Friends Provident endowment - sell or keep?

trf1960

Okay, we have two endowments, one with Standard Life that matures in 2009 and will pay back just short or spot on to its target amount, the other with FP which matures in 2021.

Now, we paid off our mortgage last year so thankfully, the money from both these endowments will be for us to do what we want with. :beer:

My dilemna is whether to keep the FP one going. It was started in July 96 and we pay just under £100 per month with a target maturity amount of £37,990. Current cash-in value is £12,074 (current value without deductions is £13,340). The differences quoted at maturity are @ 4% £33K, @5.5% £39,700 and @ 8% £53,100. FP state that this plan is currently on track to reach the target amount.

Now it doesn't take much to work out that we have not made anything on this account as at today's date - annoyingly I could have just stashed it away in a piggy-bank and got the same return but I appreciate that endowments are supposedly (and questionably) long-term investments !!

So, my question is, would it be more financially sound if we sold off or cashed-in this endowment and invested the money elsewhere (ie. maxi/mini ISA and/or high earning interest account) continuing to pay the £100 per month or just keep it going for the remaining 14 years.

dunstonh

FP endowments usually have access to the internal fund range. These funds are 1% amc charged so quite cheap and offer better potential than with profits.

If the endowment is on track to hit target, then that means it is probably at least averaging 7% p.a. after tax and charges. In which case, you opinion about the piggy bank getting the same return is wrong.

The FP endowment, if unit linked, looks like it could be a cracker as 8% is certainly within the potential.

EdInvestor

trf1960 wrote: »

....with a target maturity amount of £37,990. The differences quoted at maturity are @ 4% £33K, @5.5% £39,700 and @ 8% £53,100. FP state that this plan is currently on track to reach the target amount.

This suggests FP is projecting the endowment will make a 5% average return.

This is pretty dire for a risk-based investment - you can currently get more than that for cash which is guaranteed. Where's the premium foir taking a risk?

I'd be inclined to cash it in and use the money to fill up your annual maxi ISA allowances, choosing a decent selection of funds which are likely to make much better returns than this.

The trouble with these old endowments is that you are paying high charges and taxes which you don't have to pay in an ISA, and life cover which these days is much cheaper, if you need it at all.

trf1960

I must admit, FP saying our plan is 'on track' to meet the target amount of £37.9K did make me think they are doing us no favours. I want to make money and SEE my money making money !

I may have just have a look at what ISA's are paying now (as well as high earning interest accounts) and decide from there.

Thanks to both of you for your advice.

JoeK_3

EdInvestor wrote: »

This suggests FP is projecting the endowment will make a 5% average return.

This is pretty dire for a risk-based investment - you can currently get more than that for cash which is guaranteed. Where's the premium foir taking a risk?

I'd be inclined to cash it in and use the money to fill up your annual maxi ISA allowances, choosing a decent selection of funds which are likely to make much better returns than this.

The trouble with these old endowments is that you are paying high charges and taxes which you don't have to pay in an ISA, and life cover which these days is much cheaper, if you need it at all.

Wow!!!

Moving a poster from a with profits fund to a full blown equity based ISA without assessing their risk profile is both foolhardy and dangerous.

But it doesn't matter, as you aren't qualified to advise anyway.

JoeK

JoeK_3

trf1960 wrote: »

I must admit, FP saying our plan is 'on track' to meet the target amount of £37.9K did make me think they are doing us no favours. I want to make money and SEE my money making money !

I may have just have a look at what ISA's are paying now (as well as high earning interest accounts) and decide from there.

Thanks to both of you for your advice.

What is your risk profile for investing?
Are you cautious/balanced/adventurous?

Do you need to life insurance attached to the endowment?
Does your endowment have critical illness attached to it?

Please see a competent Independent Financial Adviser (IFA) before deciding what to do.

In my opinion there is far to many unqualified people giving advice in connection with endowments.

Opinions are one thing, whilst advice is another.

You should be aware that only an IFA can give advice on an endowment and even some IFA's will not be prepared to comment on them.

As you have already heard, there are good endowments and endowment providers and bad and it's a case of sorting these out.

Not to trash them all.

JoeK

EdInvestor

JoeK wrote: »

Wow!!!

Moving a poster from a with profits fund to a full blown equity based ISA without assessing their risk profile is both foolhardy and dangerous.

The FP endowment would have been around 80% invested in equities when the OP took it out.So clearly whoever "advised" him then judged he was not risk averse.

As you are well aware there is a wide range of risk levels in the broad equities asset category, from very high to low-medium risk.

The OP asked

So, my question is, would it be more financially sound if we sold off or cashed-in this endowment and invested the money elsewhere (ie. maxi/mini ISA and/or high earning interest account) continuing to pay the £100 per month or just keep it going for the remaining 14 years....

...indicating that he was interested in equity risk based investments.After all that's been the case all along.It's the endowment that no longer suits his risk profile, not the other way around..

dunstonh

The FP endowment would have been around 80% invested in equities when the OP took it out.So clearly whoever "advised" him then judged he was not risk averse.

We dont know the investment spread. I dont believe the OP has said which funds he/she is invested in. FP endowments tend to offer a unitised with profits fund as one of the unit linked funds available.

It's the endowment that no longer suits his risk profile, not the other way around..

In what way is an endowment that is on track to pay the mortgage target and has access to funds from across the various sectors at low charges than most unit trust funds in an ISA not suitable for the OP?

EdInvestor

If he's being given an 8% projection, it must be unit li nked, or at least half u/L/unitised WP.

Surely you're not suggesting an endowment is a better wrapper than an ISA?

What about the 20% non refundable corporation tax on capital gains?

dunstonh

Surely you're not suggesting an endowment is a better wrapper than an ISA?

Actually, there are circumstances where the life fund wrapper is better than the ISA. There are circumstances when it is worse.

What about the 20% non refundable corporation tax on capital gains?

What about the 40% IHT on the ISA value which can be avoided on the endowment? What about life funds where no CGT is payable?

So, it depends on what you are trying to avoid. You also need to look at the cost of exiting the endowment and cost of replacement life cover. The ISA may be more tax efficient in one area but if you are paying charges to exit, those charges could be higher than the tax saved.

The decision needs to be made on facts and not guesswork.