stopping payments into an endowment fund

hannaht

apparently its a unit linked policy invested in the managed fund, whatever that means?

What I don't understand so please bear with me, I keep reading on this site that its not a good idea to just stop paying into an endowment, why is this? Does the amount already invested not grow in line with the fund in general, in which case are we not more likely to recoup the money paid in, if we stop now and just let it grow?

Sorry to be dense.

EdInvestor

I keep reading on this site that its not a good idea to just stop paying into an endowment

I don't think you do, you know.

If you read this site you will be mostly seeing that it is better to stop paying money into most endowments and rather surrender them and use the proceeds to reduce the size of the mortgage or start up a much better modern investment with lower charges and better quality funds.

High charges and poor funds mean your endowment does not perform.

dunstonh

I concur. Although there are some endowments that are worth keeping and some that are better off being made paid up. The majority do seem to point towards the surrender option.

Unit linked plans can be better over the term. I cant tell you how that one is doing right now as I dont have access to my funds software tonight. However, I would estimate that the 8% figure is within the potential of the fund (it would have exceeded that for each of the last 3 years but been below that for the 3 before).

EdInvestor

If you took the surrender value as it stands now and

a) used the proceeds and the monthly premiums to reduce a mortgage with an interest rate of 5.5%, your return would be 73,093.

b)used the money to take out a modern investment with a growth rate of 7.5% net of charges, also paying in the premiums to maturity, your return would be 91,773.

You need to get updated maturity projections from Countrywide for the endowment and compare with these two figures, adjusting for the free life cover in the endowment.

Only then can you really decide if the endowment is "rubbish" or not.This one is less likely to be a bad one than most, because it is fairly modern and unit-linked.

GettingThingsDone

Hmmm, this is very interesting. I think we have the same or very similar product from Countrywide.

Unfortunately I buried my head in the sand during the period where I could have put in a claim for misselling, so we are in a similar position to hannaht now.

Do we:
a) continue on, strip the product down and use it purely as a savings product
b) cash it in now and pay off part of the mortgage capital?
c) cash it in and re-invest it in a more uptodate product.

The hesitation to cashing it in is whether the fund is going to be consumed by fees when purchasing a new product; whether it is better to stay put 'just-in-case'? i.e. frying pan and fire spring to mind...

dunstonh

Countrywide managed fund has grown over a rolling 12 month period until end Sept by:

2006: 9.6%
2005: 17.78%
2004: 3.70%
2003: 11.25%
2002: -10.64%
2001: -16.94%
2000: 9.82%
1999: 14.06%
1998: -2.02%
1997: 15.74%
1996: 12.56%
1995: 9.72%

It obviously suffered in the stockmarket crash years but having a crash in the early part of a unit linked endowment is a very good thing (which projections fail to take into account) as you buy units much cheaper. 6 of the last 10 years have exceeded 8% so 8% is within its potential. Had you started 16 years ago, you would have averaged 7.33% p.a.

GettingThingsDone

Thanks for the breakdown - so maybe it's not such a bad thing to have running in the background afterall?

dunstonh

They have some other funds which offer better potential. Switching between funds should be available to you.

hannaht

Thanks so much for taking the time to post all this info, extremely interesting and useful. Countrywide have actually sent me a leaflet today (they must be sick of me phoning them several times a week to ask daft questions) outlining different funds adn the opportunity to switch between them.

Will definitely look into this further before we make any rash decisions.

Dunstonh I see you are an IFA? Don't suppose you're anywhere near Manchester are you? I think I need some help don't I!

Thanks very much everyone for all the information.

dunstonh

Dunstonh I see you are an IFA? Don't suppose you're anywhere near Manchester are you? I think I need some help don't I!

I'm afraid not. North Suffolk and Norfolk is my stomping ground. I can do postal/email/telephone though. My email address is in my profile if you wish or you can find a local IFA by visiting https://www.unbiased.co.uk and do a postcode search (ignore the other filters, such as qualification as that is flawed).