Selling endowment - tax implications?

welnik

I used a link off MSE recently which emailed about 10 companies with my endowment details and they wrote to me with quotes. They basically offered me about £500-£1000 over what Iwould have got from the Life Company. In the end, I have opted to make it "paid up" as I had three options, I had paid in 9216 (including a very small element of life cover). This was 16 years premiums. The life company were offering me a whopping £10,412 to cash it in. To cease my premiums and leave it with them for 9 years, £14,469. If I had carried on paying them £576 for the next 9 yrs (£5184) I would have ended up with about £18,000 (the reversionary bonsues plus sum assured). However, if I invest my monthly premium in an ISA and make is paid up, I should end up with about £22,000/£23,000. So all in all, a better option. Not only that, I can get at my cash ISA whenever I want. Im actually just going to overpay my mortgage by the premium and take out separate life cover.

dunstonh

You're not kidding! It was the risk that got me into this mess in the first place, something that was totally glossed over by the salesman who sold it to us - the one who told us how we would most likely make tens of thousands out of it. Sort of ironic that the endowment starts to perform decently at the very moment when I really need to cash it in.

For those that know about investing, there is no irony at all. A stockmarket crash occurs, values go down. Stockmarket recovery happens, values go up. Where the NU one is better is that they are not being forced to invest in low risk/low return areas because they do have the financial strength. I wouldn't be surprised to see most, if not all NU plans back on track or in surplus within 18 months. Probably only NU and Pru can have that said for them when it comes to with profits. I wouldnt bank on any of the rest (of the WP providers) coming in on track.

A stockmarket crash in the early years of a unit linked endowment can be best thing to happen. It puts you off track in the early years but it will be those cheaper units that make the most money in the following years. Problem is that people look at these things too short term at times and panic without reason.

Whilst a good many decent endowments that would have produced surplus amounts at the end have been surrendered/sold, there are others that are holding on to totally duff ones. You cant say endowments are bad or endowments are good. Some are good. Some are bad.

Yours is one of the better ones.

JollyNolly

Thanks for your pearls of wisdom, dunstonh. I can't claim to have understood everything you said, but I guess the message is don't panic, it might not be as bad as it looks. I suppose that's the beauty of having no "thanks" button - you have to express your gratitude verbally!

EdInvestor

As I haven't yet committed to selling or surrendering, presumably I just keep checking on the current surrender value and matching it against what might have been gained by putting it into savings or (as in my case) using it to pay of a slab of my mortgage. Is there any easy way of doing this?

Post the following info and we can take a look:

Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
Whatever maturity projections you have

JollyNolly

Guaranteed sum assured - 13,760
Declared bonuses - 8,204
Surrender value - 18,400
Monthly premium - £55
Maturity date - 24.2.13
Maturity projections -
- 4%: 27,400
- 5%: 29,300
- 6%: 31,300

welnik

JollyNolly wrote:

Guaranteed sum assured - 13,760
Declared bonuses - 8,204
Surrender value - 18,400
Monthly premium - £55
Maturity date - 24.2.13
Maturity projections -
- 4%: 27,400
- 5%: 29,300
- 6%: 31,300

Wow those declared bonuses are good. Are these the reversionary bonuses? was this a low cost endomwment policy? I have a low cost one with a sum assured of £12650, monthly premium of £48.00 and total bonuses of about £6230. yours has performed much better than mine.

EdInvestor

OK, so let's compare guaranteed values.

If you were to surrender the policy and put it on depost@ 4% also paying in the premiums to maturity, you should end up with 29,538. If you did the same but used it to reduce a mortgage with an interest rate of 5%, you would get the equivalent return of 31,409.That compares with the policy's guaranteed value at maturity of 21,964, plus whatever extra declared bonuses you get over the next 6 years, not likely to be large.

How about the risk aspect? What terminal bonus might you expect?Looking at the projections the answer would seem to be not a lot.Even a 5% return would give you less than cash @4% and a 6% outcome would produce less than paying off a loan with a 5% rate. That's because of the life cover and the charges.

Note that NU is only quoting at 4,5 and 6%.The companies now have some leeway to adjust the figures from the standard 4,6 and 8% to reflect the underlying assets of the investment.It's not especially encouraging that NU has adjusted downwards.

Which particular NU WP fund are you in? There are 4: the old CU one, the old GA one, the old NU one and the CGNU one which is the one that is still open and quite well regarded. The older ones may not perform so well.

JollyNolly

EdInvestor wrote:

Which particular NU WP fund are you in? There are 4: the old CU one, the old GA one, the old NU one and the CGNU one which is the one that is still open and quite well regarded. The older ones may not perform so well.

I don't know, I'll call them tomorrow and find out.

I take it you think I should cash in, either surrender or sell, and pay into my mortgage (the original plan). Maybe on the basis of what dunstonh has said I should hold fire for a few months to see how it develops??

JollyNolly

welnik wrote:

Wow those declared bonuses are good. Are these the reversionary bonuses?

Sorry, I have no idea - what are they?

dunstonh

I take it you think I should cash in, either surrender or sell, and pay into my mortgage (the original plan). Maybe on the basis of what dunstonh has said I should hold fire for a few months to see how it develops??

Its about potential. If you are in the CGNU WP fund and accept that it still an investment option which can go down as well as up, then that may be a good idea. If you dont want the risk, then you do have to sleep happy at night. The old NU plans dont have lower risk funds to consider. The ones from around 1998(ish) often do. These would be the unitised with profits plans with no guaranteed sum assured.