Aviva Endowment Promise - should I cash-in now??

geedee64

Hi guys,
In 1991 I took out a 25-year with-profits endowment of £77.40 per month which was due to mature in 2016 with a target payout of £60,000.
I have had letters from Aviva telling me there is a risk of a big shortfall against the original target amount. They project that in 5 years time the final payout is estimated at £30,200 (assuming 4% annual growth), or £32,700 (5% annual growth) or £35,600 (6% annual growth).
They have also told me that a Mortgage Endowment Promise is in place by which they may top-up the final payout up to a maximum £14,000 if the return on their other investements is sufficient.
The Current Value of the endowment is £27,945 and the Surrender Value is £23,966, and there is no guaranteed amount payable on maturity. These values have hardly changed in the past few years!!
I have 10 years to go on my current mortgage which has a lot more that £60,000 outstanding. I am trying to decide if I should take the surrender value of my endowment today, and use the £27,945 to pay off a chunk of my mortgage now and benefit from reduced payments for 10 years; or should I continue paying in for another 5 years until the endowment matures and take the payout to reduce my mortgage at that point - when I might get as much as £35,600 + £14,000 = £49,600??
Help!!!

dunstonh

These values have hardly changed in the past few years!!

No surprise though is it.

They have also told me that a Mortgage Endowment Promise is in place by which they may top-up the final payout up to a maximum £14,000 if the return on their other investements is sufficient.

Thats a good size MEP value and one you would lose if you surrendered.

£14,000 divided by 120 months is £116.66. You pay paying £77.40pm. So, it seems a no brainer to keep it and thats without even factoring the loss on surrender.

geedee64

Thanks for your advice Dunston, two things I'm now confused by -
1) it looks to me like there is no guarantee that the MEP will be paid - has anyone out there got any information on if this is happening or not?
2) I'm looking at this in terms of using the endowment payout to pay down some of my mortgage capital and thus reduce my monthly mortgage payments; so if I use today's £23k surrender value as a lump sum to pay down my mortgage I will reduce my regular repayment by approx £210 per month plus another £77 monthly premium (which I reckon is worth £34,440 over the remaining 10 years of my mortgage). Alternatively, I can continue paying the premiums for a further five years and recieve £32,700 (assuming 5% growth), which as a lump-sum payment against my mortgage would reduce my monthly repayments by £330 per month for the remaining 5 years (a total saving of £19,800 - much less than using the current Surrender Value). But if the MEP pays out at £14,000 then I can make a total lump-sum payment against my mortgage of £46,700 which would reduce my repayments by £460 per month - a total saving of £27,600 over the remaining five years, still less than taking the current Surrender Value. So wouldn't I get a greater benefit to my monthly repayments by taking today's Surrender Value?
As you can tell I'm very confused by all this!!
Thanks

economum

Hello,

We have a very similar situation, similar amounts but we're one year ahead of you. We're sticking with ours.

Our documentation from Aviva says that they will let us know 3 years in advance if they will NOT be able to meet the promise - so we've got just under a year to go for that and unless the stock market crashes, it should be OK.

What interest rate are you paying at the moment? From a mortgage calculator I used, an interest rate of 4% for £24,000 would mean monthly payments of £80 - not such a big saving.

And remember you will probably need to take out life insurance (decreasing term) to replace the life cover component of the life assurance.

Also, you should only calculate the savings for 5 years if that's when your endowment pays out.

Hope this helps...