Standard Life Endowment Help Again!!

mleonard79

Hi everyone,

Some of you may have seem my thread on my standard life endowment policy that I posted some time ago now.

http://forums.moneysavingexpert.com/showthread.html?t=222429

I was confused about whether to keep or sell the policy and got some conflicting advice from some of the experts in this field. As Standard Life are in a state of change at the moment I eventually decided to tae Dunstonh's advice that it was better to wait a little while before making any decision. So I concentrated on remortgaging instead which is now done :j

Anyway, I decided to track how the endowment is doing by getting a surrender value once a month and working out how much it's grown. When I went onto my account online today, however, I found something a little confusing hence why I'm back here looking for advice!! The surrender values for the last few months are as follows:

12th May £10,694.65
12th June £10,774.45
12th July Don't have exact figure but think it was around £10,850
8th Aug £11,308.55 (£11,036.05 basic value and £308.55 final bonus)

Ok as you can all see it's not doing very well then suddenly jumps up considerably this month. In my other thread Dunstonh had told me about terminal bonuses but said that you couldn't find out what they are as the customer and when I phoned Standard Life they couldn't give me much information. Is the £308.55 that's just appreared on my account this terminal bonus and will in continue to grow each month?? It definitely wasn't there on the statement last month so it's a bit strange.

Even taking this final bonus amount away, however, and subtracting my monthly premuim of £50.75 the endowment has grown by £80 a month for the last two months whereas in May-June it only grew a paltry £29 (hence why I thought it was best to sell it.) If I sold the endowment and paid the money into my new mortgage it would save me £51 a month in interest and obviously I wouldn't be paying the £50.75 premium anymore but I would have to put that towards my mortgage and it would save an extra pound or two a month in interest. So the way I see it if it's going to continue to make £80 a month that's good and well worth keeping whereas £29 is rubbish and best to get rid of. So what does everyone think? Is this leap up an aberration and it'll go back to making small amounts or is this endowment looking up?? I'll continue to monitor it on a monthly basis to see but am just interested in what any experts think about this. I was wondering if whether perhaps the demutulisation has caused this change in performance?? Any opinions gratefully received. Thanks a lot.

Regards

Michelle

EdInvestor

I was wondering if whether perhaps the demutulisation has caused this change in performance??

It's a possibility as the vast majority of the new money raised at the float was to be put into the WP fund.

Is this leap up an aberration and it'll go back to making small amounts or is this endowment looking up??

THe other source of money for terminal bonuses is ...the stockmarket. Dusting off my crystal ball,I can reveal that the stockmarket in future is going to go

UP

.

and DOWN

at regular intervals.

You'll just have to suck it and see.

You could try these people and see if they'll give a quote for it:

https://www.apmm.org

They probably have more idea of the value of these endowments than anyone. Anecdotal reports suggest that Standard policies attract a 5-10% premium, but there may be a glut of them at present if lots of people are cashing in, post DM.

mleonard79

Hi Edinvestor,

That's interesting that the vast majority of the money raised was to go into the WP funds - not bad news! I was wondering whether they may have been changing the way the funds were invested or something like that since the demutulisation. I also thought there may be some incentives being offered at some point to keep the account as there's a mass exodus expected as you say. Do you think that's possible?

I'm going to keep it for a while and monitor it anyway though to see how it does. If it starts performing poorly again I can just look into selling it. Was just perplexed about the leap - but in a good way! Of course if the terminal bonus is mainly governed by the performance of the stock market then there are no guarantees one way or the other - \i know you were previously of the opinion that any terminal bonus from standard life would be very low, do you still feel that way? May try to get a quote from that site - would be interesting how much they'd offer over the surrender value, I guess that should give me an idea of how valuable the experts think it is. Thanks for the insights.

Regards

Michelle

dunstonh

I also thought there may be some incentives being offered at some point to keep the account as there's a mass exodus expected as you say. Do you think that's possible?

SL suggested there would be but we havent seen anything yet. An undertaking like that on an old conventional with profits plan would take a lot of work and will not happen overnight.

\i know you were previously of the opinion that any terminal bonus from standard life would be very low, do you still feel that way?

I have a different view to Ed on this. Annual bonuses from the providers have remained low during the stockmarket recovery but terminal bonuses have been used more instead to reflect that growth. Annual bonuses cannot be clawed back once paid whereas terminal bonus can. So this places less liability on the insurer if there was another stockmarket crash. It also reduces the chances of an MVR being applied on early surrender which the insurers have now realised was a bit of a disaster for many of them. I expect annual bonuses to remain low but the terminal bonus will reflect future returns, whatever they end up being.

The change would also represent the bonus announcement that I mentioned which occured on 4th August. So, I am pleased you held on as I suggested. As from this point on it is still future unknown with the next bonus announcement expected in 6 months.

EdInvestor

mleonard79 wrote:

I know you were previously of the opinion that any terminal bonus from standard life would be very low, do you still feel that way?

I'm afraid so. Bear in mind that this final bonus that has appeared in your account amounts to 2.8% of its total value, the other 97% is the guaranteed value. When you consider that only five years ago the final bonus on many policies was 150% of the guaranteed value, you can see how pathetic this small rise really is.

Of course every little helps But with the WP fund only making a 2% return in the first half, I wouldn't get too excited.

May try to get a quote from that site - would be interesting how much they'd offer over the surrender value, I guess that should give me an idea of how valuable the experts think it is.

Yes, the TEP traders are the best informed people (outside the companies themselves) that the general public can easily contact. Many (perhaps most) advisors have given up following With Profits completely these days, as they don't sell the products any more. What's more the TEP quote is free, whereas the advisor will charge for what is likely to be a much less well informed opinion in many cases ( present company excepted, of course ).

mleonard79

Hi Dunstonh,

Thanks again for the advice - glad I listened to you and decided to hold off. I think you were right and it's too changeable a time for Standard Life for me to make a proper decision on this so I want to wait and see how things go. As for the promised incentive I guess, as you say, I'll just need to wait and see if that comes to fruition or not.

The bonus announcement on Aug 4th that you mention - what was that? Don't remember hearing anything about that. Is this the reason the terminal bonus has suddenly appeared on the account? Will it grow every month or just be added to occasionally? I like the idea I can now see the terminal bonus and hopefully see how it grows. £300 for the first 15 years does seem paltry but when you say it can be added to after the fact it could be better than it looks.

What do you attribute the fact that the endowment itself (without taking the bonus into account) seems to have performed so much better over the last two months than it was previously? Do you think the funds could have been invested better due to the demutulisation? It's quite confusing but not a bad turn of events In May it was paying out a rate equivalent to 3% or so and then the last two months it's been more equivalent to over 8%. That's quite a shift. I just hope it lasts - I know I'd need a crystal ball to fnd out whether it will or not though! Will be keeping a close eye on it anyway.

Regards

Michelle

mleonard79

Hi Edinvestor,

God 150% - that's sickening :mad: Just shows you how much things have changed. When you look at it in those terms 2.8% seems like nothing but as you say anything's better than nothing. As I said to Dunstonh I'll be monitoring it closely and just hoping it'll continue to improve outwith the bonus as I feel if it makes £80 a month consistently then it's worth keeping (anything over £60 and it's probably worth keeping but if it goes back to making £20 odds as it was before then it's definitely not worth keeping!) It's such a time of flux with this company that I think waiting a while is a good idea just in case!! Don't worry though I'm not expecting too much from it as like you say it's only made 2% over 15 years and that's terrible. Those 15 years are gone though and it's difficult trying to decide what to do for the best for the last 5 years hence why I'm hanging fire on it for now.

I'm going to input the details to the TEP trader site tomorrow so I'll let you know what they come up with - does seem like the best way to get a free opinion on what the experts think of the policy, will be interesting to see! Thanks again for the help.

Regards

Michelle

dunstonh

http://business.scotsman.com/banking.cfm?id=1129872006

Is this the reason the terminal bonus has suddenly appeared on the account?

Yes.

Will it grow every month or just be added to occasionally?

With SL on a conventional WP plan it will alter every 6 months unless there is an interim bonus announcment (stocmarket crash or similar).

£300 for the first 15 years does seem paltry but when you say it can be added to after the fact it could be better than it looks.

Compare it to a CGNU (Norwich Union) one and it is paltry.

I am a bit of a cynic here. I reckon SL pulled the terminal bonuses in full so when they demutualised, those that withdrew their funds after the DM would get less, leaving more in the pot for those that stay and they will be rewarded, perhaps as early as next Feb when the next bonus announcement is due.

What do you attribute the fact that the endowment itself (without taking the bonus into account) seems to have performed so much better over the last two months than it was previously?

Its not the last 2 months but the 6 month period. Old conventional WP plans are not that reactive to daily movements. Personally, putting my cynical hat on again, I think its a way for SL to say to people that things are better now we have demutualised. Stay with us and watch it improve more.

Do you think the funds could have been invested better due to the demutulisation?

No.

mleonard79

Hi Dunstonh,

Thanks for the link to that article - very interesting. Think I've got the hang of what's happening with the bonus now, will check it in 6 months and see what gets added and fingers crossed that they do add quite a bit for staying!!

As for how the plan is performing outwith the bonus I have to say I'm much more inclined to believe your cynical attitude towards the upturn than I am to believe that the policy's just performing better all of a sudden! It makes sense that they're trying to bump the accounts up a bit in order to persuade people to stay while making sure those who left got less. I will be keeping a close eye on it to make sure it doesn't just go back to making £20 or so then. Thanks for the help.

Regards

Michelle

mleonard79

Hi again,

I've just inputted the policy details into several TEP websites. Some will take a good few days to get back to me but the TEP Exchange one made an immediate offer.

It said the best offer came from Surrenda-link Ltd at £11,911.83. So this is nearly £600 more than the surrender value. They were only offering £400 more than the surrender value a couple of months ago so I assume this means they think the policy is even more worth having now. What do you think of this price Edinvestor? Does this suggest it's worth holding onto it now?? As I said before I'm not planning on selling as I want to see how it goes but it's interesting to see what the experts value it at. If any of the other ones come back with a higher value I'll let you know. Thanks.

Regards

Michelle

EdInvestor

I'd just point out again Michelle, that an endowment is a risk based product, so it should pay out a premium return to reward you for taking that risk.

You can obtain a guaranteed, risk free return by selling or surrendering the policy and placing the money in an ISA/on deposit @ 4-5%, and also paying in the premiums.

A higher guaranteed return can be obtained by selling/surrendering the policy and using the proceeds to pay off the mortgage or other debt. The return would be calculated at the interest rate payable on the debt or mortgage and would thus be higher than 4-5%.

IMHO it is very unlikely you will obtain an overall return higher than 4% on your SL policy.

This is because of the way the WP fund is now invested ( more than half in low return bonds), its high charges, the cost of the life cover being paid out and the fact that the previous management lost 80% of the free assets in their mad stockmarket gamble in 2001-02.*

Final bonuses were paid out of these free assets. The money is not there any more.It has gone. It doesn't exist.This is why final bonuses have disappeared.

They may rise a little bit, but they cannot return to anything like the level they were at before.For most people, it will thus be best to move on to a better investment.

*You ( or your mother ) might remember back in 2000 there was an effort to demutualise SL, which the management campaigned against very strongly.The vote was very close but they won.

Then only a few years later you might have been surprised to hear that the management had made a complete U-turn and was now pushing for demutualisation - even though they had been strongly opposed before.

The reason why was that in the mdidle, the managment had lost all the company's spare money.Thus they were forced to demutualise to raise more capital, other wise SL would have gone the way of Equitable Life.

They avoided that, just, but they couldn't prevent the huge losses on the policies that you and everyone else are facing: the DM could pay back a little, but that's the best they could do.

Do you see now?

The old days have gone forever, I'm afraid.