Endowment surrender advice needed

dunstonh

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?

Quite common on unit linked or unitised but not as common on conventional with profits.

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

I wouldnt say similar but I know what you mean. Yes, there are some. Indeed, one that comes to mind straight away is the Pearl Homebuyer V2 which is with profits and has no MVR or surrender penalty after the 10th anniversary.

Whenever someone asks the usual questions about the policy, they should also ask if there are any points in the policy where the surrender penatly does not apply any more. Even if the policy is complete and utter rubbish, a year or two delay to save a 20% penalty can be worth it. Thats when making the policy paid up can also come into play as well.

As for increased allocations, there was one I saw last year that had 105% allocation after year 15 with no bid/offer spread. That extra 5% allocation wasnt included in the projection and it had a range of around 20 unit linked funds. They are certainly not in the majority but a 105% with no bid offer spread and with property and equity income funds available could certainly be worth holding on to.

EdInvestor

Worth asking about this, anyone who discovers they have a penalty-free exit date, please report back.This issue has not been brought up in the endowment area before at all.

dunstonh

EdInvestor wrote:

Worth asking about this, anyone who discovers they have a penalty-free exit date, please report back.This issue has not been brought up in the endowment area before at all.

Its one of the questions that any compliance dept/FSA audit would expect to be covered on a discontinued plans form if someone has gone through the advice process. I would estimate it applies in 2 in 10 cases.

It probably doesnt get mentioned much on here as we tend to see the same old companies mentioned and these more often than not are on conventional with profits basis where penalty free exit points are less likely to exist. Also, people do tend to just look at the projections and the surrender value. They dont know to look at potential future exit points as there is a bit of an assumption that there is always a surrender penalty.

Another one where there are no surrender penalties after x number of years into the plan are some unit linked Scottish Widows endowments.

HCN

Have just received the yearly statement, which shows that the endowment has lost £300 in the last fortnight - since the compensation has been worked out, convenient for the Halifax, but not for me! I will enquire about the surrender penalities etc, but still feel inclined to cash it in, especially after this latest loss.

dunstonh

but still feel inclined to cash it in, especially after this latest loss.

I think you should because it is clear that you dont understand the workings of pound cost averaging and investing. These recent drops remain beneficial for long term regular investors. You are buying units each month and the unit price is lower. Thats a good thing, not a bad thing. The actual value of the endowment is not an issue at this stage.

If you don't understand that, then really you shouldn't be in the product and you should get out whilst the you have the opportunity.

HCN

Proving again (although no further evidence needed) that I was mis-sold! You are right, I don't understand the workings of it.

missile

I was thinking you had a bad FSA. I guess he would say he had a fool for a client?

dunstonh

I think we all have a bad FSA The Financial Services Authority had little to do with HCN at the time though.

HCN, you are correct. My comments were just highlighting that. What is happening now is good for long term unit linked endowments investing in those areas. If you are not comfortable with that, then you should get out whilst you have the redress to put you in the position you would have been.

vinno65

EdInvestor wrote:

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

Hi Ed,
for your info my endowment had been running for over 10 years but as I am (and many more people are now) a higher rate tax payer there were tax liabilities in surrendering. The good news however is that in the case of a miss-sale the firm has to pick up the bill.
regards Vinno

HCN

missile wrote:

I was thinking you had a bad FSA. I guess he would say he had a fool for a client?

Is this intended as a supportive comment?

I was sold the endowment when buying my first property, when I was in my early 20s. I am absolutely certain that I am not the only person who was advised to take this route who did not understand the full workings of the policy they were sold. As the compensation I've just been awarded demonstrates, I should never have been sold it in the first place. My comment above about the 'loss' may seem naive, but it appears real enough to me at present - if the compensation had been worked out this week I would have received £300 more. Therefore the value of the endowment was relevant to me at this time, although I do appreciate Dunstonh's point that these products are intended to run their full term.