Terminal Bonus Rates for 2011

paulsmith109

I have a mortgage of £88500 made up of £60000 interest only and the remaining £28500 capital repayment with an end term date of June 2018. The interest element is serviced by two endowment policies: the first one (L&G) has a maturity date of Nov 2011. A surrender value (yesterday) of £44500 against a target value of £48000 - so not too bad at all in the current climate. The other policy is with Standard Life and has a current surrender value of £18500 compared to a target value on maturity in June 2018 of £52000!! Since starting this policy in June 1993 I have paid in £15500 so I guess I would have been better off saving the money in a Bldg. Soc!
I have surrendered the SL policy and will use it to reduce the interest only element of my mortgage. With the L&G policy I am tempted to do the same. The surrender value contains a percentage of the final bonus anyway so I don`t think it will grow much higher. But what about terminal bonus rates for £2011? L&G`s final bonus is currently 68% of all attached bonuses. I don`t think that much more than approx £600 will be added to the policy over the final 11 months after charges etc, but if next year`s final bonus rate is LOWER (how likely is this is my big question!!) then I could receive less if I hang on another 11 months. Any advice out there? If I do wipe out the entire interest element of £60000 my plan would be to maintain my mortgage payments at the current level - or possibly higher - to get the entire mortgage cleared in mid 2014.
I would appreciate any advice that you can give me guys. Many thanks in advance!

paulsmith109

Anyone have any advice?

Noselfdiscipline

What type of policy is it? With profits obviously, but conventional, or unit linked?

Gorgeous_George

I'd surrender both because endowments are pants and are unlikely to do anything special next year IMHO.

Whether or not you should pay off your mortgage would depend on the rate that you are paying.

GG

paulsmith109

Noselfdiscipline wrote: »

What type of policy is it? With profits obviously, but conventional, or unit linked?

They are both conventional with profits policies. Definitely NOT unit-linked.

Noselfdiscipline

When you say you think it will only go up by £600, are you just counting your remaining premiums?

paulsmith109

Noselfdiscipline wrote: »

When you say you think it will only go up by £600, are you just counting your remaining premiums?

It`s the average bonus they`ve been adding each year so far.

Noselfdiscipline

Well you have the annual bonus for 2010 to come, interim bonus to the date of maturity, and final bonus. Final bonus rates were cut in 2008, but some did come up a bit in 2009. If things have continued to improve, final bonus rates could still rise a bit further. The bonus rates will be declared in February, if you cash in before then you could miss out on a rise.

paulsmith109

Noselfdiscipline wrote: »

Well you have the annual bonus for 2010 to come, interim bonus to the date of maturity, and final bonus. Final bonus rates were cut in 2008, but some did come up a bit in 2009. If things have continued to improve, final bonus rates could still rise a bit further. The bonus rates will be declared in February, if you cash in before then you could miss out on a rise.

Yes, that is my dilemma. However, some facts:
FTSE 100 Index - 1 Jan 2010 approx 5400
31 Dec 2010 approx 6000?
A rise of approx 10%?
Will final bonus rates be higher than those set in Feb 2010? (68% for L&G). If they rise to say 85% my maturity value would go up from the quoted £44500 to £47000. What are the chances of the final bonus rate dropping below 68% would you say and how significant is a year with interest rates at 0.5% for endowment payouts?

Noselfdiscipline

Well the annual and final bonus rates set in feb 2010 reflected the performance of the fund during 2009. Although With profits doesnt solely invest in shares, if shares have gone up like the figures you quoted, it doesnt seem likely that final bonus rates would go down. Only you can make the decision though.

paulsmith109

Noselfdiscipline wrote: »

Well the annual and final bonus rates set in feb 2010 reflected the performance of the fund during 2009. Although With profits doesnt solely invest in shares, if shares have gone up like the figures you quoted, it doesnt seem likely that final bonus rates would go down. Only you can make the decision though.

Having just done a calculation. Total `annual` bonuses at maturity (1 Nov 11) would be approx £16100 giving a `guaranteed` sum at maturity of about £33800. Current final bonus rate is 68% of all attached bonuses (set in Feb 2010) which would give a value at maturity (if final bonus rate is unchanged in Feb 2011) of £44700 against a surrender value today of £44300.
Remaining premiums to be paid are £790 giving a `total` of £45100ish if you follow my thought process.
To be better off than this, the final bonus rate next Feb would need to increase from 68% to 73% to generate a maturity value of approx £45600.
So it would take an increase in the final bonus rate to approx 80% generating a value of £46300 to really benefit from not surrendering now.
L&G final bonus rates over the last few years are as follows as detailed in the policy review letter I receive every year.

Feb 2010 - 68%
Dec 2009 - 68%
Feb 2009 - 55%
Dec 2008 - 76%
Dec 2007 - 96%
Dec 2006 - 94%
Dec 2005 - 80%
Dec 2004 - 59%
Dec 2003 - 41%
Dec 2002 - 29%

Stock market gained 22% in 2009 over the 2008 low point and will end 2010 about 10% up on 2009.

So, what do you guys think will happen to final bonus rates when they are published in February?
Is the trend an upwards one or am I being optimistic?