Can someone please explain an endowment query...

IvanOpinion

I have just eceived my 2004 bonus statement from Norwich Union and the figures on it are ridiculous. It reads

"The regular bonus added on 31 December 2004 based on 0.00% of the £XX,XXX With-Profits benefit and 0.50% of the £YY,YYY regular bonus from previous years."

How on earth do they get away with that, I thought Norwich Union was meant to be a professional outfit employing professional finance people? I get 10 times the interest rate from my building society account. Even as a total amateur with no investment training I managed to get a significant higher return on my pottering about in the stock market.

Is this normal? Surely there should be higher returns than this? I know it mentions something about 'Final bonuses' but I have heard they have been cut right backl as well.

Thanks
Ivan

trafalgar_2

they are absolute rubbish

"The payout reductions come despite the fact that the company's main with-profits funds notched up an investment return of 11.5% before tax in 2004, beating the FTSE 100 index's 7.5% rise."
http://money.guardian.co.uk/endowments/story/0,6453,1393600,00.html


however they are listed as third BEST here

http://www.moneyfacts.co.uk/life/charts/life_lowcost_end.htm

figure that one.:rolleyes:

EdInvestor

Which NU fund are you in Ivan ?

At least one of their funds (IIRC it used to be Provident Mutual) is now closed to new business and returns are very poor.I believe there is a special arrangment to transfer out to a better one.

YorkshireBoy

I have 3 NU endowments - started in 1982/83/87 and all of them mature in the next 2-3 years.

My statements also show derisory bonuses. However, you can view final bonuses (if they were paying out now) on https://www.norwichunion.co.uk/lifefinbonus and, when I've checked mine, I've calculated that even with one shortfall of £400, I have a surplus of around £4K on a total of £18K. ie only the one took out in 1987 has underperformed.

Regarding the 0.00% and 0.5%, I believe they are reducing the regular bonuses to pay the final bonuses for people claiming now in order to "make up" the payouts - just hope there's enough left for me!

Finally, if anyone needs to know some historical figures (I'm assuming they're not on the NU website), I have a complete set of bonus statements for my WP endowments showing the value (in % terms) of bonuses added going all the way back to 1982. Indeed, some of the early statements also showed final bonuses per £1000 of WP sum insured.

IvanOpinion

Editor wrote:

Which NU fund are you in Ivan ?

At least one of their funds (IIRC it used to be Provident Mutual) is now closed to new business and returns are very poor.I believe there is a special arrangment to transfer out to a better one.

I know it is not the Provident Mututal one but not sure which one it is. I honestly think that companies have to be more up front about current values and returns from endowment policies - particularly given the mess that many people seem to have been put in. Given the amount of profits these companies are making surely there is a case for legislation that forces them to reinvest some of these profits back into poorly performing funds?

Ivan

dunstonh

"The payout reductions come despite the fact that the company's main with-profits funds notched up an investment return of 11.5% before tax in 2004, beating the FTSE 100 index's 7.5% rise."

Nothing wrong with that.

Like most of the posters in this thread, only one year in isolation is being looked at. You need to look at the last 5 years to see what the real position is.

Also, as has been mentioned on a number of other threads, the guaranteed sum assured seems to have been forgotton. That is usually around 1/3rd of the life cover sum assured and is granted from day 1.

When you factor that in, averaged over the term, the policy did not give a zero return this year.

EdInvestor

One problem with WP policies which I suspect confuses people is how "smoothing" works when you have a market crash. Smoothing is supposed to "even out" highs and lows - so that you don't win so much in a boom or lose so much in a bust.

But the way it works causes a kind of "delayed action" effect ( which IMHO is a bad thing because it tends to give people a false sense of security).So with a normal equity investment ( say a managed fund ) you would have seen its value plummet in 2001-2002 and then start to recover in 2003 after the Iraq war.Whereas the WP fund would have shown a less severe slowdown since around 2001, but one which is still going on, despite the fact that the market has been on the rise now for two years.

Why is the slowdown going on for so long? Partly because the bust was severe (the FTSE is still 17% down on its peak) and partly because of the problems of Equitable Life, which made the regulator get tough on a few lax practices to make sure nobody else would ever have similar problems.

This created a safer environment for your money, but also means that future returns will be lower - more like bank returns than stockmarket returns.Lower risk = lower returns.This might make you think whether or not you want to remain invested in With-profits, especially since so many funds are closing and investing almost totally in bonds.

You might be better to move your money to a different type of fund especially if you can get the money out of WP without paying a large penalty.

I favour equity income funds myself ( they're the ones wich invest in shares which pay good dividends), and commercial property funds are often a good bet at life assurance companies.

BTW it's quite possible to switch funds within an endowment policy.You might be able to get your endowment to perform better if you change the funds it's invested in .