Should I give up on my endowment.

Eddie123

Hello all you Money Savers.
I have a Standard Life "with profits" endowment plan which I took out to cover a 25 year mortgage of £45,000 in 1992. I pay £55.25 per month into this (£663.00 pa) it is currently worth £15,356 and set to mature in 2017. On my yearly statement Standard Life are projecting figures of Low- 23,000 Mid- 25,600 and High- 28,500 on maturity.
In 2000 they introduced something called MEP (Mortgage endowment promise) which seems to mean that on maturity they MAY pay an additional £3880-£5820 although they do stress that this is variable and could in fact be nil.
I no longer have the mortgage that this was intended to pay of but have kept up the payments as an additional means of saving. Looking at their figures I am wondering if I should take the money and run. My own calculations suggest that if I was to put the lump sum into a savings account and continue to pay in £55.25 per annum then even at 3% net interest by 2017 I would have in the region of £25,000.
Any advice ! What would you Money saving Gurus Do ?
Cheers,
Eddie.

opinions4u

It's a tough one because there are so many unknowns involved in future investment returns, and the MEP adds further confusion.

For the record, I surrendered my 25 year Standard Life endowment from 1992 a couple of years back .... and got £15k for a £46 monthly premium. But it was a decision I wavered over for some weeks.

You need to balance up what the pros and cons of surrender are.

- will you need replacement life cover (and what will this cost now that you're 18 years old)?
- what will you do with the money if you surrender now?
- what will you do with the money in 7 years time when it matures?
- what are you future spending plans ... e.g. cruise, pension top-up, education for kids?

For me I basically decided that future returns would be modest and wouldn't greatly exceed bank deposit rates, I didn't need the life cover and I had a specific need to meet a large commitment in the near future. Surrender was preferable to personal loan.

I know that doesn't specifically answer your question, but it does allow you to work towards a decision that's right for your circumstnaces.

dunstonh

In 2000 they introduced something called MEP (Mortgage endowment promise) which seems to mean that on maturity they MAY pay an additional £3880-£5820 although they do stress that this is variable and could in fact be nil.

It is still in place and fully funded. It may pay nil because if the endowment hits target, the MEP wont apply. The value is based on the amount of shortfall, hence why it is variable.

My own calculations suggest that if I was to put the lump sum into a savings account and continue to pay in £55.25 per annum then even at 3% net interest by 2017 I would have in the region of £25,000.

Whereas the endowment is likely to be around £31k. Easily beating the savings account.

The product is obsolete and old fashioned by todays standards (and has been for around 15 years). However, when you are in one you have to put that aside and look at future potential.

The Std Life WP fund is not one of the worst and not one of the best. It is capable of returning in excess of 7% a year. Although figures closer to 3-5% a year are probably more likely. The recent downturns could work in your favour as a recovery is likely to be in place before your maturity. Following the last major decline, the Std Life WP fund exceeded 10% a year in the growth years. Of course, every decline and every growth period is different and you cant rely on the past as a guide to the future. However, it does remind you to put the returns in perspective. You have had the drops of the global recession but have yet to benefit much from the gains that have occurred since and hopefully a future recovery.

How much is the terminal bonus accrued to date?
What is the current value and what is the surrender value? (older Std life plans may have to position the current value as the basic sum assured plus current bonuses).

These will tell us how much of your existing value is at risk and also how much it will cost you to surrender (any alternative would have to make up that loss before it shows any profit)