Endowment update: payouts still falling

dunstonh

When I was an IFA a like for like quote often showed the endowment plus mortgage monthly payment to be cheaper now this may well have been because the projections on the endowment were to generous but nethertheless they wer properly created qutes in line with the PIA.
Most customers chose the cheapest quote but if the £20 or £30 they were saving had been put into the endowment the figures would have been very different

That was the most common reason for people taking one. the cost of an endowment mortgage was often 10% less than repayment mortgages.

EdInvestor

Hi GG

Gorgeous_George wrote: »

The chart shows that a £50 endowment with SL would return £38,338 in 2007. I make that a 6.65% average annual return TAX-FREE. Is that really so bad considering endowments include life insurance?

Red Rose's return is nearer 9.7% and again, tax-free.

What makes you think endowments are tax free? Life assurance premium relief (LAPR) ended in 1982 or 1983 IIRC.

Gains in life funds are subject to 20% corporation tax. This is another reason why people would be better off using a modern investment product such as a unit trust with low charges, in a proper tax wrapper, such as an ISA.

Gorgeous_George

EdInvestor wrote: »

Hi GG

What makes you think endowments are tax free?

Whan I receive the payout, I won't pay tax on it.

Surely the sums given in the chart are tax-free returns



GG

EdInvestor

Gorgeous_George wrote: »

Whan I receive the payout, I won't pay tax on it.

Yes, but that doesn't mean it's tax free.It just means there is no further tax to pay over and above the tax you've already paid.

Of course if the money was in the ISA there would be no to pay at all, neither when the the money is in the ISA nor when it comes out.

Gorgeous_George

EdInvestor wrote: »

Yes, but that doesn't mean it's tax free.It just means there is no further tax to pay over and above the tax you've already paid.

Of course if the money was in the ISA there would be no to pay at all, neither when the the money is in the ISA nor when it comes out.

...but would I get such an attractive return?

I have an ISA that pays 6%, guaranteed for 5 years and this is year three.

I have a tracker mortgage at BR+ 0.74%.

6.65% from my SL endowment seems ok but I accept the risk argument. As it is, I have £1,530 left to pay in at £45 per month and my current surrender value is £22,525.33. IF I get 6.65% my policy should pay out just over £29000.



GG

mayb_2

:eek: We have clashed swords so many times about this dunstonh but I think if I see you write:

"One thing we can say is that even if your endowment is in shortfall, you are financially better off than you would have been had the old economy remained suitable for all endowments to hit target. You may have got a surplus but you would have been worse off."

again I shall become positively suicidal - or perhaps murderous! It still not working for me and I know I am not alone!!!!:mad:

How many people have been told their not likely to get a final bonus on their with profits policies? How many told that the bulk of the payment would be made up by a terminal bonus? How many companies are not paying out on these policies regardless of the better performance the funds may be experiencing at the moment? How many people were told of the importance of keeping their 'With Profits' Policies until the end as so much of their money would go into setting up these funds in the beginning? I could go on and on and on. I am sure there were 'Profits' but not for the purchaser it would appear. How many people feel they were totally aware of what they had purchased - much like the missold mortgage endowment policies? I have a feeling that I have been here before.

:rolleyes: Perhaps as you did not sell these policies or mortgage endowment policies dunstonh, you will allow those of us who have suffered from one or both to know - without a shadow of a doubt I might add -whether we are better off than we think we are or not!

mayb_2

Originally quoted by GorgeousGeorge

"Endowment payouts have been disappointing mainly because previous payouts were bigger numbers. That doesn't in itself mean that endowments have been poor investments. Inflation has been, and continues to be, very low. The true value of the payout is better than the graphs may suggest."

Unless of course it happens to be the vehicle to pay off your mortgage or to pay off a debt - which mysteriously didn't shrink with inflation- in which case you are nicely in the poo.

EdInvestor

Gorgeous_George wrote: »

...but would I get such an attractive return?

Depends what funds you invest the ISA in.I'm talking about equity ISAs here, not cash ISAs.The mid-point projection figure used for equity ISAs is 7.5%.You best guaranteed return is almost always going to be surrender/sale of the policy and pay off mortgage, assuming you have no insurance/health issues.

It is IMHO *highly unlikely* that you'll get anything like 6.65% from your SL endowment,where did you get that idea from? The best endowments - Pru, some NU policies -are only expected to get 6%, and Standard is well below that level. Think more like 4%,4.5% at best. SL has stated that payouts will continue for some years,this includes you.

Mr_helpful

"Depends what funds you invest the ISA in.I'm talking about equity ISAs here, not cash ISAs.The mid-point projection figure used for equity ISAs is 7.5%.You best guaranteed return is almost always going to be surrender/sale of the policy and pay off mortgage, assuming you have no insurance/health issues"
This can be true but your guaranteed rate of return in the mortgage is the rate you are paying and many people opt for the lowest rate they can get often remortgageing from an offset or flexi mortgage.
Returns in a cash ISA are more volatile and not targeted so if you use one to pay off a mortgage in place of an endowment you have no guarantee of returns.
Many people started their endowment before Isa's were available and for these people it is unlikely they will benefit from cashing in and starting again. In april 2004 a little of the shine was taken off isa. with changes to company taxation. However, only higher-rate taxpayers benefit from not being taxed on any dividend income inside an ISA, as the taxation of dividends inside and outside of an ISA is identical for basic-rate taxpayers.
You also have to be aware that there are some pretty dismal ISA's out there too. Picking a good performer may not be as easy as one might think.

EdInvestor

... as the taxation of dividends inside and outside of an ISA is identical for basic-rate taxpayers.....

Indeed so.There isn't any tax to pay.

Unlike the position with an endowment ( or an investment bond) , where the divis are subject to 20% life company corporation tax, as are any capital gains.