Reattribution payment by endowment co.

sassybird

I have 2 years to go on my 25 year endowment.

It started out as Norwich Union, then went to CGNU and has now been taken over by Aviva.

I am being offered a payment for 'reattribution'. The amount is small (a couple of hundred pounds). The blurb says that all my existing agreed eligibility criteria remains the same. My guaranteed policy benefits are safeguarded.

If I vote yes, I get the payment at the end of the year (which I would put towards buying the freehold on the property). I am then not eligible for any further payments from the 'inherited estate', which they say is not envisaged to be within the medium term anyway (I've only 2 years to run).

I am apt to vote yes and take the payment.

When the endowment matures (2 years), I know it won't pay out the expected amount (approx £28,000 at the time of taking out the policy). We changed over to a repayment mortgage in 2000 and have had building works done on the property, so our mortgage is more than this amount now anyway. But the endowment payment will be paid into the mortgage account to help out.

My question is: Is there any pitfalls in the reattribution stuff that I have overlooked/am unaware of?

I know there are some clued-up people out there - so would be grateful for any advice.

Many thanks.

EdInvestor

Way to go for someone in your position with 2 years to go.Indeed you might be better to junk the whole endowment after you get the money and use the lump sum and premiums to overpay the mortgage.What interest rate are you paying on the loan?

sassybird

Well it's a Virgin One Account - I think it about 4.9%, maybe less, I'd have to check.

Am I right in thinking you mean for me to take the couple of hundred now.

Then when the endownment matures in 2 years, then pay in whatever is paid out into the mortgage account?

Ta.
Mags

EdInvestor

sassybird wrote: »

Am I right in thinking you mean for me to take the couple of hundred now.

Yes

Then when the endownment matures in 2 years, then pay in whatever is paid out into the mortgage account?

No, what I mean is you should wait until you receive the couple of hundred and then surrender the endowment, before maturity, paying the lump sum into the mortgage account and increasing the monthly payment by the amount of ther endowment premium.

The Aviva WP fund has only made 4.6% a year in the last 5 years, so you will be better to junk the policy and directly reduce the mortgage.

MiloH

EdInvestor wrote: »

Yes

I agree with that. With only two years to go the chances of getting anything better than the reattribution are almost entirely non-existent. Definitely vote "Yes" and be sure to get the voting form back in time for the 21st August deadline.

EdInvestor wrote: »

No, what I mean is you should wait until you receive the couple of hundred and then surrender the endowment, before maturity, paying the lump sum into the mortgage account and increasing the monthly payment by the amount of ther endowment premium.

The Aviva WP fund has only made 4.6% a year in the last 5 years, so you will be better to junk the policy and directly reduce the mortgage.

Hi EdInvestor, I understand where you are coming from here but I'd express caution over this route for the following reasons;

• Most With Profits companies give a slightly higher terminal bonus for policies paying out on the maturity date than they do for policies surrendered before that date.
• It's essential for sassybird to look at the value of guaranteed benefits if she keeps the policy going. This involves finding out the value of the Guaranteed Basic Sum plus the value of all bonuses added to date, and then comparing what rate of return would need to be enjoyed by the surrendered value plus future premiums to match or beat that guaranteed benefit. Without knowing any figures, my hunch is that the value of the guaranteed benefit will be worth more than the rate of interest saved on the mortgage.
• Policyholders who qualify for the reattribution also qualify for a special bonus due in January 2010, expected to be a further 3.6% so waiting for that date is important too.
• Before surrendering an endowment, also find out if you can get more by selling it.
• Endowment policyholders need to also factor in their health and consider financial dependents as death (and possibly critical illness) benefits will be lost on sale or surrender.

Without number crunching I can't say for sure but in my experience, policies within a couple of years to go to maturity tend to be best to retain (with a few caveats).

EdInvestor

MiloH wrote: »

Most With Profits companies give a slightly higher terminal bonus for policies paying out on the maturity date than they do for policies surrendered before that date.

Not any more.These days the TB is likely to be smaller at maturity than it is now even taking into consideration any exit penalty.

• Without knowing any figures, my hunch is that the value of the guaranteed benefit will be worth more than the rate of interest saved on the mortgage.If so that would be a truly pathetic performance for an Aviva endowment.

• Before surrendering an endowment, also find out if you can get more by selling it.

Sure, try at https://www.apmm.org

• Endowment policyholders need to also factor in their health and consider financial dependents as death (and possibly critical illness) benefits will be lost on sale or surrender.

If needed replace insurance cover before surrendering.


The Op is welcome to post the policy info for a view

Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premoium
Maturity date
Maturity forecasts
Mortgage interest rate

MiloH

Hi EdInvestor,

I can see from your post count and the times you have been thanked that you are a highly respected poster on this forum. I come in peace and I apologise if my post came over as being critical, it certainly wasn't meant to be. The views you stated are widely held and I know many IFAs who share your views. While I empathise fully with the general feeling of dislike and distrust of With Profits policies, I know from my work with clients that extremely expensive mistakes can be made if people allow their lack of confidence in With Profits to result in "throwing the baby out with the dishwater."

EdInvestor wrote: »

Not any more.These days the TB is likely to be smaller at maturity than it is now even taking into consideration any exit penalty.

I agree that terminal bonuses have been coming down and that someone surrendering an endowment two years ago who had two years left on their endowment would have had a better terminal terminal bonus than if they had stuck with it to maturity. But that's a reflection of massive falls in the value of shares, property and bonds over the two years rather than a change in the way insurance companies apply terminal bonus rates.

I can't post a link but if you google Aviva PPFM you'll find your way to Aviva's website and find the Principles and Practice of Financial Management document for the CGNU fund. The PPFM is where insurance companies explain how they run their funds. On page 6 they state that "No smoothing is applied to surrender values..." and on page 7 they state "...a glide path approach is used to ensure that surrender values approach maturity values [...and...] the surrender payout blends into the expected maturity payout over a period of up to 5 years." In other words, they are saying normally the surrender value is aimed at giving you back just your fair share of the fund but as you approach 5 years from maturity they will gradually start to increase that surrender payout to get closer to the amount likely to be paid at maturity.

What gets paid out at maturity will be at least the guaranteed basic sum plus bonuses to date (the guaranteed value) and depending on how this guaranteed value compares to sassybird's fair share of the fund there could be a terminal bonus too. Going back to my hunch from earlier, my guess is that Norwich Union were fairly bold in the growth assumptions built in to the Guaranteed Basic Sum when taking out the plan in 1986 and that they merrily added on generous bonuses for many years too, and as a result a terminal bonus is looking unlikely. However, if the fund has done better than the guarantees offered, then with benign investment markets Aviva's "glide path" approach means that staying the extra two years should see the "glide path" reach its destination and be more generous.

The main caveat to this is that if the value of the assets held in the fund are less in two years time than they are now the value could well be lower. As a result, sassybird needs to factor in her attitude to investment risk before making her decision. If she's highly risk averse then maybe sale or surrender is the route; if she has a moderate to speculative attitude to risk she may feel comfortable sticking with it.

EdInvestor wrote: »

If so that would be a truly pathetic performance for an Aviva endowment.

The point I was trying to make here is not so much the performance of the assets of the fund (which may or may not perform better than the rate of return enjoyed by paying off the mortgage) but on putting a monetary value on the guarantees. It would certainly be interesting to see sassybird's policy details as you listed, but I'll make up a few figures to explain the concept I'm trying to make.

Let's assumes the Guaranteed Basic Sum is £25,000 and bonuses to date are £25,000 providing sassybird continues to pay £50 per month for the next 24 months. Let's then assume that the surrender value is £44,200. Using these figures, the £44,200 plus £1,200 in extra monthly premiums would enjoy a guaranteed rate of return of 5% per year to get the guaranteed value of £50,000. On that basis, one might conclude that an investment return of 5% per year net of charges with the potential of a terminal bonus if funds perform well is worth sticking with and is a better bet than repaying the Virgin One account at 4.9%.

Everything's relative of course and if the mortgage is 6% per year then you might go with the sale or surrender. The point I'm trying to make is that With Profits plans have some form of guarantee and before deciding whether they should stay on the life support machine or be put to sleep, in many cases it pays to carry out a health check.

FreddieM

Hi I hope that I am not in anyway hijacking this thread, I am looking at the various comments with interest as I too have been offered a couple of hundred pounds in the reattribution, but my situation is different, I have a Premium Bond Investment of about 4K with Aviva and with the previous companies before it.

Would I be sensible to accept this minimum payment as the comments suggest to me I wouldn't get any more out of it and/or should I look at taking the money and putting it somewhere more beneficial while I can afford to leave it sitting for a few more years

Thanks for any help

MiloH

FreddieM wrote: »

Hi I hope that I am not in anyway hijacking this thread, I am looking at the various comments with interest as I too have been offered a couple of hundred pounds in the reattribution, but my situation is different, I have a Premium Bond Investment of about 4K with Aviva and with the previous companies before it.

Would I be sensible to accept this minimum payment as the comments suggest to me I wouldn't get any more out of it and/or should I look at taking the money and putting it somewhere more beneficial while I can afford to leave it sitting for a few more years

Thanks for any help

Hi FreddieM,

you're right that your situation is a bit different. If you have a bond and are eligible for the reattribution then you have an Investment Bond that is at least in part invested in the CGNU With Profits Bond. You therefore have control over when you cash-in the investment and could, age and health permitting, stay invested for the long term and hold on until the Aviva shareholders think the time is right to open their treasure chest again.

The key question is whether you want to stay committed so long. Might you want to use the money for something, are there more tax efficient investments, funds with better growth potential etc? If you hold on for 10+ years to get an extra 10% but you've lost 1% a year through paying tax on the investment when it could have been in an ISA then you've not really gained.

It's worth noting that this reattribution offer is paying slightly over 2% of the value of the investment on average. However, you stand to gain comparatively more because your investment is £4,000, so assuming that's all in With Profits, your £200 offer (the minimum level set by Aviva) represents 5% of the value of your investment. So you know that today's offer is particularly generous to you personally but it might not be so generous at the unknown date in the future when Aviva seek to raid the inherited estate. That seems to me to be a good reason to vote "yes" and accept the shareholders' offer.

Other readers of this thread who are wondering how to vote may like to know that I have set up a free to use website that walks policyholders through the main issues to consider with the reattribution offer. It can be accessed by clicking my user name on the left and then click to visit my homepage.

EdInvestor

I don't think we can add anything meaningful about the OP's options unless she posts the relevant figures.