underperforming endowment - do I get rid?

rizla01

Thanks for your reply

If I read correctly, are you saying that Standard Life Endowments appear to be worse than they really are.

Would I be right, therefore in assuming that they would prefer me to cash in earlier?

Riz

dunstonh

No, Standard Life projections often show a position that is worse than it really is. I have seen quite a few Standard life projections show shortfalls and then come in with a surplus just a year or two later on maturity.

It doesn't mean yours will do but it does mean you have to read the projection in conjunction with the other plan details made available to you.

Compensationitis

http://www.ifasok.co.uk/Endowments.htm

Go down to:

ENDOWMENT SHORTFALLS, WHERE ARE THEY?: A Scottish Amicable (now Prudential) policy was projecting a shortfall right up to the maturity date despite the fact that the annual bonus statement showed a GUARANTEED minimum payment in excess of the mortgage amount of £15,000, it matured at over £23,000!!! See the documents

Ignore the ambulance chaser website, it was just a bit of fun.

EdInvestor

Hi stressed out mum

stressedoutmum wrote:

Its not a with profits its index linked or something. The sum assured is £35000. It costs around £75 per month. We did initially increase our payments to 'meet target' and eventually realised we were paying money into a loss-maker. Hope this makes sense!

With a unit-linked endowment there is usually a choice of funds the money can be invested in. Can you tell me what fund it is invested in now? Typically it might be called the "Managed" fund or the "Balanced managed" fund.

If it has been in a fund like this then it's very likely to have incurred quite serious losses 2000-3,when the stockmarket crashed, as these funds are invested around 75% or more in shares and there is no "smoothing" as there is with With profits (The latter are seeing the losses now, as a kind of "delayed action" effect when the smoothing stops.) Your policy should however be improving now as the market started to go up in 2003, does it seem to be?

I will have a look at AXA's life funds and see which are the best performers.It may be advisable for you to "switch" the money - or some of it - into a better performing fund.

If there aren't any decent funds it may be better for you to surrender the endowment and remortgage to a repayment loan at the best deal you can find, using surrender proceeds to reduce the amount of the loan.The surrender value of the policy will be the current value of the units on your statement.

Do you have any information on what annual charges you are paying on the policy? And do you need to replace the life cover?

EdInvestor

Hello rizla

rizla01 wrote:

Hi,

I too have an endowment situation.
Mine expires in 2007 (1/1) and The attaching bonuses are well under the projected. Lately, if anything, the surrender value appears to be LESS pro rata than it was a year or so, ago.

My worry is that the increase will only be in line with what I'm paying in and not much more.Mines a Standard Life with profits taken out 23 years ago.

You are right to worry. You wouldn't be the first person to have kept paying in close to maturity only to discover that the terminal bonus is lower than it was a couple of years earlier

Also complicating the situation is the windfall from the upcoming demutualisation at Standard Life.

If you provide some figures we can take a better-educated guess at the best way forward.

1.What is the value of the Guaranteed sum assured and declared attaching bonuses so far?

2.What amount or percentage of the total policy value is the terminal bonus component? What is the current surrender value (you might need to ring up and ask for these two)

3.What's your monthly premium and date of maturity?

EdInvestor

dunstonh wrote:

Standard Life endowments have to be looked at very carefully. They appear to projection from the lower surrender value and do not include any terminal bonuses. On quite a few occassions their 4% projection has been lower than the guaranteed sum assured and annual bonuses which is not possible.

I understand Standard life has been told by the FSA to project on the basis of the current surrender value, which indeed can produce a ridiculous projection.

Frankly IMHO people should just ignore the projections.These figures are set out according to a standard formula laid down by the regulator, supposedly to show what your policy will be worth if it grows at 4%,6%,8% whatever.Since many people's policies are growing at 0% or even going backwards in some cases, they are not very useful.They don't tell you anything about how much your specific policy might be worth.

dunstonh

Agreed that 4,6 & 8% doesnt mean a thing when looked at in isolation.

It does appear that Standard Life do use the lower surrender value to project from. Almost certainly because they are unable to give a current value as their with profits investments were not designed to work on that basis. They are not alone either.

Particulary on plans that benefit from enhanced allocation rates in later years and plans with guaranteed sum assureds that have annual and terminal bonuses (terminal bonuses not being allowed to be included in the projections).

If you invest in a fund that only has the growth potential and expectation of 3%pa, then the projections are useless. Equally, there are funds that are still performing at 8% per annum average but show a shortfall because the projection was made too early in the plan life when the early years covered the charges. This doesnt mean it will run short.

In addition, most of these projections took place after a stockmarket crash. Returns are going to appear low when you include that. However, historically, the period following the stockmarket crash sees better returns and allows people to buy their units at a much cheaper price than before the crash. A stockmarket crash in the early years of a long term stockmarket monthly savings plan can be a very good thing. However, a projection would make it look bad.

EdInvestor

Hello again Stressed out mum

Editor wrote:

I will have a look at AXA's life funds and see which are the best performers.It may be advisable for you to "switch" the money - or some of it - into a better performing fund.

You can check the performance of AXA's life (endowment) funds here.

As is so common with the insurance companies, the commercial property fund (No 343, scroll down) is the best one over the last 5 years, a 54% return.The trouble is, your endowment needs to grow at 10% a year after charges and the cost of life assurance to meet the target.

Frankly, it's a pretty tall order.

I would suggest you see a mortgage broker with a view to surrendering the endowment, using the 14k proceeds to reduce the mortage amount to 25k and then remortgaging for that amount at the best deal you can find. Hopefully it won't cost too much more than the existing premiums you're paying on the endowment and the I/O mortgage. [And of course you've already saved loadsamoney because of the lower interest rates payable on the mortgage loan in recent years ]

If you need to replace the life cover do this first before surrendering the endowment, particularly if you have any health issues.Tesco is a competitive provider.

Note that this is NOT "financial advice", for which you need to see an IFA or mortgage broker, it's just a suggestion of a way forward you could investigate

stressedoutmum

can't find a 'name' for the fund. My benefit statement just says Fund then Balanced and Higher Income together with the number of units and bid price value of units and the plan total units. I have put a claim into the FSA just in case we were mis-sold it but not had a decision yet. Am I best to wait and see what their decision is before I make any changes. Listening to anyone else it sounds like their reply is gonna be a no anyway. Thanks to all for your advice. Greatly appreciated because these financial advisers tend to talk circles round me and I not totally sure their advice is always independent. Also. where do I find a good independent advisor.

dunstonh

can't find a 'name' for the fund. My benefit statement just says Fund then Balanced and Higher Income

This is quite important. You started off saying it was index linked, which is a low risk fund. Now you are saying balanced fund and Higher income fund (balanced managed sector and UK equity Income sector - both medium risk). The Higher income fund has been in a very good performing UK stockmarket sector. The balanced managed funds are poor in comparison (in my opinion).

and I not totally sure their advice is always independent

First of all it is. Where an advisor has the whole of market available to them, they are independent. However, the quality of their research is a different issue.

If in doubt, ask to see the research that was used to make the decision. The IFA must keep the research on the client file and you have rights of access to that information.

Personally, i have, for over a year now, been pre-issuing suitabilty letters prior to sign up and included the research in the appendix of the report.

Was your endowment sold by an IFA or an AXA representative? The AXA rep would not be independent. Also, putting a complaint into the FSA will do nothing. The FSA set the rules, they do not deal with complaints.

Your first point of call is the company that sold the endowment. If it was an AXA rep, it does to AXA, if it was an IFA, it goes to the IFA. If after all that you disagree with the outcome, then you can take it to the ombudsman (FOS). If the company that gave the advice is no longer trading, then you can take it to the Financial services compensation scheme (FSCS).

You may want to check where your complaint has gone if you did send it to the FSA.

I'm not sure where editor got the 10% target growth rate from in your case as the average is 7.5% after charges (maybe i missed a post on this thread). Better ones needing less than that, poorer ones needing more.