stopping payments into an endowment fund

hannaht

Hi I am looking for some advice from you lovely people

We have an endowment policy we took out in 1997. It is rubbish and we are deciding what to do with it.

The option we are considering is to stop paying into the fund, but leave the fund as it stands for the rest of the term of the policy. We have paid in £15k so far. We would effectively be leaving it as a savings policy rather than cashing it in, as have been advised we would lose money if we did so.

I have been told by the endowment provider that we can do this, and by removing all the benefits of the policy (life cover etc) the monthly management charge taken from the fund will be £2. We are happy with that.

We have made alternative mortgage arrangements, so do not need the endowment to pay off the mortgage. We also have separate (better) life cover, critical illness cover so we don't need that aspect of the policy either.

I just wondered if there's anything we haven't thought of which might be relevant. Can anyone advise? Would be extremely grateful for any help!

Thank you

Ian_W

If it is rubbish, what's the point in leaving your money in there. Surely you'd be better taking the £15K out and investing it in something that isn't rubbish, that gives a better prospect for growth?

I did say, IF. Some policies appear rubbish from the shortfall projections but aren't and vice versa. If you post details of the policy including the company it's with, whether it's with profits, targets, surender value etc I'm sure someone on here can give you a better steer than me.

EdInvestor

Making the endowmwnt "paid up" as suggested is very rarely a good idea and certainly NOT in the circs outlined.

Post the info as above and we can take a look.It may be possible to sell it for more than the surrender value.In any case if wanted as an investment, it won't get any less "rubbish" if you stop paying into it, indeed it will get worse.

MissScarlett_3

Interesting?

I was advised last year when I switched to a repayment mortgage to make my endowment fully paid up, that if I was paying into it each month I was only averaging 1-1.5% profit each year. This I did but was it the wrong move.? If I can remember, the reason for making it fully paid up was that the maturity bonus COULD be worth it. It is with the Prudential and matures in 2012 and the surrender value is currently about 18 -19K.

dunstonh

Making the endomwent paid up can often be a good idea, at least for a limited period of time. Such as waiting until a reduction in surrender penalty or perhaps in the case of NU, waiting for the orphan fund dispersal in 2008.

Prudential have yet to fail to pay a surplus on maturing endowments. Even Scot Am had 95% of their endowments pay a surplus last year and that is expected to be 96% this year. If you have a prudential endowment, you stand a very good chance of getting a surplus providing the target growth rate is reasonable. If you make the plan paid up though, you are making it harder for it to perform as well, especially if you made it paid up after the stockmarket crash but before the recovery.

MissScarlett_3

But would it be better to surrender the policy and put the money elsewhere until the date that it would have matured? Hard question to answer I know, just interested to know what you would do?

MissScarlett_3

I need to dig the papers out but from memory I believe that the at the 4% target, if I made the policy paid up, the estimated payout was £24k. The current surrender value as I said is £18-£19k. If I had carried on paying £53.41 a month the estimated payout at 4% was £30k. Excuse my lack of knowledge when it comes to using the correct jargon!! Does this sound right?

dunstonh

Is it a Prudential policy or a rebadged Scottish Amicable policy?

With Pru, its worth using the 6% projection figure (they are currently paying more than that including terminal bonus. I got a copy statement for one earlier in the moth that showed a 7.5% increase for the year)

MissScarlett_3

Its the latter, Scot Amicable, does that make a huge difference?

hannaht

Hello sorry not replied before, have been away. Would be extremely grateful for any advice.

Right the details are as follows:

Policy is a Home Purchase Plan with Countrywide Assured

Policy start date 12 September 1997.
Maturity date 12 September 2022.

Target amount £70,000

Payment amount £143.61 monthly.

Last review December 2004 figs as follows:

4%: £38,600
6%: £51,100
8%: £67,600

Total paid in to date £15,603.49

Current surrender value per Countrywide as of last week: £12,420.92

Options we are considering:

a) keep policy but stop paying into it (paid up?)

b) cash in now and stop throwing good money after bad.

Can anyone offer any advice please? Would be most grateful. We have switched to a repayment mtg and have separate life cover so these are not issues any more.

Thanks so much for your help

dunstonh

You havent said where it is invested. That is probably one of the most important things. What fund(s)?