Scottish Amicable endowment - to surrender or not?

Gillingham

As far as I am aware, so long as the policies are not assigned to your mortgage holder, the proceeds are paid to the policyholder and you can do what you like with them!

The only slight downside to cashing the policies in is that you lose the life cover. As I intend to use the proceeds to pay off the mortgage this is not a problem for me. You would have to consider your own case carefully. The life cover would end next year in any event. To the best of my knowledge there are no tax implications.

Dick_here

Gillingham wrote: »

No, I'm not from Bristol, I'm from Sunderland. Greedy (not to mention, less than honest) financial advisors were all over at that time.

Sorry but there has to be some balance to this post.

Salesmen at the time knew no more than the rest of us - policies then were paying these large sums out. So they were not out to con you, they just knew no better the risks either.

dunstonh

!!!!!!_here wrote: »

Sorry but there has to be some balance to this post.

Salesmen at the time knew no more than the rest of us - policies then were paying these large sums out. So they were not out to con you, they just knew no better the risks either.

Consumers were no better either.

The most common reason people went with endowments in my experience was nothing to do with the lump sum potential at the end but the fact the monthly payments were lower. Often 10-15% lower.

The problem with risk is that over time, if nothing goes wrong, the view of risk reduces and complacency sets in. For decades endowments paid big surpluses and that had become the norm.

Had this site existed back then, there would be a section now on what endowments to but. The consumers association used to recommend them as well (frequently picking Std Life as best) and the media were pro endowment as well.

The other thing to note is had the economic cycle remained that favoured endowments, you may have ended up with surplus lump sums but you would be financially worse off. What should have happened was as mortgage rates dropped, the amounts being paid to the endowments should have increased to compensate.

So, in the end, many of those with shortfalls are still better off. i.e. £20pm cheaper for 25 years = £6000 cheaper than a repayment mortgage. So, any shortfall under £6000 is still better than repayment in that case.

Fiddlestick

Gillingham wrote: »

I have two SA homebuyer policies. One is for £16,500 and was taken out in August 1886

!!!! me, must be worth quite a bit by now :rotfl::T

Bettie

Gillingham wrote: »

As far as I am aware, so long as the policies are not assigned to your mortgage holder, the proceeds are paid to the policyholder and you can do what you like with them!

The only slight downside to cashing the policies in is that you lose the life cover. As I intend to use the proceeds to pay off the mortgage this is not a problem for me. You would have to consider your own case carefully. The life cover would end next year in any event. To the best of my knowledge there are no tax implications.

It iS tied to Nationwide so would have to get their permission. I'm swaying to keeping it on for the final year and taking a gamble that I will get a bit more. Not rung them yet as documents are in attic and I can't get up there.
Hopefully the life insurance won't be any good to me and I'll last out till Aug 2011 :rotfl:

Bettie

dunstonh wrote: »

Consumers were no better either.

The most common reason people went with endowments in my experience was nothing to do with the lump sum potential at the end but the fact the monthly payments were lower. Often 10-15% lower.

The problem with risk is that over time, if nothing goes wrong, the view of risk reduces and complacency sets in. For decades endowments paid big surpluses and that had become the norm.

Had this site existed back then, there would be a section now on what endowments to but. The consumers association used to recommend them as well (frequently picking Std Life as best) and the media were pro endowment as well.

The other thing to note is had the economic cycle remained that favoured endowments, you may have ended up with surplus lump sums but you would be financially worse off. What should have happened was as mortgage rates dropped, the amounts being paid to the endowments should have increased to compensate.

So, in the end, many of those with shortfalls are still better off. i.e. £20pm cheaper for 25 years = £6000 cheaper than a repayment mortgage. So, any shortfall under £6000 is still better than repayment in that case.

All fair points
Did that take into account the endowment premium? I can't remember the figures that we were quoted back then but remember we were told we had to pay an extra half%?? because we had a 100% mortgage and I am pretty sure we were told we needed a deposit for the repayment mortgage by the salesman who came to our house, as they did back then. He was pushy towards the endowment as he got a big bonus on it but yes, he didn't as far as I know try to 'con' us and probably genuinely believed we would make the target and more, I hope so anyway.
As we were skint with no deposit and desperate to get out of a very bad area where we were living in a run down council house with no chance of an exchange and massive problems with schools on lunch strike meaning I couldn't go to work all my shifts ( had to get my daughter from school lunchtimes) we took the endowment option and it was a lifesaver.
I have always thought myself so lucky to have been able to get a mortgage - any mortgage would have done back then just to get out of a very bad situation.
I also remember the struggle to make the repayments and often wondered how I would manage financially and whether it was worth it to give up the security of a council house.
Now, with an endowment of £40.97 a month and mortgage repayments of £51 a month and one year to go I can say it definitely was.
:T

Bettie

Fiddlestick wrote: »

!!!! me, must be worth quite a bit by now :rotfl::T

:rotfl:
Brilliant!

dunstonh

Did that take into account the endowment premium?

Yes. the comparison in costs was endowment plus interest only mortgage vs repayment mortgage plus life assurance. So, a like for like on the two methods. It varied in some periods but for most people, you found it was cheaper.

He was pushy towards the endowment as he got a big bonus on it but yes, he didn't as far as I know try to 'con' us and probably genuinely believed we would make the target and more, I hope so anyway.

The payments were bigger on endowments but as you say, I doubt anyone did it for malicious reasons. No-one saw the economic cycle changing as much as it did. Part of the problem with endowments was their lack of flexibility. I still operate an investment mortgage but use ISAs. Its considerably ahead of where it needs to be. We also have to remember that it was sales back then. It wasnt advice. The waters have got muddied and advisers today still suffer the problems caused be salesforces who use the term "advice".

I have always thought myself so lucky to have been able to get a mortgage - any mortgage would have done back then just to get out of a very bad situation.

Thats the way it was. All the effort was spent on getting the mortgage. Hardly any was spent on the method of repayment as you would take any just to get on the ladder.

Gillingham

I'm certainly not saying all financial advisors are con men, so please don't think that I am. All I am saying, in relation to myself, is that we did not get any options. The impression we were given was that if we didn't take the endowment mortgage offered, we wouldn't get a mortgage at all, and we too were desperate to get a foot on the housing ladder. We had no one to give us any advice. Both sets of parents lived in council property. The advisor never ever told us that there was any possibility that the endowment wouldn't pay off the mortgage at maturity. He showed us Moneyfacts magazine which rated Scottish Amicable endowments very highly. He said the surplus sum would be 'around £19,500/£20,000'. No mention of the fact that there might be no surplus.

In fairness we just took the advice we were given and signed up. Endowments were sold aggresively in 1986. The industry was not as well regulated then as it is now. We were so convinced that we had a great mortgage that we took out a further endowment when we moved in 1989.

In hindsight it is easy to say 'we could have done things differently', but we didn't, and now we just have to deal with the consequences.

I have to say that I am very disappointed that my original policy (which was on track until last year) is going to come up short. I am probably going to surrender the policies as the total value they have offered is just short of my outstanding mortgage. I can see very little to point in waiting until maturity. The terminal bonus at the moment is 37% on the 1986 policy and 35% on the 1989 policy. The two plans lost £200 in value from June to July so I am not too confident of seeing it through to the end which was always what we intended to do. In fact, if I had not caught sight of a posting on this forum I might still have been living in blisssfull ignorance! I had been relying on the projection letters which, in my opinion, give a rosier picture than they should. The Pru keeps quoting 6% growth as achievable, but as the bonus added for last year was about £210 (then it lost £200) I find their figures difficult to believe.

Please be assured that I never meant to cause offence to anyone. I had been hoping for some opinions on my figures, but that isn't looking likely now.