Do I have a claim?

jamesd

anitak, it sounds as though you don't really have much chance of failing to pay off the mortgage and were given some reasonable cautions about performance, but not enough to really understand them. And nobody could have told you the effect of the projection letters because they didn't exist.

To pay off your mortgage fully after 25 years you need an average investment return of 5.5% on 126.88 a month. That full amount would get you to 81835 at 5.5% growth, close enough. It seems that the initial advice was quite conservative and was correct about it being pretty much sure that you'd pay off the mortgage. A more reasonable projection would be 7% and that would put you at 103381, while my own target of 9% would get you to 143314. but you're not getting quite the full 126.88 because of the life insurance part and it's likely that the investments for the early years were also reduced by commission payments.

Getting 5.5% on investments is a really, really low target and over 25 years you should be able to achieve it without much trouble. But, we're still recovering from a low market and the funds may not be the best, so it's not too surprising that you're getting a projection that today shows a shortfall.

What I suggest is that you stop worrying about being mis-sold, because you really aren't likely to suffer, even if you didn't fully understand the way the variation works.

Instead, I suggest that you find out what funds the money is in and ask about your other fund options and see what options you have for transferring the money. Then people here and/or an IFA of your own can make some suggestions about how to make it even more likely that you do actually hit the target.

It's really likely that you'll end up well over the mortgage value with the money well invested. That may involve investing the future money in a different place than M&G and possibly moving the existing fund. Easy enough to invest in a different place, a stocks and shares ISA will tke care fo that, with a suitable selection of funds in it.

EdInvestor

anitak wrote:

Am at 10 year mark of 25 year mortgage.

OK.So there is another 15 years to go before the mortgage needs to be paid off. Hard to see what the panic is about

How much is the PEP worth now and what funds is it invested in?Tell us that and we can work out the growth rate required for it to repay the loan and see if it's realistic or not.It could be sensible to switch the PEP money into better funds, or even cash it in and use the money to reduce the size of the mortgage.

What interest rate are you paying on the mortgage BTW?

anitak

You guys are great!! am feeling more comfortable now.

OK - my mortgage rate is 7.04%. I know this is not fab but when I tried to talk to the Abbey about it they didnt want to know as it is a variable residential rate and the property is now rented so would need to move to BTL. It all got too much for me.


This L &G plan is made up as follows:
Mortgage PEP
UK Index (R) 265.60 units @ 153.4 total £ 407.43
Worldwide trust (E) 230.77 units @ 159.2 total £ 367.38
Mortgage ISA
UK Index (R) 4166.24 units @ 153.4 total £ 6391.01
Worldwide tust (E) 3718.16 @ 159.2 total £ 5919.31

The fund value total is £ 13085.13

Its still all greek to me. Any help gratefully acknowledged.

EdInvestor

If the PEP/ISA grows at around 7.7%, which is quite a reasonable assumption given the funds you are invested in and the charges you should be paying, it is on target to pay off the mortgage at the end of the 15 years.

This doesn't take account of any life assurance element though, which will reduce returns a bit - though not to the extent of the kind of shortfall L&G is mentioning.Ask them to send you the forecasts for your PEP/ISA's maturity value so you can check - they may have just mentioned one at a much lower return than is likely.

What does need attention IMHO is your mortgage ( as you know). Suggest you start a new thread to ask the mortgage brokers here what you could expect to pay for a new BTL mortgage - and investigate the Abbey product (in case the subsidence issue causes a problem).

Then, if you can get a better deal, use any money saved to overpay the new mortgage. That way you'll be well covered if there's any problem with the stockmarkets closer to the time the mortgage ends.Any excess can just be part of your long term savings.

anitak

OK - thanks. Will get onto that next. In the meantime the projected paperwork L&G have sent me is not detailed but indicates that at 5% the shortfall will be very significant - in fact of £ 32k!! It would seem that the original projections were based on 9% growth (?). They state there is a likely £ 18k shortfall outright.
I trust I have read this paperwork correctly - is it me or is it them??
Still a bit confused.......

jamesd

Do L&G give any details of either costs to stop future contributions to the L&G scheme or to transfer funds to other investments? Both should be possible at no or minimal cost, respectively.

Two of your options include stopping the future payments and switching them to an ISA with a selection of higher risk-reward funds and doing the same with the existing funds.

UK Index (R) (ACC: ) Riskgrade 58.36
Worldwide tust (E) Riskgrade 47.11

I'm not 100% certain of these identities because there is some ambiguity, knowing the Citicode or CEDOL code would be nice to definitively identify them. L&G should be able to say.

The UK Index fund appears to be a simple UK index tracker and has done about as well as the UK all shares index, underperforming slightly, as expected.

A possible alternative is CS MMgr UK Growth, selected from the list of UK multi-manager funds. The lower Riskgrade of 28.39 suggests that it will be less variable in value than the UK index fund, a good thing.

You need to use that list with care to ensure that the companies are involved in the UK, not just the funds. For example, the Jupiter Fund of Investment Trusts is a fund of UK-based investment trusts but those trusts don't have to be invested in the UK. Since you'd need UK company investments to keep the same objective as the UK Index fund, that one wouldn't be a suitable replacement. The CS fund is not simply a UK index tracker, it tries to actively select better choices than just following the index. That has produced better results in the past and is likely to do so in the future.


The Worldwide has done significantly less well than the comparison, not too surprising since it says it will normally have a lot of UK content. In 3 year performance it's ranked 39th out of 135.

Two possible alternatives both with lower Riskgrades, are New Star Global Strategic Capital Unit Trust and M & G Fund of Investment Trust Shares. Either has done significantly better. Each can be expected to have less UK investment than the original, so they aren't quite such direct replacements, but they do seem close enough.

You can't definitely rely on past performance but it's likely that selecting funds similar to those I've mentioned, in a way similar to that I've described, will significantly improve the performance of your investments.

You should do your own research and learning and there's much to criticise about the ones I've suggested you look at, not least because I have chosen multi-manager or multi-fund types, which have a manager who is trying to pick the best funds for you, changing the selections based on their performance. That means you should see less variability and that they should switch out of badly performing funds for you. This type of fund of fund or manager of manager is a good choice for people who want to set things up and not pay much attention to their investments long term.

If you do switch, please remember to check whether your existing setup includes insurance and arrange replacment insurance if that's still appropriate for your situation.

You also have enough money there that it's practical for an IFA of the New Model Adviser (NMA) type to help you to select a set of funds and adjust them for you from time to time, say once a year, instead of using the crude fund of funds in just a UK/world split that you have and I largely stuck to. It should produce significantly better results than what I mentioned if the IFA does a good job.

jamesd

Here's how the funds I've mentioned have performed over the last 5 years, all the compounded annually returns to match the projection you have and normal bank account interest numbers.

UK Index (R) + 7.5%
Worldwide tust (E) + 5.6%

CS MMgr UK Growth +10.5%
New Star Global Strategic Capital Unit Trust +12.6%
M & G Fund of Investment Trust Shares +11.4%

For the past performance of yours, it's worth remembering that they did have to go through a stock market drop after a few years, so your own past performance will be less than the 5 year performance above.

On the mortgage side, you should be able to reduce the interest rate by 1% or more, likely 1.5%, with a proper BTL mortgage.

EdInvestor

Looking at it another way, if you cashed in the PEP now, and used the money to reduce the size of your existing mortgage, also overpaying it with the endowment premiums to maturity, your total return would be 76,169.

So you would still have a shortfall at a 7.04% return ( your mortgage interest rate) - to hit the target you need a 7.7% return net of charges and the cost of life cover. The charges might be quite high, accounting fro the discrepancy.

The way forward IMHO is to transfer that PEP/ISA to a discount broker like Hargreaves Lansdown

https://www.h-l.co.uk

which will rebate the charges, and then invest trhe money in some top quality funds, rather than muck about with L&G bog standard trackers.

Plus get a new cheaper BTL mortgage.

anitak

WOW. Thats an inventive way to look at it. Thank you.
Have tied unbiased.co.uk and none of the FSA's have actually got back to me!
Not much luck on the motgage so far but will plug away.

dunstonh

Have tied unbiased.co.uk and none of the FSA's have actually got back to me!

IFAs, not FSAs.

Quite a few close down over the christmas and new year period. With schools only returning last week, all should be back to work this week.