Cashing in Standard Life Endowment After Advice From IFA?

psy

I would be really grateful for some mortgage/endowment advice.

My fixed rate mortgage expires in Jan 2010. Current rate is 5.75% with Standard Life. I have a LTV of 60%. Mortgage outstanding is £150,000. Mortgage to run for a further 18 years. I took out a Standard Life endowment in 1995 to pay a target sum of £57000. This is due to payout in 10 years time. The current cash in value is £17000 and has a red alert warning. (Lower Rate - £33K; Mid - £40K; High - £48K). My mortgage is currently split: Repayment £105K/Interest only £45K basis.

I am looking to transfer to a tracker mortgage with the Woolwich – this is for term of mortgage, rate 2.25% above base rate.

I have spoken to an IFA who advised me to switch to the Woolwich and cash in the endowment. He has then suggested either using these funds to reduce the mortgage or place the money into a savings account. He argues making further payments towards the endowment is a waste of money whereas his options will help reduce the outstanding mortgage debt, and by switching to a full repayment mortgage, I can at least be guaranteed the mortgage will be fully repaid at the end of term.

Any opinions would be gratefully received regarding my IFA’s advice. Thanks.

opinions4u

The IFA has had the advantage (presumably) of assessing your complete financial situation and your objectives, together with the current performance of your Standard Life policy.

The only reasons I can think of to keep the policy that I can see are:

1) A blind faith that the investment performance is going to be superb.
2) Their 'Mortgage Promise' which does give you some protection against poor performance of the policy.

I would ignore (1) and ask your IFA to establish what value, if any, (2) has for you before you choose to follow the advice given.

If it helps, I ditched my SL policy last year. But I'm not you and I may have differing circumstances.

_bankrupted

I cashed in my Standard life policy about 4 years ago. It had been running since 88.

What I would do (you have to decide your own actions though), is cash in the policy and put the entire fund into a FTSE tracker and leave it for the next 18 years.

The FTSE 100 is still at a 5 year low, and still 20% lower than it's 2000 peak. Houses as a vehicle for investment have shuddered to a halt and I believe the next 10 years will see some impressive stock market growth.

opinions4u

_bankrupted wrote: »

What I would do (you have to decide your own actions though), is cash in the policy and put the entire fund into a FTSE tracker and leave it for the next 18 years.

Even though the FTSE is just about the worst performing index on the planey over the past decade?

The FTSE 100 is still at a 5 year low, and still 20% lower than it's 2000 peak.

It's 40% higher than it was in March!

OP - if you do cash it in pay down your debt as your IFA advises. Don't speculate with it.

dunstonh

Even though the FTSE is just about the worst performing index on the planey over the past decade?

And most people that utilised FTSE trackers for investment backed mortgages are in a shortfall. Whereas those with a balanced approach and monitoring are not.

OP - if you do cash it in pay down your debt as your IFA advises. Don't speculate with it.

Agree. The FTSE tracker option is out of the frying pan into the fire.

_bankrupted

opinions4u wrote: »

OP - if you do cash it in pay down your debt as your IFA advises. Don't speculate with it.

But that is exactly what he has been doing with it for the last 14 year!! And for the privilege of allowing Standard Life to reduce his capital they have charged him handsomely.

To pull funds out of a stock market investment at the bottom is the classic mistake of amateur investors. The advise of his IFA is in my opinion poor, specially as current saving interest rates are so low.

dunstonh

The advise of his IFA is in my opinion poor, specially as current saving interest rates are so low.

The advice of the IFA appears suitable and valid for someone not wanting to take risks and be guaranteed repayment of their mortgage.

The advice to use a FTSE tracker is amateurish as you are virtually guaranteeing mid table performance and with a higher risk investment than is currently held.

We can let the OP answer the question as to whether they want to increase the risk or not. I suspect the answer to that would be that they dont want to increase the risk

EdInvestor

opinions4u wrote: »

2) Their 'Mortgage Promise' which does give you some protection against poor performance of the policy.

Step 1 is to determine how much the mortgage promise amounts to.

Then post some more info about the endowment

Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
Maturity forecasts

Once we have the info a proper calculation can be done to determine the best likely outcome.

psy

Thanks for all the comments so far.

In terms of risk I am happy to take a limited amount of risk - for instance I have allowed my endowment to run for a few years on a red alert - (probably a big mistake now in hindsight) with the hope it would pick up. I'm also giving a tracker a go for the first time with my new mortgage. Normally I would opt for a 3-4 year fixed rate.
My IFA has also mentioned an option with the Woolwich which would be to reduce the mortgage as much as possible and then have a cash reserve option available, so if I ever did need it, it would be available.


Surrender value £17666
Monthly premium £92.88
Maturity date 20/9/20
Maturity forecasts Low £33,700 Mid £40,300 High £48,200

EdInvestor - where do I find guaranteed sum assured and declared bonuses on my annual summary as SL only mention fund value and bonuses if cashed in now? Is this the same thing?

dimbo61

For my 10p worth I would look at First Direct 3 year fixed offset and put the money from the endowment into the offset account and change to a repayment mortgage.
Carry on paying the mortgage on a repayment basis and ignore the savings in the offset ( emergency fund NOT TO BE TOUCHED )
Security for next 3 years and some of the best rates on the market.
You have a big debt ! Best thing to do is reduce your debt first then build up savings/ investments.
GOOD LUCK

EdInvestor

psy wrote: »

Maturity forecasts Low £33,700 Mid £40,300 High £48,200

If you cashed in the policy now and used the lump sum to reduce the mortgage immediately , increasing the monthly mortgage payment by the endowment premium to maturity, then you would end up with £46,977, which is guaranteed..It's very unlikely the SL fund will return more than the mid figure,and probably it will be less.So as you can see, the only thing that would make it worth keeping the endowment would be a big slug of mortgage promise money (and even then you have to assume they will not find a way of not paying out at the end.) The IFA's advice makes sense to me.

EdInvestor - where do I find guaranteed sum assured and declared bonuses on my annual summary as SL only mention fund value and bonuses if cashed in now? Is this the same thing?

GSA etc applies to conventional endowments, you perhaps have a unitised WP one, so it's not relevant.