

Standard Life's mortgage promise - Just an illusion? - 2002

One possible guide for you is that the FTSE 100 Index is still about 13% lower than it was in December 1999 (6930) when NU made its "promise". Obviously treat with some caution because the NU WP fund won't be invested 100% in shares.

6% growth in the FTSE from December 1999 would put it at around 10,000 today

Just another 66% to go!

It would be very helpful to others if you could write to NU, asking where the fund was in relation to the 6% annual performance, and post their response on here.

EdInvestor

Post some figures so we can have a look at your endowment.

Which NU fund (CGNU, NU, GenAcc or CommUn)
Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date

Target amount
NU projected maturity value @4% and 6%

wmike_2

ok.Here goes.
its NU conventional with profits fund
g'teed\sum assured £10912
declared bonuses £2557
we are offered £6930 to surrender policy by NU
premium £44 month
matures feb 2018
target £31000
projected maturity @ 4%= £18000 6% = £21900
the max short fall payment under the promise is £8500 so at 6% growth the £31000 is all but achieved. BUT if the promise condition of 6% growth is not achieved and the promise is therefore not stood by then the shortfall is huge.

EdInvestor

Mike,

Can you post the compo amount as well, it should be included to get the overall figure.

wmike_2

compo = £3200

EdInvestor

wmike wrote:

target £31000
projected maturity @ 4%= £18000 6% = £21900
the max short fall payment under the promise is £8500 so at 6% growth the £31000 is all but achieved. BUT if the promise condition of 6% growth is not achieved and the promise is therefore not stood by then the shortfall is huge.

Hi Mike

If you surrendered the policy and put it along with the compo on deposit @ 4% also paying in the premiums to maturity, you should end up with 24,323. At 6% (which might be closer to what you would get if you used the money to pay off your mortgage) the return would be 29,578, which would leave a shortfall of a bit over 1k as you said.

Note that the NU projection of the out-turn if the fund achieves 6% from now on is only 21,900. I don't think there are any WP funds which are projecting returns above the 6% level now.

If the promise is based on NU making an average of 6% growth over the whole period since it was made until your policy reaches maturity, then it has fallen way behind, and will need a much higher growth rate than 6% in future to make up the losses.

Perhaps you should check the fine print of the promise.

wmike_2

EdInvestor & Report Investor
Thanks for the thoughts, links and numbers. :T I think that the way forward is to cash in and use compo and cash to pay off mortage then reinvest the endowment premium that is freed up. This would appear to minimise the risk but will give a small shortfall against the original sum that the endowment was meant to realise. Taking the compo and sticking with the endowment might just mean no shortfall if the promise is met, however if the promise conditions are not met and it looks very demanding then the shortfall quickly escalates. :eek: All I need now is a suitable investment vehicle for the £40 month over the next 12 years. :undecided

EdInvestor

All I need now is a suitable investment vehicle for the £40 month over the next 12 years

Of course you could just use it to increase your monthly premium and overpay your mortgage. That will give you a guaranteed return at the level of your mortgage rate.