Paid off mortgage: keep or sell endowment?

Misstique

Hi, if sara made her unit linked paid up and held to maturity would she get bonuses and the final payment bonus? I'm in a similar position to sara and don't know if I should keep paying into my Scot Am now Pru unit linked policy.

SaverSarah_2

I'm not sure I get any bonuses with a unit-linked plan, though that may be my ignorance talking!

dunstonh

bonuses do not apply to unit linked plans (unless in unitised with profits fund).

EdInvestor

SaverSarah wrote: »

It's just whether we'd be better off taking the current value and investing it in a different way. We're not particularly risk averse – the only reason we managed to pay off the mortgage so early was through saving in medium to high-risk PEPs and ISAs over the long-term.

In that case IMHO the answer is yes. For a start, endowments pay capital gains tax at 20%, which is easy to avoid outside the wrapper by using your annual allowances. Then you can get much better returns by going directly to quality unit trusts via a discount broker which should be able to produce lower costs.

dunstonh

In that case IMHO the answer is yes. For a start, endowments pay capital gains tax at 20%, which is easy to avoid outside the wrapper by using your annual allowances. Then you can get much better returns by going directly to quality unit trusts via a discount broker which should be able to produce lower costs.

We dont know if Sarah already uses her ISA allowances, if she is a higher rate taxpayer (and would face a chargeable event if surrendered). We dont know the surrender penalty or the ongoing charges.

Yet you say that she should surrender without knowing any of the key facts!

SaverSarah_2

No, in recent years we've focused on paying off the mortgage so neither myself nor my husband have used our ISA allowances. I'm not a higher rate taxpayer but my OH is. No, I don't know the surrender penalty or the ongoing charges. Good point.

EdInvestor

Of course Sarah and husband would do even better if they were able to use their ISA allowances.

That way they can also avoid any potential nasty future stings in the tail such as "chargeable events".

dunstonh

That way they can also avoid any potential nasty future stings in the tail such as "chargeable events".

A lot of people benefit from that so you call it nasty where as many will call it a benefit.

Of course Sarah and husband would do even better if they were able to use their ISA allowances.

Really? Where is the evidence in this thread to show that? What if there is a 15% surrender penalty and the charges ongoing are lower than unit trust funds in the ISA? The small tax advantage of the ISA would take a very long time to make up the cost of surrender. Especially if ongoing charges are lower in the endowment.

I am not saying that they are or are not but we just dont have the facts for you to say surrender is the best option.