Using endowment to part pay off mortgage

JoeK_3

EdInvestor wrote: »

Nonsense.Risk-based products including endowments normally carry projections at three different levels - low, medium and high - the actual figures used can vary with the company but are normally in the 4-6-8% range (lower than pensions because life funds are taxed).

Many WP endowments are performing at the 4% level - and indeed a Phoenix one can be expected to struggle to reach 4%. This is due to the fact that the Phoneix WP fund is alnmost entirely invested in bonds, not in the stockmarket.As a result it is usually sensible to surrender Phoenix WP policies - it is rarely possible to sell them to a reputable provider.

A unit linked Phoenix policy might be expected to do better however, as it should be mainly invested in the stockmarket.Perhaps the OP could clarify what fund his money is invested in.

It's important to get all the figures before taking a view on an endowment, as the performance can vary quite dramatically from company to company, and guaranteed values are sometimes quite high, so the policy is worth keeping.

Posters might also take note that it is quite difficult for IFAs and other advisors to make a clear cut recommendation about endowments, as if they get it wrong they might attract a misselling claim. With profits is complex and hard to understand - many don;t bother, as the products are basically obsolete these days.Thus the waffle level tends to be high. :rolleyes:

However a simple calculation can quite easily make the position clear, as many endowments will now be unable to perform better than a no-risk investment such as paying off the mortgage at current interest rates.



Quite so.But by protecting his own back, he may be responsible for his customer losing money through taking unnecessary risk..

Sorry EdInvestor, the actual figures used by each company are absolutely incorrect. The Financial services Authority tell the industry on what figures to quote on, e.g 4% - 6% - 8% and NO deviation can be made on these figures unless the company is offshore and not regulated.

You are about six years behind on this understanding.

Please visit the website at http://www.fsa.gov.uk for clarification.

JoeK

EdInvestor

I think you may be the one who's out of date Joe.

Have a search through the forum here, you'll see plenty of MSEers posting projections using numbers like 3.25%, 3.5%,3.75%.Phoenix, Standard Life, Friends Prov IIRC are examples.

The FSA told firms a year or two ago they should adjust projections to suit their circumstances as there is now quite a larger variation in performance because the investment mixes are so varied.

Take a look at some of the smaller mutuals which have no pension guarantees to fund - they are still 70% or more in equities, some will pay out like the old days.Then take a look at firms like Phoenix or Equitable - guarantees everywhere,and only 10% in equities if you're lucky - policyholders will be lucky to get their guaranteed value never mind any terminal bonus.

It wouldn't be helpful to use a rigid set of projections figiures in these circumstances.

Mr_helpful

Joe K
Agree with you and Im not saying Edinvestor isnt trying to be helpful but when does information become advice. Many post's ask for advice so presumably that is what the poster expects. Is something Like "i would cash in the endowment" advice or just information. If someone acts on the information / advice and suffers do they have a claim? I believe they could irrespective of the rather weak disclaimers on this site. To me it is worrying that advice is being given by someone who in your words is 6 years out of date. With our knowledge of the FSA I think you would agree with me that quite often it is difficult to give an answer expected by the OP without giving advice and especially on things like endowments the only advice should come from those registered with the FSA for that sort of business.

EdInvestor

JoeK wrote: »

Sorry EdInvestor, the actual figures used by each company are absolutely incorrect. The Financial services Authority tell the industry on what figures to quote on, e.g 4% - 6% - 8% and NO deviation can be made on these figures unless the company is offshore and not regulated.

You are about six years behind on this understanding.

FYI the relevant statement from the FSA in 2003:

The FSA has also today announced that it will not be changing the projection rates that it currently requires firms to use. This decision follows a report on long-term market conditions undertaken by PricewaterhouseCoopers (PwC) which is being published today.

Press release

The prescribed projection rates, before charges are taken into account, will therefore remain at:

* for untaxed products (for example, pensions and ISAs): 5%, 7% and 9%
* for taxed products (for example, collective investment schemes and mortgage endowments): 4%, 6% and 8%.

It is important to recognise, however, that these rates assume a significant weighting of equities within the packaged investment product. Accordingly, where a firm considers that these rates would overstate the investment potential of a particular product - for example, where its asset mix contains a higher element of bonds - then, under FSA rules, it must use reduced rates.

Perhaps mr helpful could take it on board that no advice is given on this website by anybody, including him. It makes it much easier when people realise this.

JoeK_3

EdInvestor wrote: »

Nonsense.Risk-based products including endowments normally carry projections at three different levels - low, medium and high - the actual figures used can vary with the company but are normally in the 4-6-8% range (lower than pensions because life funds are taxed). ..

I've already answered this one in my answer above

EdInvestor wrote: »

Many WP endowments are performing at the 4% level - and indeed a Phoenix one can be expected to struggle to reach 4%. This is due to the fact that the Phoneix WP fund is alnmost entirely invested in bonds, not in the stockmarket.As a result it is usually sensible to surrender Phoenix WP policies - it is rarely possible to sell them to a reputable provider. ..

Try telling that one to a Scottish Widows WP policy-holder that has not received any bonuses for two years running.

Try telling that one to a Friend Provident WP policy-holder that has been receiving 1% par annum for two years running.

and the story goes on .... Where do you get your statistics from?

EdInvestor wrote: »

A unit linked Phoenix policy might be expected to do better however, as it should be mainly invested in the stockmarket. Perhaps the OP could clarify what fund his money is invested in. ..

Yes this is true but you need to factor in that stck market crashes prior to the maturity date could wipe out all projections in a jiffy. ask those who had a maturing policy in 1999.

EdInvestor wrote: »

It's important to get all the figures before taking a view on an endowment, as the performance can vary quite dramatically from company to company, and guaranteed values are sometimes quite high, so the policy is worth keeping. ..

True but figures are not the real world

EdInvestor wrote: »

Posters might also take note that it is quite difficult for IFAs and other advisors to make a clear cut recommendation about endowments, as if they get it wrong they might attract a misselling claim. With profits is complex and hard to understand - many don;t bother, as the products are basically obsolete these days.Thus the waffle level tends to be high. :rolleyes: ..

Sorry but I am taking that personally. This is a forum and not a financial advice clinic and I would beg you to remember that. Financial advice is not based on figure alone but on each individuals circumstances. If it was that easy we could just hand out templates as you are treating everyone with.

EdInvestor wrote: »

Quite so.But by protecting his own back, he may be responsible for his customer losing money through taking unnecessary risk..

What a load of twaddle. This is the real world not some written theory.

JoeK

JoeK_3

EdInvestor wrote: »

FYI the relevant statement from the FSA in 2003:




Perhaps mr helpful could take it on board that no advice is given on this website by anybody, including him. It makes it much easier when people realise this.

Sory but the conversation was about endowment projections and not pensions. We IFA'S know that pension projections are higher.

JoeK

EdInvestor

Oh dear.We don;t like to be seen to be wrong, do we.

Let me spell it out again.

You said:

The Financial services Authority tell the industry on what figures to quote on, e.g 4% - 6% - 8% and NO deviation can be made on these figures unless the company is offshore and not regulated.You are about six years behind on this understanding.

And here's what the FSA actually said (in 2003,link above):

The FSA has also today announced that it will not be changing the projection rates that it currently requires firms to use... The prescribed projection rates, before charges are taken into account, will therefore remain at:* for taxed products (for example, collective investment schemes and mortgage endowments): 4%, 6% and 8%.

It is important to recognise, however, that these rates assume a significant weighting of equities within the packaged investment product. Accordingly, where a firm considers that these rates would overstate the investment potential of a particular product - for example, where its asset mix contains a higher element of bonds - then, under FSA rules, it must use reduced rates

Got that now?

jamesd

JoeK, you appear to have missed the EdInvestor quoting the FSA being explicit that for an endowment, one of their examples in the taxed investment list, if the product has a low proportion of equities and is unlikely to meet the standard projection targets, it is required to use lower values.

Dunstonh, an IFA, said exactly the same in one of his recent posts.

If you have information to support your apparent belief that a firm is prohibited from lowering its projections when expected returns are below the standard ones, please provide a link to your source.

EdInvestor, maybe highlighting "mortgage endowment" in the list of taxed products in your original post quoting the FSA would be helpful.

JoeK_3

jamesd wrote: »

JoeK, you appear to have missed the EdInvestor quoting the FSA being explicit that for an endowment, one of their examples in the taxed investment list, if the product has a low proportion of equities and is unlikely to meet the standard projection targets, it is required to use lower values.

Dunstonh, an IFA, said exactly the same in one of his recent posts.

If you have information to support your apparent belief that a firm is prohibited from lowering its projections when expected returns are below the standard ones, please provide a link to your source.

EdInvestor, maybe highlighting "mortgage endowment" in the list of taxed products in your original post quoting the FSA would be helpful.

Thanks James

The point discussed was not that projections are allowed to be lower, the point I was trying to make was that projections cannot be higher than those advised by the FSA.

Hope this clears things up.

Joek

mayb_2

Originally posted by Joek

"My understanding is that you currently have £43,800 available to use to reduce your mortgage.

1) Phoenix - unit linked was £32K projected £21500, value £13800
2) FP unit linked plans total value currently £30000

Both the Friends Provident and Phoenix policies are unit linked and probably linked to the stock market.

You could consider paying the £43,000 off the interest only element of the mortgage and pay the now non existent insurance premiums of Phoenix £115 / month + FP premium £? = £? into the left over interest only mortgage."

I would go with JoeK Featherstoner, but if his understanding of this is right - he has forgotten that you cannot pay off more than £6009 on your interest free mortgage element in any one year. However, if you use your ISA savings you could pay off the whole of the loan and be mortgage free apart from the repayment element. What sort of penalty would you be charged for doing that? If it was not too high you could consider adding charge to your £10,000 repayment mortgage - it would probably not make to much difference to the repayments. Or put it on a credit card at 0% or one fixed at a low rate for the life of the loan.

I would not want my money for paying off the mortgage linked to anything that involved a risk - it just may never happen for you. An IFA worked out that if I carried on paying premiums on my endowment policy I would be just throwing my money away and that the company was taking a larger than average charge out of my premiums too. There is so much to look at when trying to decide whether these things are worth keeping or not and as the advisors have posted they cannot give you advice here. If you pay off your mortgage you can concentrate on your savings for the next 12 years. This could include unit linked investments if you chose but at least you wouldn't be risking not being able to pay your mortgage.

I am not an IFA or anything like one so feel free to ignore all of that - it is just an opinion.