Endowment surrender advice needed

HCN

Hi all, hope someone can give some advice on my endowment.
First, the good news: I've just had a compensation cheque for £1,900, after following the advice on this site and complaining about the mis-selling of my policy. Now, I need to decide whether to surrender the endowment or not. Details are as follows:

It is with Halifax Life, and is unit-linked, so I don't think selling it is an option. I've had it for 10 years (May 1996).
Current surrender value is £8383.62.
Target amount was £42,300.
I've received an 'amber alert' saying there is a significant risk of shortfall (i.e.5,100 at 6% each yr or 12,900 at 4% each year).
Monthly premiums are £74.20

It is no longer linked to the mortgage as this has been repayment since 2002 when my boyfriend came onto the mortgage. I've put off doing anything about it because I wanted to wait until it was worth about the same as I'd put in, which I think it now is.

I'm not at all happy with the element of risk involved in the endowment, so really would be relieved to get rid of it, but don't want to make another big error. I don't have any other savings at the moment. I've just searched for decreasing term life insurance + critical illness to replace that element of the policy and find I can get it for about £11 a month.
(also, I currently don't pay any tax at all. although this will change before the end of the year as I hope to return to work full time Would surrending this make me liable to tax??)

Any advice greatly appreciated.

EdInvestor

HCN wrote:

Target amount was £42,300.
I've received an 'amber alert' saying there is a significant risk of shortfall (i.e.5,100 at 6% each yr or 12,900 at 4% each year).

If you cashed it in and put it on deposit@ 4% also paying in the premiums until maturity,you could expect 33,261 at maturity. This would appear to compare with their projection @4% growth of 29,400.

Your estimate of 11 quid a month for replacement insurance adds up to 1,980 for the remaining 15 years, so you would be ahead by 1,881 if you surrendered (this sum excludes the compo money).

I'm not at all happy with the element of risk involved in the endowment, so really would be relieved to get rid of it.

There's no reason for hanging on then.No tax would be payable on surrender4 as you've had the policy for 10 years.

HCN

Thanks for this, which has reassured me about my gut feeling to get rid of it now.
Do the current fluctuations on the stock market much difference to the surrender value I've been quoted?

EdInvestor

HCN wrote:

Do the current fluctuations on the stock market much difference to the surrender value I've been quoted?

Could do.What fund is it invested in?

HCN

It is invested in 3: foundation, balance and opportunity, whatever they may mean!

EdInvestor

HCN wrote:

It is invested in 3: foundation, balance and opportunity, whatever they may mean!

Erm...... :rolleyes:

Perhaps you could look and see what percentage of each of these funds is invested in stockmarkets (aka "equities") and then add them all up for a total percentage ? Doesn't matter if foreign or UK stockmarkets.

The markets seem to have stabilised now and are making good their losses, so with luck, if you give it another week or two you probably won't see much effect.

HCN

I can't find any further info about these funds in my paperwork. However, am cheered by your suggestion that in a couple of weeks all should be stable, as it will take a while to sort out the alternative life ins. Thanks for all your help on this.

dunstonh

Dont be hasty on surrendering this. The fund range may offer good potential. Whilst Ed has used 4% in a bank account to compare it against, unit linked funds of medium risk tend to be closer to the 7% mark over the long term.

There may be lower risk funds, including a property fund, available offering returns with less volatility but with greater potential than the bank.

EdInvestor

The available Halifax Life funds are listed here nos 130-134.

They are all balanced managed funds, with a mix of UK and international equities and UK and international bonds.Can't see the opportunity fund there.

The equity levels would suggest these funds might perform.But they aren't.Why not?High charges and expensive life cover are probably to blame.

The problem with these old endowments is that they have charges set when the stockmarket was booming and inflation and interest rates were high.In the new era, the result is these policies produce only cash-like returns, but with high risk.

It's the worst of both worlds.:(

dunstonh

Thats trustnets list. I wouldnt rely on trustnet as a source of available funds. They are notorious for showing only around 80% available from a provider.

The problem with these old endowments is that they have charges set when the stockmarket was booming and inflation and interest rates were high.In the new era, the result is these policies produce only cash-like returns, but with high risk.

Not always true and a dangerous assumption to make. They had a big up front charge but very often the ongoing charges, particulary with unit linked endowments, could be quite low and sometimes even have 105% allocation after certain periods. If the charge has already been taken at the start and you can get 105% allocation into a fairly decent range of unit linked funds, then you would be daft to surrender it.

Also, at no point in this thread has there been any mention of the surrender penalty free exit points that may exist on the endowment. I wonder how many people have paid thousands of pounds in surrender penalties when they wouldnt have had to pay a penny had they waited a year or two.

EdInvestor

Also, at no point in this thread has there been any mention of the surrender penalty free exit points that may exist on the endowment.

How common are these? They are often (though not always) a feature of other life fund investments like WP bonds. Do they apply to mortgage endowments, or only savings endowments?

You can often surrender a WP bond penalty free on its 10th anniversary.Are endowments similar?