Aviva Endowment promise

Diesel44

We have 4 years left on our Norwich Union ( now Aviva) Endowment.
Assuming investment rate at 6.0%, we will have a shortfall of £12,000.
Our Red Alert letter then goes on to say-
'We may make a top up payment from our Mortgage Endowment Promise, providing the investment return on our free reserves is sufficient.
Your shortfall could be reduced by up to £5,300 (maximum Promise amount).'
My question is, how reliable is this Promise, the words used, MAY and COULD do not inspire us with confidence that we will receive any sort of extra payment.
Many Thanks in advance

dunstonh

My question is, how reliable is this Promise

Its fully funded and being paid out on maturities at present. No reason to consider it will be pulled.

the words used, MAY and COULD do not inspire us with confidence that we will receive any sort of extra payment.

The words may and could are used because the payout only occurs on shortfall or part shortfall (e.g. if shortfall was £3000 then you only get £3000 not the £5300).

Diesel44

It's a bit of a relief knowing we will not have save up, to cover the complete shortfall.

ukcarper

I wouldn’t bank on 6% my endowment that matured last Jan didn’t make the 4% projection

dunstonh

Going forward, its probable that the performance could exceed 6%. That is the zig zag nature of investments and a major flaw with straight line projections. They assume the same each and every year. You have more chance of being selected to fly to the moon and winning the lottery 5 times in a row than getting 6% a year every year.

However, in the case of the Aviva promise, you dont need to get 6% to get the payout.

ukcarper

With 25 year policies not getting 4% in Jan this year what chance of getting 6% in near future especially as Aviva have cut final bonuses again.

dunstonh

ukcarper wrote: »

With 25 year policies not getting 4% in Jan this year what chance of getting 6% in near future especially as Aviva have cut final bonuses again.

I would say the chance of getting some years above 6% is quite high. With it falling back as much as it did and the recent recovery being is high as it has been, there is easy scope for them to put back on some final bonus.

If you are talking about a long term average then its unlikely given the number of bad years that there have been in that period.

JJSquire

I recently received a letter from Aviva offering me £28343 final payout for a 25 year endowment, monthly payment of £48.16, maturing on 1st Nov 2009.

I requested a final value quotation from Aviva in May and received a letter date 15th May saying that the maturity value at that time was £30500. Also the Avivia webiste quted that in the first half of this year similar poloicies were paying out over £32000.

From all the information I can gather it appears that Avaiv are trying it on with thier current offer wchih seesm to me to be at least £4000 short. Is there any direct process by which I can get the correct value?

dunstonh

From all the information I can gather it appears that Avaiv are trying it on with thier current offer wchih seesm to me to be at least £4000 short. Is there any direct process by which I can get the correct value?

How on earth are they trying it on?

Projections assume a straight line level of growth. They cannot take account of short term volatility. The markets dropped to their low point in March and conventional with profits funds adjusted their bonuses in May and June to reflect that. The recovery should see final bonuses go up again in the new year if this is a sustainable recovery.

The value on maturity is the value you will get. Not a illustrated example. It is probable the value they have given you this early in October is not final yet either. It may not include the promise value either yet.

JJSquire

Hi, Dunstonh and thanks for the fast response.

What I find surprising is the difference between what I was told in May and the value I am now being offered. I thought the idea of with profits was to smooth the final values thus avoiding large market corrections as you suggest. Have I go this completely wrong or am I not entitled to assume that if the first part of this year was much higher than now and as you say the first part of next year is likely to go higher than now that I am entitled after 25 years of paying to believe that the timing of my payout should not affect my payout so severly?

EdInvestor

This used to be the case when the insurers were still selling these policies.Final bonuses were smoothed so that the value was always higher each year than the last.

Now endowments are obsolete so the terminal bonus reflects the actual value, not what is needed for marketing purposes.

If you feel you've been conned, you probably have.