Should I cash it in

ChrissyR_2

Hi all,

same old question - should I cash my endowment in? details:

Legal and General
start: 10/12/92
end: 10/12/17
Sum assured: 57k
Basic sum assured: 21K
Premium: 76.74
Bonus 7.4k
current grtd bonus 54%
Surrender value: 16.7k rising to 17.3k in dec 07
Offer: 17.7k

Projection:
as is with 6% 40.1k
paid up (at £13.3k) with 6%: 29.4k (and loss of life cover)

Do not need the life cover at moment as both works offer more than this in service.
Mortgage is basically paid off so do not need it for that.

Thanks in advance,
Chris

ChrissyR_2

Hi,
an update:
I have just received a quote from an endowment buyer for £18.3k


I also read in one of the other threads that some quotes from companies do not include the terminal bonus - how do I know if L&G is one of these?

So could that mean that when they say £40k at 6% that could be more ie
£40K + ((40k-sum assured (ie bonuses)) * terminal bonus)

But how would the bonus go from 7K to 20k at about 2.5% per year for 11 years?

Any info or advice much appreciated.

Thanks,
Chris

dunstonh

I dont believe L&G include the terminal bonus on endowments. They dont on their pensions so there is little reason to think they would on other plans.

But how would the bonus go from 7K to 20k at about 2.5% per year for 11 years?

annual bonuses are going to be low and remain low. L&G will probably hover around the 4% mark. However, its going to be the terminal bonus where the future potential is and that is because terminal bonuses are not guaranteed. They are able to adjust those if there is a stockmarket crash unlike annual bonuses which once added cannot be taken away. It was the high annual bonuses in past years that caused problems in the last crash and put a number of insurance companies under strain.

ChrissyR_2

Thanks for that Dunston.

Even with 4% for 11 years added to the current £7 bonus this would not take it to the £34k they quote for this for the 4% hence the reason I thought it included the bonus. Suppose I need to call them and ask what is included.

They did raise their terminal bonus this year by quite a lot (and was one of the things they pointed out to me when I asked about surrendering it) but can these go done as well as up depending on the current market - so it is just a 'random timed' chance!

Am trying to see if I take out now and invest would it be better (to cut my losses).
Pro seem to be that I would assume I could get better than 4% with just a split between ISA cash and shares (saw your GEB suggestion-good post) and plus have more control over the timing ie if 2017 look bad I could wait.
Con seems to be that some people will buy it so it is obviously worth something!

Thanks,
Chris

dunstonh

L&G are a with profits provider in the second tier. If you put NU and Pru top, then L&G come next. You wouldnt want your business in the with profits fund if you can help it but it wont be an absolute disaster if it is (unlike some others).

If you are willing to take an investment option with more modern style investments (such as the DIY GEB option ) then you certainly have more potential for gain. Its just really a case of how much the penalty is for coming out. You would be taking a step backwards if you surrender but sometimes you have to take a step back to go two forwards.

ChrissyR_2

Thanks Dunston.

I actually got a a couple of quotes for the purchase (which were not that great really) but one question that did spring to mind is the tax implications if we selling\surrendering.
There were a few rules mentioned that clearly passed (ie been running for 15 years, regular payments) but there was another rule about payments being at least 3/4 of the final value - but which one -assured sum, 4% estimate, plus final bonus? Is there a website that would explain and calculate this for me?

I am assuming if I leave to mature there are no tax implications?


The penalty I am looking at is that I will have paid about £14k, and will get £18k (assuming no tax). If I had just saved in an account it would be about £20k (at 5%py) so no big deal (except the thought of some git in L&G driving around in a BMW which I paid for!).
Obviously if I'd invested - but we live and learn.

dunstonh

The easist rule to remember is if its done more than 10 years then it is exceedingly unlikely to give rise to a tax liability. It would have to be a damned good one for that to happen and you needing to break one of the other qualifying rules (which rarely happens).

ChrissyR_2

Hi dunston,

again thanks - you do see to explain things so they are easily understood (assume as I may have 'contract' with companies I am trying to do business with they have rules they have to abide by which make a straight answer somewhat not easy).

Just to go back a bit you mentioned that L&G should hover around 4% - the bonus this year was 2% - is the rest added to the terminal bonus - this went from 34% to 54%?
I can understand why cos they want to keep me until the end and so load that part as an incentive. This is the bit that is putting me in two mind ie I could just set it to paid up and leave it (as I don't need the money) but think paying in more not the best way to invest the money.

Chris

dunstonh

the bonus this year was 2% - is the rest added to the terminal bonus - this went from 34% to 54%?

The annual bonuses are going to be low from now one. The bulk of the returns is going to be in the terminal bonus. It leads to the awkward position of projections appearing to remain the same or go down whilst the overall value seems to go up much quicker. Part of the flaws in the system.

but think paying in more not the best way to invest the money.

Ahh, thats the crystal ball job we all wish we knew the answer too.

I am a higher risk investor so I would probably go with the alternative options. However, L&G could still come right.

ChrissyR_2

I am a higher risk investor so I would probably go with the alternative options. However, L&G could still come right.
Two FA sitting on a fence - what only two;) (or :beer: cos your advice is good)

Actually just run through the figures on a simple spreadsheet and if I add 2% each year (plus my contribution) and then add 54% of the added bonus I get the same figure as the L&G has sent me for 4% so I am beginning to think they are added in - which makes them look not as good!

But then taking my £18.5k and investing it seem I would only need to get about 2.5% pa (plus adding the yearly payin) to get to the same - (this might be a bit cheeky but are my figure about right?). But that assume the termonal bonus doe snot go above 54%.

To tell the truth one of my main concerns is the time dependency of it - ie if the money is outside and 2017 look rubbish I can leave it but with the E it's set in stone!

Chris

ChrissyR_2

I've managed to speak to L&G and they have said that the split on the surrender value is 13325 (which is what they quoted as the payed up value and about what I have paid in) and 3360 as the bonus part.
Now the current bonus is 7385 so am I getting really hit for cashing in ie I am getting less than 60% of the current bonus (nearer 45%) plus losing the 54% terminal bonus completely.

They say they cannot offer what they think the growth would be and said the 4/6/8% is just what they have to produce but put no weight behind any of them. They are currently running at 2% (0.75% on sum assured and 1.75% on bonus).

They did suggest another surrender value for Dec 07 (ie the actual 15th year ) which was some £650 more which they are suppose to be ringing me tomorrow to say how they came about this.

I am still in two minds to wait until next statement to see how it is increasing as I am just unsure at the moment.