Ditch your endowment policy - is this the general opinion?

EdInvestor

jamesd wrote: »

Shambler, that 31000 on 16000 now with 61 a month invested for 7 years is exactly what 6% growth will produce wherever you put the money to get 6% growth. Actually takes 6190 starting amount but I assume you're rounding the value and monthly amounts a llittle.

BTW, the return quoted for 6% growth doesn't appear to include any allowance for charges or life cover.It is what you would get for cash.You should query this forecast with the lifeco as it would appear to be wrong for an endowment - the return should be significantly lower.

dunstonh

I have come across endowments that have increased allocations later in the term. 105% for example. This can wipe out a lot of the costs/charges.

Crazy_Saver

EdInvestor wrote: »

As you know stockmarket performance is only one reason why endowments are not performing.The more serious reason in many cases is the new reserving requirement for guarantees, which means that a lot of companies (the so called "zombie funds") can't invest in the stockmarket at all any more.

So it doesn't matter how well shares perform, these endowments will never improve.

What does this really mean?

I am asking because I think I have one of these "Zombie Funds".

Mine is a Low Cost With Profits fund with Zurich, formerly Eagle Star.

Premiums £71.20pcm
Target amount £60k
Latest projection at 3.75% £32k shortfall.
Surrender value £15k
9 years left to maturity

I do have a new IFA who is currently looking into best plan of action for me and we are due to meet up next week, but I am doing a lot of homework just to be sure that I don't get caught out again. (No reflection at all on my current IFA, just a case of once bitten, twice shy)

Thanks in advance

Crazy Saver;)

EdInvestor

Hi Crazy

To find out if you are in a zombie, call the company up and ask for a breakdown of the investment mix of the With profits fund (what % in cash, bonds, property, equities). A total zombie will have 80-90% in cash and bonds. A goodish fund will have 30-40% max in cash and bonds. Yours is probably towards the bad end, you can tell this as they are producing forecasts at a low return of 3.75%, that's a zombie sign.

If you surrendered your policy and placed it on deposit at a net return of 5% also paying in the premiums to maturity, you would end up with 32,917 guaranteed, versus their projection of 28k, so no risk premium left in the endowment [This calculation doesn't include the cost of life cover, deduct that if you need to replace it.]

Obviously the return would be more if you have a higher interest rate on your mortgage and used the surrender value to reduce the size of the loan.

RainbowsInTheSpray

JoeK wrote: »

Thank you for the Engish lesson.

JoeK

Words like 'rest' and 'case' come to mind...

Just in case there is any lingering doubt, I started this thread simply to elicit further opinion and not to insult dunstonh in any way. He will be aware that I thanked him for his contributions on the original thread.

No further interest.

JoeK_3

RainbowsInTheSpray wrote: »

Words like 'rest' and 'case' come to mind...

Just in case there is any lingering doubt, I started this thread simply to elicit further opinion and not to insult dunstonh in any way. He will be aware that I thanked him for his contributions on the original thread.

No further interest.

I'm so glad that you spotted my error in English, you would have thought that it was planted on purpose!!

We're happy to help, if and where we can but please don't expect the answers that you are expecting or any personal advice, as it is not allowed.

JoeK

Crazy_Saver

EdInvestor wrote: »

Hi Crazy

To find out if you are in a zombie, call the company up and ask for a breakdown of the investment mix of the With profits fund (what % in cash, bonds, property, equities). A total zombie will have 80-90% in cash and bonds. A goodish fund will have 30-40% max in cash and bonds. Yours is probably towards the bad end, you can tell this as they are producing forecasts at a low return of 3.75%, that's a zombie sign.

If you surrendered your policy and placed it on deposit at a net return of 5% also paying in the premiums to maturity, you would end up with 32,917 guaranteed, versus their projection of 28k, so no risk premium left in the endowment [This calculation doesn't include the cost of life cover, deduct that if you need to replace it.]

Obviously the return would be more if you have a higher interest rate on your mortgage and used the surrender value to reduce the size of the loan.

Thanks Ed, I'll ring Zurich in the morning.

My husband and I have been doing some maths and also came up with roughly £33k if we transferred the endowment into ISAs or a similar type of saving scheme. I feel quite proud of myself, a year ago we wouldn't have had a clue about how to interpret investments, savings, interest rates etc., but thanks to this site and people like yourself, dunston and so many others, at least we are beginning to have some understanding and hopefully we will be able to make a more educated decision next week about the future of our mortgage.

Now, I must get back to my revision - I'm currently reading "The Daily Telegraph Guide to With-Profits Bonds" and their "Guide to Investing your Isa Allowance".

I hope no-one is now going to tell me I'm reading the wrong publication:cool:

Thanks again............Crazy Saver

dunstonh

Check the dates of the material you read. I read the Which? guide to contracting out last week and it was full of errors. Most of which were due to rule changes that they hadnt updated.

Unlike advisers, media and consumer groups are not held to account for their mistakes.

EdInvestor

Crazy_Saver wrote: »

Now, I must get back to my revision - I'm currently reading "The Daily Telegraph Guide to With-Profits Bonds"

Unless you already have a WP bond that you are trying to get out of, suggest you bin this particular guide to what is now an obsolete product (rather like an endowment mortgage...) .

Crazy_Saver

dunstonh wrote: »

Check the dates of the material you read. I read the Which? guide to contracting out last week and it was full of errors. Most of which were due to rule changes that they hadnt updated.

Unlike advisers, media and consumer groups are not held to account for their mistakes.

Thanks dunston;)

Just checked the inside cover which says "All information correct at time of going to press, May 2006":mad:

Guess it probably isn't the best thing to be reading in May 2007:o


There is just so much that we novices have no idea about isn't there!!!