underperforming endowment - do I get rid?

stressedoutmum

The policy was taking out by an IFA who recommended this policy. The reason I say index linked is because when I phoned AXA a couple of years ago to query the policy this is what they told me. The Balanced and Higher Income figures are what I am reading from the 'statement' they send every year so sorry if info is misleading but don't understand it myself. We took it out in 1988 as we planned to use it to buy a house (we were in forces at time and lived overseas) and did not use it against our mortgage until 1995. We were advised to take this was because as soon as we started paying it in 1988 we were in effect paying off our mortgage. Not sure whether to cash it in now, stop paying into it and leaving it until 2013 when it matures and taking a repayment for the difference. I have asked a couple of IFA plus the mortgage advice bureau but everyone's opinion is different and its really confusing. I realise you do not advise but your information is useful to put in front of IFA to see what sort of reply they come back with. Yes I'm confused.... :

dunstonh

The reason you are getting different advice is that this is an area that no-one really knows and its a matter of opinion.

If the target growth rate is low (6% or lower), then you stand a relatively good chance of closing that gap with the balanced managed and UK equity Income funds. They would have been affected badly by the stockmarket crash but that has been recovering since and the units you purchased after the crash would have been bought much cheaper than those before the crash.

If the target growth rate is above 7.5% i almost always consider them bad and subject to penalties and term remaining, I would be looking to surrender or make paid up.

If you have sought advice from someone who hasnt written to the product provider, then you can disregard their "advice" as its not based on fact. You would have needed to sign a letter of authority to allow the information to be obtained.

rizla01

Editor wrote:

Hello rizla



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?

Thanks for spending your time to look at this for me.

1) Total Current Value as at 1/2/04 £19,695. Sum Assured £20,601.

2)Final Attaching bonus as at 12/5/04 £2769.05 + Basic Surrender value of £17,518.85 Making a total of £20,287.90.
(I have also written the sum of £19,582.05 which is probably the surrender value given to me after the May, 04 projection, probably around Sept/Oct last year)

3) premium £50.68


And not a touch on the £40,000.00 or so, that I had been led to expect all of those years ago.

Riz

EdInvestor

Hi Riz,

Bit confused about what you're saying. Is that:

Guaranteed sum assured 20,601
Attaching annual bonuses 2,769
Total guaranteed amount: 23,370 (this is what you are guaranteed to get if you keep paying your premiums till maturity).

Surrender value 17,518

Any terminal bonus amount available?

Premium 50.68
Maturity date Jan 2007


Actually I suggest you give them a call tomorrow to update these figures as they're over a year old and things have changed quite a bit, then come back again.

EdInvestor

Hi again

stressedoutmum wrote:

Not sure whether to cash it in now, stop paying into it and leaving it until 2013 when it matures and taking a repayment for the difference.

Making endowments paid up is almost aways a bad idea as their benefits are downgraded and the value is eaten away by charges.

IMHO there's not really any choice with this one. One suspects it had very high charges at the start and the fact that you bought it overseas would explain that It's amazing what rubbish gets sold to expats.

Compensationitis

If you were overseas when you bought it you are... er... stuffed.

rizla01

Editor wrote:

Hi Riz,

Bit confused about what you're saying. Is that:

Guaranteed sum assured 20,601
Attaching annual bonuses 2,769
Total guaranteed amount: 23,370 (this is what you are guaranteed to get if you keep paying your premiums till maturity).

Surrender value 17,518

Any terminal bonus amount available?

Premium 50.68
Maturity date Jan 2007



Hi Editor.

Quotation of surrender value

The Basic Surrender Value(£17,518.85) plus the Final bonus (£2769.05) = Total Surrender Value (£20287.90).

The final bonus is the amount that would have been paid if I cashed the Endowment in on 12/5/04.

Sorry if I didn't make it very clear.

These were at 12/5/04.

Im shall ring them tomorrow and come back with the new figures.

Thanks,

Riz

Incidentally, the endowment was taken out Jan, 1986.

Compensationitis

Standard Life has slashed surrender values over the last three years, it could be that they were paying too much at one time but now the FSA has thown a spanner in the works and forced them to sell a massive chunk of equities just before the market went up and made them buy bonds just before that market went down!! Then they have the 'Folotation' to deal with, very expensive for policyholders but very rewarding for the directors and officers.

You will probably work out that the premiums you've paid over the last three years have done nothing for your investment with them.

Having siad that I believe it will still have a good chance of exceeding the mortgage amount but as the Editor keeps pointing out, you should plan for the worsts case scenario.

Yorkshire1944_2

Good morning, Editor

Now have the answers to your further info questions, as follows :-

a) £19030.55
b) had the policy matured this year there would have been a terminal bonus of 42%. Naturally the Prus call centre stressed that by 2011 this could change significantly.

Call me thick but I knew NOTHING about a terminal bonus (embarassing for an ex vatman!!) and it puts a whole new perspective on my problem as I couldnt figure how 19k could become 25k+ in 6 years. Many, many thanks and I O U a pint if ever you visit the Lakes.

EdInvestor

Hi Yorkshire 1944,

I think on that basis we can actually believe the Pru's estimate of 6% growth being achievable - it's about the only insurer that will manage this I suspect and the fact you've still got a 42% TB in there is certainly positive.

At 6% it will mature at 28,435, so there will be a small shortfall - if you have some spare money about and will incur no penalties, you might consider reducing your mortgage a bit over the period - it's a better "interest rate" than you get in the bank for spare money, as no tax.

But I would keep the endowment, while keeping an eye on it to make sure there's no deviance from the path over the years. I'd say the worst is already well over for the Pru's WP fund and they are the one insurer which actually managed it properly during the stockmarket crash.

They are also the only big insurer seriously committed to the WP product long term, so no doubt they will use their best efforts to try to ensure investors are not disappointed further, if they can.

If all is reasonably stable in the markets and there are no more fireworks from the regulator, then I wouldn't be surprised to see your policy managing to mature on target with a slightly bigger TB than forecast, demonstrating the benefits of smoothing to the loyal policyholder.

But do keep an eye on it, just in case.