Advice re Amber Warning please...

rothers

Hi all,

I wonder if anyone more knowledgeable than I could offer some advice regarding two low cost endowment policies that I have with the Police Mutual. I have today received an amber alert warning of a shortfall.

ENDOWMENT ONE

Target £70,000
Monthly Payment £128.01
Start Date 26th April 1999
End Date 26th April 2024
Guaranteed Min Value at End of Term (As of 31/10/12) £43,786.68
Surrender Value (As of 23/11/09) £16142.45
Surrender Value (As of today) £24,075
Projected Values at End of Term

3.10% - £53,400
4.65% - £62,600
6.30% - £73,500


ENDOWMENT TWO

Target £20,000
Monthly Payment £47.58
Start Date 20th May 2002
End Date 20th May 2024
Guaranteed Min Value at End of Term (As of 31/10/12) £13,448.03
Surrender Value (As of 23/11/09) £4218.50
Surrender Value (As of today) £6715
Projected Values at End of Term

3.10% - £16,900
4.65% - £19,600
6.30% - £22,900


If anybody could offer some informed advice about what I should do I'd be grateful. I understand that the final decision is mine and I will speak to someone before making that decision.

Many thanks in advance.

opinions4u

Markets move up and down and nobody can guarantee what's going to happen in the coming years. It could end up better than those numbers suggest. Or worse.

I'd just keep an eye on it each time they send you a bonus statement.

Consider overpaying your mortgage, even if it's only by a small amount each month.

rothers

opinions4u wrote: »

Markets move up and down and nobody can guarantee what's going to happen in the coming years.

I'd just keep an eye on it each time they send you a bonus statement.

But you don't think that I need to do anything drastic?

opinions4u

rothers wrote: »

But you don't think that I need to do anything drastic?

I did just edit my post, adding "Consider overpaying your mortgage, even if it's only by a small amount each month.".

As long as you're aware of the risks of shortfall, and don't bury your head in the sand if it turns from amber to red, I'd sleep soundly in your position.

kingstreet

I agree with O4U.

Either overpay, or consider converting a part of the mortgage from interest-only to repayment to make the shortfall less important.

holly_hobby

An amber letter means that there is a strong possibility that the policy may not meet its target amount, you will see that in both cases the highest estimated growth fig, does illustrate a return in excess of the target amount - which is why its not a red letter you've recd (which occurs where there is a shortfall indicated at all 3 estimated growth rates and there really is no perceived chance of it making target, in respect of the EMVs)

What you need to be aware of, is that the estimated growth figs used, are just that, estimates, with the growth rates used being industry wide and prescribed by by the FSA - so naturally this means that the actual performance and final return of your policy under the Firm administering it, may differ greatly to the illustrations (either negatively or positively of course)

In a situation such as this where there is an inkling things aren't all well, the best advice would be to switch as much as possible of your mge (the lot if affordable) to C&I, or certainly a sum at least equal to the estimated shortfall at the lowest rate of return (or as much as affordable if the above can't be financially managed at this time).

If only a portion of the mge is switched to C&I, then you also need to continually monitor the performance of the policy to keep a handle on its estimated maturity - and your ongoing possible shortfall exposure.

If this is a with profits plan, than the Basic Sum Assured (BSA) plus reversionary bonuses (once added), will give you a running value of the policy and its end maturity fig, if it is maintained to maturity. (notwithstanding the possibilty of the addtion of a terminal bonus).

If you elect to switch all of your mge to C&I, you may elect to maintain the policies as additional savings plans (with tax free rtns), or chose to cease payments. If you choose to cancel and surrender the plans, consider how the loss of life cover under the policies (which is eqaul to the target sum) may effect your family requirements and the costs of seeking any replacement life provision that may be reqd.

Were these advised sales ?

I assume you were aware of the risk nature of the contracts when they were purchased ?

Hope this helps

Holly

rothers

Thanks for your replies, they are much appreciated.

Holly,

Thanks for your taking the time for such a lengthy reply. My mortgage is a lifetime tracker which is 0.17% above the base rate. Am I right in assuming that, rather than change to C&I, I would be better saving in a bank account with a greater interest rate than that?

Additionally, I got an amber warning in 2009, a green letter in 2010 and 2011 and back to an amber warning this year. Looking at the surrender values above from 2009 to 2012 would you recommend keeping the policies or surrendering them and putting the money in a high interest savings account (if one exists these days)?

Many Thanks.

holly_hobby

Of course whilst NET (of tax at your highest rate) saving interest rates are higher than any mge interest rate, and if you are disciplined to save and not touch, and believe it possible to save a sum sufficient enought to deal with the potential sfalls highlighted in the EMVs (although as prev stated, the actual policy rtns, and any realised sfall may differ either way), then this may be the most benefical route return wise .

If you aren't switching to C&I in any format, just aiming to offset any sfall by saving into a savings account, then considering cancellation and surrender of your pols may not be entirely appropriate, given the further aspect of intergated life cover - further to which any cancellation would need to be considered alongside a full financial and protection review by your IFA, inc how you would repay the IO mge balance in the event of no repayment vehicle being in place (further to which following the latest FSA mge review, lenders are routinely now contacting IO mortgagors for verification and proof of their mge repayment vehicle, which in the absence of having one they will look to tsf the mge to C&I).

Re - EMVs - I can see that it can be documented that you have been aware since at least 2009, that rtns under the policies are not guaranteed - that takes care of any acceptance of risk discussion.

Hope this helps

Holly