Should I sell my Standard Life endowment?

b33k34

I took out an endowment 10 1/2 years ago when buying my first property. Strangely enough it hasn't performed well and whilst I'd been aware since very early on that it wasn't the best decision I'd ever made I'd been looking at it as part of a 'portfolio' so wasn't overly worried. However, I'm now thinking I could do far better and throwing good money after bad for another 15 years would be plain stupid.

We've a lifetime offset mortgage with First Direct at 2.39 over base. Not great but the best variable deal on the market (offset or not) when we came off Northern Rock earlier this year. The endowment isn't linked to the mortgage. I have good life cover from work.

The Endowment is with Standard Life and takes £185 per month. Back in March it was worth just over 18k but with the recovery in the stock market it now has a cash in value of c25k. It's a unitised policy with only a small amount in with profits - I've been told it's not tradable. It was originally meant to return £118k but is forecast at way under that now.

The only thing that stops me cashing it in immediately is the Standard Life 'endowment promise' which they're still saying could add 10k at the end. That amount is by no means assured and I suspect i'll see nothing like that

My thought is that despite this I'm far better off setting the 25k against my mortgage and either 1)increasing the amount I put into the offset account 2) putting the money into an ISA or 3)adding to my pension contributions.

Advice welcomed. New on here so please be gentle

dunstonh

The only thing that stops me cashing it in immediately is the Standard Life 'endowment promise' which they're still saying could add 10k at the end.

Yes. That can often be the blocker for surrendering it.

That amount is by no means assured and I suspect i'll see nothing like that

Why not?

The promise value is fully funded and they are paying it out on maturities currently. There is no reason why yours would not get it either. The only reason you wouldnt get it is if it gets within that figure of hittting target.

yours is unit linked and you have access to the Std Life Unit linked fund range. So, yours is better potential than most. If you think the others can not only beat the unit linked fund returns and make 10k on top (minus cost of life cover and surrender) then you should consider them. If not, then you shouldnt.

b33k34

dunstonh wrote: »

The promise value is fully funded and they are paying it out on maturities currently. There is no reason why yours would not get it either. The only reason you wouldnt get it is if it gets within that figure of hittting target.

yours is unit linked and you have access to the Std Life Unit linked fund range. So, yours is better potential than most. If you think the others can not only beat the unit linked fund returns and make 10k on top (minus cost of life cover and surrender) then you should consider them. If not, then you shouldnt.

They're currently saying "there may be an MEP payment of between 9585 and 14379" but then go on to say it "may be higher or lower, it could be nil" which doesn't fill me with confidence.

The investment is in the Managed Fund (95%)/Life with profits fund (5%) from the looks of things. I don't think I can alter this without losing the MEP eligibility ("your plan must have remained fully invested in the with profits or managed fund or a mix of these),

My understanding is that the payout from the Endowment is tax free (even if i cash it in now as it's over 10 years). Wouldn't I still be better off topping up my Pension AVCs (and getting 40% tax relief on contributions) and then taking a (tax free?) lump sum when I retire?

That would give me the money over 10 years later (I'm 38 now) but I'm hoping to pay the mortgage off in full before the endowment pays out so that's not a problem. (We will move again at some point and might take on some mortgage debt again but could stretch the term on that to retirement if necessary).

The big disadvantage of the endowment seems to be it's fixed maturity (and whilst I could reinvest in a stock market tracker if it matured at a bad time the gain would then be taxable). My fund value has changed by c25% over the last 6 months and i don't see any flexibility in the endowment that lets me mitigate against that.

dunstonh

They're currently saying "there may be an MEP payment of between 9585 and 14379" but then go on to say it "may be higher or lower, it could be nil" which doesn't fill me with confidence.

That is worded correctly. They have to use the word "may" as if your endowment gets back on track you get nothing. If it falls £10 short then you will get just £10.

My understanding is that the payout from the Endowment is tax free (even if i cash it in now as it's over 10 years). Wouldn't I still be better off topping up my Pension AVCs (and getting 40% tax relief on contributions) and then taking a (tax free?) lump sum when I retire?

The endowment is not tax free. It is tax paid (no further liability). AVCs are largely obsolete nowadays. Only those that can be used in conjunction with the main scheme to pay tax free cash or get employer contributions are worth it. Pensions may better and so may ISAs. However, the calculations would have to beat the SL Managed fund plus £14379 (on the assumption it falls short). Balanced managed funds can easily average 7% a year. So, you need to be looking at alternatives with that potential (plus 14k). Of course, use a balanced managed fund in a pension or ISA and you would get the same performance (without the 14k).

b33k34

dunstonh wrote: »

The endowment is not tax free. It is tax paid (no further liability). AVCs are largely obsolete nowadays. Only those that can be used in conjunction with the main scheme to pay tax free cash or get employer contributions are worth it.

Which i think covers me. I'm currently in a final salary scheme so I can use what i'm paying to get a tax free lump sum.

dunstonh wrote: »

Pensions may better and so may ISAs. However, the calculations would have to beat the SL Managed fund plus £14379 (on the assumption it falls short). Balanced managed funds can easily average 7% a year. So, you need to be looking at alternatives with that potential (plus 14k). Of course, use a balanced managed fund in a pension or ISA and you would get the same performance (without the 14k).

So my very simple calculation, which you may be able to verify, before any investment returns says that i'll pay another 33k into the endowment over the next 15 years (185x12x15). The tax relief on that if I paid the same money into my AVCs (I'm a higher rate taxpayer and the AVCs are via Salary Sacrifice) would be 22k/50% more than the Standard Life top up.

LeafyBarnet

I see that SL final bonuses on with-profits policies are up from zero this month -- or is it just mine? 0 in Sept and Oct as publicised, and it's 250 this month.