A bit baffled

Yorkshire1944_2

My last years mortgage endowment plan update indicated that the 30k (possible) maturity value would be exceeded at the lower (4%) assumed growth rate. My newly received update suggests that I will probably fall short by between 3 and 4k. I realise that all sorts of horrible things have happened over the last 12 months or more in the financial market but dont investment companies employ "experts" to minimise such risks ? My policy is with SALAS (Prudential) with a sum assured of £10560 and life cover of 30k to cover my mortgage, it matures March next year. Can policies really flutuate by such large amounts ?

Pincher

Endowment is a stock market vehicle, so it fluctuates.

Endowment was a scandal ages ago, did you investigate the possibility of being mis-sold? It's probably too late to file a claim now.

Endowment was designed to attract tax relief. So if you paid in £67, the taxman pays in £33 (1980s tax rate), the tax you paid through work. The greedy plan manager spends £25 on champagne and dancing girls, and invest £75 for you, so you still end up happy 25 years later.

Then the tax relief disappeared, but the plan manager still took £25 for his pleasures, so only £42 was invested for you. That's the simple version of why your return was so poor.

Loads of people were pushed into it, because the salesmen told them they can assume 13.4% return, so they don't need to repay the mortgage principal, just wait for the lump sum. Instead of earning 13.4%, the monthly contributions in the first two years went to pay salesmen's commission, and then the returns fell. The subsequent year's contributions were partly invested, the rest going to feed the plan manager's cocaine habit.

you are very lucky to get all your money back, although after inflation it's probably less than what you put in.

Yorkshire1944_2

Thanks for that, it explains why my return will be about half that "promised" in 1986. I did put forward a case for mis-selling but it was rejected !!
Further to my original query - might it be possible for the returns to bounce back in the next 12 months-your thoughts (not predictions) would be appreciated.

Pincher

Some plan managers "park" your investment near maturity, so it's invested in something less volatile, so you won't get a shock dip in value if the stock market takes a sudden turn. If you can elect to do this at your timing, then you can keep an eye on the daily valuation on your units. Early redemption is silly at this stage.

I predict that the stock market will hit 8,091 by the end of this year.
Jesus will appear on December 24th 2010, riding a reindeer.
Angelina Jolie will divorce Brad Pitt and fall in love with Jennifer Aniston.

tonycarew

Further to my original query - might it be possible for the returns to bounce back in the next 12 months-your thoughts (not predictions) would be appreciated.[/QUOTE]


Thats what I would like to know too.I have 3 endowment policies with Aviva all of which are due to mature in 2011/2012.

I have very limited understanding of the workings of an endowment policy.
I dont understand how yearly bonuses work.Companies appear to be able to reduce them or withdraw them at will even though the stock market to which I think they are linked has performed well over the last 12 months.
As I say I dont really understand them

dunstonh

I dont understand how yearly bonuses work.Companies appear to be able to reduce them or withdraw them at will even though the stock market to which I think they are linked has performed well over the last 12 months.

The FTSE peaked at 7000. Its currently 5300. So, its a long way short of the peak despite the last year being good. The year before was worse.

You are not just in equities but also fixed interest securities (which fell between 20-40% although have since recovered) and property (which fell 40-50%) and has only started the road to recovery since September and is a long way of its peak.

My newly received update suggests that I will probably fall short by between 3 and 4k. I realise that all sorts of horrible things have happened over the last 12 months or more in the financial market but dont investment companies employ "experts" to minimise such risks ?

The projections you receive are not there to indicate what you will get back. They are not lows or highs. They are examples of what you could get back if you got x% p.a. every year. Investments dont work like that as they go up and down. You may get 12% one year, 4% the next and minus 20% the one after. Between 2003 and 2007, the Pru endowments exceeded the 8% projection rate. However, they could not help but reduce the final bonus down over the last 12 months.

They have already started to recover but you do tend to find there is a lag with With Profits funds.