Cashing in Endowment

JoeK_3

motch wrote: »

sorry to hijack the thread a bit, but just trying to find out if i'd pay any tax on about a £4000 current value endowment ? I only earn about £17K a year, i'd rather invest it in a 6% ISA or pay off debts

If you are referring to cashing in (surrendering) or selling your endowment, the answer is no!

You should consult an IFA and investigate the best way forward to suit your circumtances.

JoeK

EdInvestor

JoeK wrote: »

You should consult an IFA and investigate the best way forward to suit your circumtances.

This is OK in theory, but nfortunately it's very difficult to get good advice on endowments,indeed the situation is so bad the regulator recently issued a warning of trouble ahead if things don't improve.

The Financial Services Authority (FSA) has today published an insurance sector briefing on thematic work which suggests that some advisers are not providing sufficient ongoing advice for with-profits policyholders. It also shows that after-sales communication documents for these and other life sector policyholders are of variable quality.

The findings suggest that some firms - product providers and advisers – are not currently treating their customers fairly.

dunstonh

This is OK in theory, but nfortunately it's very difficult to get good advice on endowments,indeed the situation is so bad the regulator recently issued a warning of trouble ahead if things don't improve.

So, if the professionals cannot get good information from providers, going on some internet site to get advice from some unknowns isnt going to make it any better. Especially when there are hardly any facts known and the information given on endowment decisions here at times is disgraceful. At least a proper analysis would have as much information as possible with only the missing bits being put down to judgement.

EdInvestor

To be frank, when many people are paying interest rates of 6-7% on their mortgage, the most sensible thing they can usually do is surrender the endowment, use the surrender value to reduce the amount owed and either

a)convert the remaining loan to repayment or
b)increase the interest only mortgage payment by the endowment premium so as to overpay for now, and consider remortgaging to repayment later if and when rates come down.

There are a very small minority of endowments where it is advantageous to stick with it - which is why we always need to look at the detailed figures, and there will be a small number of people who need to hold on, due to problems with replacing the life cover, or who may have a problem with knowck on effects on benefit entitlements.

But with the best endowments only expected to make 6% long term, there really is no point for most people to continue when they can get the same return without taking any stockmarket risks.

Note the post by sheelb above:

I have just cut my losses on my endowment as I had mostly repayment but about £35k still covered by endowment. I was looking to be at least £12k short at the end of the term so I cashed in endowment, used the cash to pay off part of my mortgage and converted the remaining amount to repayment too.I ended up ten pounds a month better off and I am now guaranteed to have paid off the whole amount by end of the mortgage.

motch

Cheers guys
think i'll surrender or sell mine

JoeK_3

EdInvestor wrote: »

This is OK in theory, but nfortunately it's very difficult to get good advice on endowments,indeed the situation is so bad the regulator recently issued a warning of trouble ahead if things don't improve.

Edinvestor, you keep referring to the same warning issued by the fsa, which talks about insurance companies not issuing sufficient or consistent information to the client. I would have hoped that an IFA was more switched on than to asking the right questions than you appreciate.

Having followed your advice to people with endowment queries I would say that about 95% of all your recommendations have been to sell or surrender the endowments. Can that be right????

Good heavens, you are not even qualified to give this advice and this is based on, as you have pointed out, bad or little information being available on endowments.

We should issue a warning on this site!!

JoeK

EdInvestor

JoeK wrote: »

Edinvestor, you keep referring to the same warning issued by the fsa, which talks about insurance companies not issuing sufficient or consistent information to the client.....

The warning says the following:

Although there are 32 million with-profits policies in force, many policyholders no longer have access to the adviser who sold the policy. For those policyholders that do have an adviser, an independent survey of IFAs conducted for the FSA found that many were reluctant to advise on existing with-profits policies.....

I would have hoped that an IFA was more switched on than to asking the right questions than you appreciate.

In that case your hopes are not well founded in fact.

Having followed your advice to people with endowment queries I would say that about 95% of all your recommendations have been to sell or surrender the endowments. Can that be right????

At the moment yes.Even the best With profit endowments are only projected to return 6% p.a. But you can get a return of 6-7% by using the endowment surrender proceeds to reduce the size of your mortgage.Quite obviously a guaranteed risk free return now of the same or higher value is better than pie in the sky.

If the money is no longer being used to pay off the mortgage, the investor will usually be better to reinvest using a proper tax wrapper such as an ISA, with high quality funds and low charges.An endowment has high taxes, high charges and is usually invested in bog standard poorly performing funds at an inappropriate risk level.

There are a few endowments that should not be surrendered because they have a very high guaranteed value and represent a competitive no risk return: there are a few people who need the life cover and should hold on, or who have a problem with benefits,or possible a holdup related to divorce.

But most people ( including the vast army of people who were mis-sold and didn't want this risk-based product in the first place) would be better to dump their obsolete endowment and and move on.

Of course most of them are still paying trail commission to the IFAs and companies that sold them in the first place - and although this might not be much money for each individual policy, so many millions were sold that it would add up to quite a lot of money for old rope.One rather wonders if that is a reason why there is so little useful regulated advice around on the subject :rolleyes:

dunstonh

Of course most of them are still paying trail commission to the IFAs and companies that sold them in the first place - and although this might not be much money for each individual policy, so many millions were sold that it would add up to quite a lot of money for old rope.One rather wonders if that is a reason why there is so little useful regulated advice around on the subject

Yes, the average 28p a month each plan pays really makes a difference to the cashflow. It costs more to admin the renewals than you get a lot of the time.

At the moment yes.Even the best With profit endowments are only projected to return 6% p.a. But you can get a return of 6-7% by using the endowment surrender proceeds to reduce the size of your mortgage.Quite obviously a guaranteed risk free return now of the same or higher value is better than pie in the sky.

You fail to take into account the cost of replacement life cover and surrender penalties.

JoeK_3

Edinvestor, I find all this talk about with profits endowment policies rather confusing, as the OP ask's about a SL unit linked policy.

Well, I suppose we may as well just dump them all anyway.

Now, where's my brush to tar everything?

JoeK

JoeK_3

EdInvestor wrote: »

One rather wonders if that is a reason why there is so little useful regulated advice around on the subject :rolleyes:

By the time that we have had chance to advise these people, someone's already tarred them with the same brush.

JoeK