Canceling my Endowments

barryd999

Hi

This year we were lucky enough to pay off our Mortgage. We have two endowments, one with Scottish widows taken out with Lloyds TSB in 1992 maturing in 2017 and a Flexible Mortgage plan endowment with Legal and General taken out in 2000 and maturing in 2020.

It seem an awful long time to keep paying into them when we dont have a mortgage anymore. I think the first one is £53 per month for £32000 and the second one is a whopping £128 per month for £42000. Both include life insurance for the said sum which is about £8 per month for the first one and £22 for the second one.

Clearly we have invested in the first endowment for 17 years and the second one for 9 so they are fairly mature.

Should I just continue paying them or is there a better option available?

dunstonh

Should I just continue paying them or is there a better option available?

Tell us about the endowments? How are they invested (is the SW one using the old Lloyds Bank unit linked range of the TSB unit linked range)? How are the charges? Do you need the life cover? Does it have critical illness cover?

barryd999

dunstonh wrote: »

Tell us about the endowments? How are they invested (is the SW one using the old Lloyds Bank unit linked range of the TSB unit linked range)? How are the charges? Do you need the life cover? Does it have critical illness cover?

Thanks for taking the time to reply. I cant dig them out right now but will do sometime today. I know the first one was done back in 1992 through Lloyds Estate agents (if that is correct) and I have had warning letters for years saying it was going to miss its target. The L&G has Life and Critical Illness cover and the earlier one just life I think. I beleive if one of us dies we get the full amount. Presumably we still get whats in the endowment as well when it matures? Will try and dig out the information you asked for and come back to you. We are in a bit of a strange situation in that we have no mortgage, around £110K in the bank (high(ish) interest accounts) but a very low income at the moment (both self employed with little work due to the recesion) so I am trying to look at the best way to invest but also save costs.

Once again, many thanks

Rockporkchop

You might be able to stop paying into the endowments but just keep them running with the money already paid in - check if you can do this when you dig them out. You have paid into them for quite a while so you should get a fair bit when they mature. Whether you would want to do this depends on where they are invested and how well they are doing.

barryd999

dunstonh wrote: »

Tell us about the endowments? How are they invested (is the SW one using the old Lloyds Bank unit linked range of the TSB unit linked range)? How are the charges? Do you need the life cover? Does it have critical illness cover?

Hi

It states on the SW annual statement that "The mortgage plan is a unit-linked savings plan, which means that after deduction of a policy fee, contributions are used to purchase units in Lloyds TSB investment funds, the cost of the cover provided is met by the deduction of units" The L&G Flexible Mortgage plan says the funds are "Mortgage ISA UK Index (R)". Current fund value for L&G after 9 years is £12377 which if you take of the life cover is about 10% more than we have paid in. If you include the life cover at £22 per month the fund is less than we have paid in. Fund value in SW is £11425 after 17 years.

I have to admit I am just scratching the surface with all this and need to learn much more but I have time on my hands right now so am keen to do so. Would I be better canceling the life cover on both and moving both funds to a really good ISA or am I just talking rubbish?

Thanks

barryd999

Rockporkchop wrote: »

You might be able to stop paying into the endowments but just keep them running with the money already paid in - check if you can do this when you dig them out. You have paid into them for quite a while so you should get a fair bit when they mature. Whether you would want to do this depends on where they are invested and how well they are doing.

Thanks for that, I just checked on the L&G one and you can take "A holiday" for up to 9 months. I would prefer to keep paying them if they are the best thing to be paying into, I just dont know if this is the best way to save and invest now that the mortgage is paid off. Not sure what my options are really. It could be that they are a really good investment and perhaps I should be paying more into the pot, I just dont know.

dunstonh

OK, one is an endowment (SW) and the other is a stocks and shares ISA. Both have good potential and may not be as bad as you think.

The Lloyds one has a pretty good fund range available to it. The default fund that most end up in isnt great but some of the others available are good.

The ISA gives you far more choice. Its currently in an L&G FTSE Tracker. Some people like those but 100% investing in one fund is rarely a good idea. However, it is possible to transfer this (at no cost) to a fund supermarket and have access to the whole of market and get a much better spread. You lose the life cover element on that bit if you do that but if you dont need it then that isnt a problem.

If you cash in the ISA, you can never get back the ISA allowances you have used with that. However, transferring it means it stays within the ISA and does not use any current allowance.

barryd999

dunstonh wrote: »

OK, one is an endowment (SW) and the other is a stocks and shares ISA. Both have good potential and may not be as bad as you think.

The Lloyds one has a pretty good fund range available to it. The default fund that most end up in isnt great but some of the others available are good.

The ISA gives you far more choice. Its currently in an L&G FTSE Tracker. Some people like those but 100% investing in one fund is rarely a good idea. However, it is possible to transfer this (at no cost) to a fund supermarket and have access to the whole of market and get a much better spread. You lose the life cover element on that bit if you do that but if you dont need it then that isnt a problem.

If you cash in the ISA, you can never get back the ISA allowances you have used with that. However, transferring it means it stays within the ISA and does not use any current allowance.

Thank you this is great info, I am learning! So if we drop the £22 a month Life insurance on L&G and ask them to move it to a fund supermarket we may get better results? Is this something I have to manage myself or will they do it for us? I guess we just leave the SW one as it is with the life cover on so at least if I croak Mrs D gets £32000. Clearly cashing it in is perhaps something done in desperation as it sounds like a bad idea. We are not desperate (at the moment) so we should keep the ISA's. If we carry on with the L&G ISA then is there any mileage in topping it up from other savings? we currently have about £75K in the Investec High 5 savings account and the rest in Bradford and Bingley savings account. I believe there is a limit to how much we can top up the ISA's in a year though.

Thanks again for your valuable time.

dunstonh

So if we drop the £22 a month Life insurance on L&G and ask them to move it to a fund supermarket we may get better results?

You dont ask L&G. You ask the IFA (if you use one) or the fund supermarket you choose (if you DIY) to transfer it. The forms come from the receiving scheme.

L&G will try to get you to keep it.

L&G have a limited range of funds. There are over 2000 unit trust funds out there and the fund supermarket gives you access to the bulk of those. Your current investment spread on the ISA is limited and not one that any sensible investor would want to have. So, the potential would be increased by bringing in diversification. It may be that your risk profile is not currently being met either. You are currently investing in the medium/high risk level on this. You may prefer to be a tax lower.

If we carry on with the L&G ISA then is there any mileage in topping it up from other savings?

I dont think you can because it is structured to be used with a mortgage. Even it if can, the move to a fund supermarket would be better (the L&G funds themselves would be available on the fund supermarket if you really wanted them).

I believe there is a limit to how much we can top up the ISA's in a year though.

£7200 if under 50 and £10200 if 50 or over.

barryd999

dunstonh wrote: »

You dont ask L&G. You ask the IFA (if you use one) or the fund supermarket you choose (if you DIY) to transfer it. The forms come from the receiving scheme.

L&G will try to get you to keep it.

L&G have a limited range of funds. There are over 2000 unit trust funds out there and the fund supermarket gives you access to the bulk of those. Your current investment spread on the ISA is limited and not one that any sensible investor would want to have. So, the potential would be increased by bringing in diversification. It may be that your risk profile is not currently being met either. You are currently investing in the medium/high risk level on this. You may prefer to be a tax lower.



I dont think you can because it is structured to be used with a mortgage. Even it if can, the move to a fund supermarket would be better (the L&G funds themselves would be available on the fund supermarket if you really wanted them).



£7200 if under 50 and £10200 if 50 or over.

Thanks again

So either I do some research into the funds supermarket or I need to be talking to an IFA. I live in the North Yorkshire dales and finding a good IFA around here is not going to be easy I wouldnt know where to start. I will do some research into doing it myself but I suppose like anything its best to have an expert as I cant become one myself overnight!

Sorry, one other thing that I would like to know is the first Endowment was supposed to pay of £32000 by 2017. Its currently at £11425 after 17 years. I fail to see how it will mature to anywhere near £32000 in the 9 years it has to run or am I missing something here.

The second ISA with legal and general was supposed to pay off £42300 by 2020 so it has another 11 years to go and is currently at £12377, still cant see how it will achieve that growth.

dunstonh

I live in the North Yorkshire dales and finding a good IFA around here is not going to be easy I wouldnt know where to start.

You should have a fair few up there. You are a little more rural than norfolk but you would be surprised how many IFAs live and work in the sticks.

Sorry, one other thing that I would like to know is the first Endowment was supposed to pay of £32000 by 2017. Its currently at £11425 after 17 years. I fail to see how it will mature to anywhere near £32000 in the 9 years it has to run or am I missing something here.

9 years left could see it double in value. So, that would £23k. Plus 9 years of contributions could run it close. Its unlikely to come back that strong but it may not be as far off as you think. Remember that the projections tend to use 4, 6 & 8% a year. This year has been around 30% up. You average out the ups and downs and if you can get 7% or 8% a year it can double in 10 years.

The second ISA with legal and general was supposed to pay off £42300 by 2020 so it has another 11 years to go and is currently at £12377, still cant see how it will achieve that growth.

Say £110pm goes in the investment post, Thats around £14,500 over 11 years with no growth. If the £12377 doubles and you got no growth on the regular then that is £39,254. Not far ofo the target. With growth on the regular then you could hit and potentially exceed it.

I havent got my financial calc out but doubling in 10 years is within the potential and not too much of a stretch. The last 10 years have been awful but that is unusual rather than the norm. The next 10 years are unknown but if you use a diverse spread of investments, you could exceed the 7% a year needed to double.