How do I "sell" an endowment ?

davidlizard

Hi,

Apologies if this is a silly question, but I am trying to build up an idea of the general area of selling endowments when I contact the endowment company to surrender my policy.

Some background: I have an endowment policy sold in 1995 (matures in 2020), which is seriously under-performing (predicted £30k @6%, target was £55k), such that money in a standard BS account would have better return over the last couple of years or so. The policies consistently come in the bottom 10% of the best performing tables. The policy was with Scottish Provident, which now appears to be have been sold to "Resolution". I have already successfully claimed for mis-selling, and I am no longer dependent on this endowment to pay off my mortgage. There are some loyalty bonuses paid, but after enquiring, these seem to be in the order of 1% a year, so nothing worth writing home about.

Firstly, I understand that as it is unit linked and not "with profits", there is no market to sell this to a third party and I need not waste my time trying. Is that correct? (i.e. surrendering back to life company is the only option).

Also, when polices are surrendered early, is it likely that I will have to pay some kind of hefty early cancellation penalty of several tens of percent, or will I receive what the latest valuation of my policy is as shown on my reprojection letter?

Finally, are there any "must ask" questions I should ask when cancelling this endowment ?

All help and advice gratefully appreciated.

dunstonh

which is seriously under-performing (predicted £30k @6%, target was £55k),

If you are in a unit linked fund, then how can you say if it is underperforming or not? Plus providers do not issue predictions. They issue projections at rates which are determined by the FSA. These projection rates can very often understate the performance of the plan as well as overstate with others.

Firstly, I understand that as it is unit linked and not "with profits", there is no market to sell this to a third party and I need not waste my time trying. Is that correct? (i.e. surrendering back to life company is the only option).

I just looked at some of the Scot Prov funds and there have some top half performers running that in your period mentioned have exceeded over 20% a year.


Have you looked to see what other funds are available to you. Some of them may be much better than the one you are currently in. Endowments did have high up front charges but many had quite low ongoing charges. So, going forward, a fund switch may be a good option.

Also, when polices are surrendered early, is it likely that I will have to pay some kind of hefty early cancellation penalty of several tens of percent, or will I receive what the latest valuation of my policy is as shown on my reprojection letter?

Most have surrender penalties but some have exit points where no penalty is charged.

Finally, are there any "must ask" questions I should ask when cancelling this endowment ?

If you are a higher rate taxpayer, you may face a tax liability if the endowment has yet to qualify under qualification rules.
If you are on means tested benefits, the endowment surrender will have to be declared as savings/investments. They are exempt whilst in an endowment but not when you surrender and do not clear the debt.
Find out what the ongoing charges are
Find out what other funds are available
Find out the target growth rate
Find out what the surrender penalties are and how they reduce over time
If the life cover is still required, then replace it first before surrendering.
Consider making paid up if the surrender penalties are high at this time but reduce in future.

davidlizard

Many thanks dunstonh for the very detailed help - plenty of stuff there to keep me occupied through the Christmas break. Fund switching is something I had not considered, so will certainly look into that more thoroughly.

By underperforming, I mean that if I was relying on it to pay off my mortgage as originally planned, I would be looking at a biggish shortfall come 2020. Looking on Trustnet, this indicates my two policies (cautious managed and balanced growth managed) are 139th out of 142 and 337/371 respectively in their sector over the last year, which I guess means I could be doing a lot better.

Many thanks again.

dunstonh

bog standard sector managed funds are usually poor quality. They are jack of all trades funds and master of none. If you take a look at some of the other Scot Prov funds available, you will see that they are not all that bad.

None of them are going to be spectacular but depending on the ongoing and/or exit charges, alteration of funds could be a valid option, at least until the charges to exit reduce to a sensible level. (many have penalty free exit points after 10 or 15 years. Its daft paying a 15% penalty if in two years you can get out without penalty).