FP Endowment offers

Supernova

I put my with profits FP endowment on the market last week and the highest offer so far is £26,447 which is £2,357 higher than the FP surrender value of £24,090. And actually just this minute another firm called me and will probably top that highest offer.

Policy details:

Start date Sep 1990
Maturity Sep 2012
Sum !!!. £21,477
Bonuses £10,911.83
Premiums £101.90 pm
Target £56,000

Projections are £36,900 @ 4%, £39,900 @ 5.5% and £45,4000 @ 8%

Surrender value in 2005 was £22,733. Current Terminal Bonuses are running at 27% of the bonuses so far as opposed to 13% last year.

Should I cash it or hold out for more? What should I do with the cash and what alternative protection do I need for my mortgage?

Ta

dunstonh

No-one can tell what is best. If a crash happened next week and you waited, you would lose most of that terminal bonus and the offers would go down to reflect that. If FP up their bonuses on next announcement and you wait, you will get more.

If we knew what was going to happen, you wouldnt have had an endowment in the first place

You need to replace the life cover with a pension decreasing term assurance or decreasing term assurance if its a repayment mortgage now or pension term assurance or level term assurance if its an interest only mortgage. You would also need to replace the investment element with something else, such as an ISA with an appropriate contribution to match your risk profile and target amount.

Supernova

Ok thanks.

So, why are the traders so keen to buy and who are they selling to?

EdInvestor

Supernova wrote:

Projections are £36,900 @ 4%, £39,900 @ 5.5% and £45,4000 @ 8%

Ignoring the cost of new life cover (if needed), if you took the surrender value and put it on deposit until maturity also paying in the premiums, you should end up with 38, 694, compared with their projection of 36,900 for 4% growth so you can see the effects of charges,taxes and the cost of life cover making up the difference there.

The best guaranteed return will be from using the money to reduce your mortgage - the return is at the interest rate on the mortgage.

Current Terminal Bonuses are running at 27% of the bonuses so far as opposed to 13% last year.

This indicates that TBs in the FP fund have stopped declining and should grow in future assuming the market continues to grow. perhaps the marketmakers are confident that this will happen?

Perhaps you could tell us which TEP trader is offering what amount? That might help in judging how valuable the offers are.

Supernova

Policy Plus were the highest with AAP not far behind. Maybe I'd get even more if I auctioned it.

I read on the Motley Fool that they could be going abroad where lower growth rates might be relatively OK.

Supernova

So, do they know something we don't?

Had another one follow up and ask me to let them know if I had any higher offers.

Supernova

Anyone...?

Ta

EdInvestor

Supernova wrote:

So, do they know something we don't?

For the lower class of WP performer ( eg FP and Standard Life) you can sometimes get a 10% premium to the surrender value.This small premium represents the surrender penalty/MVA they are charging you which wouldn't be payable if you held to maturity .But you probably already know that.

Supernova

EdInvestor wrote:

But you probably already know that.

Nope. I'm learning all the time though.

Would the MVA be detailed in my policy somewhere or is it as arbitrary as the bonuses?

So, does all this just mean that the buyers are happy with 4% growth and to take a punt on a bigger Terminal Bonus?

ReportInvestor

Re MVA.

It can be found on more recent statements, I think.
And it will definitely be on any written surrender value you obtained.

Supernova

OK thanks RI, I'll check.

So, what with me being a bit slow and everything, I've realised that presumably the policy is worth more to someone else who doesn't need it to meet a particular mortgage value.