Standard Life,loanback,projections - DFW

Spirit_2

We have held a Standard Life endowment for 24 years (1983) it is due to mature in May 2008. We pay 47 per month premium.

We purchased a second SL endowment in 1985, but subsequently sold it 10 years later to pay for a new kitchen in new house. We kept the first policy though as although no longer needed for the mortgage it was to be a good investment.

In 2003 times were hard and we borrowed 26000 against the policy (with SL). The interest on this is 150 per month. LBM in the last few days and so I do need advice.

I have checked on-line with SL this morning.

• Surrender value today (incl final bonus) 35473 - repay 26000 = 9473 net

At maturity (May 08) projections are - 36800, 37500, 37800 if they achieve growth of 3.75%,5.5% or 7.25%.

To achieve any of this I have to pay 150 x 9months and of course 47x 9 months, about 1800 in total.

• The middle projection 37300-1800 = 35500 - 26000 = 9500.

Should we give this up now? You will see from my signature that this would make a very big dent in the debts.

EdInvestor

What is the highest interest rate you are paying on the debts?You appear to be paying 6.9% on the loan based on the endowment

The SL WP fund isn't likely to produce a return higher than 5%.On the other hand this policy should be getting tax relief, being an old one, which could push the return up to 6%.

It also includes life cover which may (or may not) be important to you.

Holding to maturity might also result in a slightly better terminal bonus than indicated in the projections.

Not much in it really. If you could use the money to get rid of debts with much higher interest rates, it would be worth doing.

dunstonh

If you give up the endowment before maturity the guaranteed sum assured will be reduced, the terminal bonus will be lower and there will be no mortgage promise value. This policy also gets LAPR tax relief on the remaining contributions.

Old conventional with profits endowments with Standard Life are notorious for issuing projections which are very much understated in the final outcome. We have seen many occurances of even the 3 month maturity notice coming in many thousands of pounds lower in its estimated value compared to the final value.

At this later a stage, you should stick to the end as you would be almost certainly throwing away more by surrendering it now.

Spirit_2

dunstonh wrote: »

If you give up the endowment before maturity the guaranteed sum assured will be reduced, the terminal bonus will be lower and there will be no mortgage promise value. This policy also gets LAPR tax relief on the remaining contributions.

Old conventional with profits endowments with Standard Life are notorious for issuing projections which are very much understated in the final outcome. We have seen many occurances of even the 3 month maturity notice coming in many thousands of pounds lower in its estimated value compared to the final value.

At this later a stage, you should stick to the end as you would be almost certainly throwing away more by surrendering it now.

What is LAPR relief and how do I know if we are getting it?

dunstonh

LAPR = life assurance premium relief and was abolished in 1984 for new business. Existing plans kept it.

It is claimed at source by standard life so you do nothing.

EdInvestor

It's the tax relief I mentioned.

The other thing to consider for soeone coming up to maturity is the fact that terminal bonuses at Standard life (and many other companies) are still falling.

http://www.telegraph.co.uk/money/mai.../cmendow12.xml

This can lead to the unfortunate situation where you pay in 18 months premiums only to discover that at the end you get the same back as the surrender value 18 months earlier.

In some cases people have received less.

dunstonh

The other thing to consider for soeone coming up to maturity is the fact that terminal bonuses at Standard life (and many other companies) are still falling.

That is completely wrong and a total misread of the data. It isn't the first time you have said this and each time you get corrected but you continue to post it.

Terminal bonuses have been increasing again since 2004. The article you link to shows average over a period. It doesn't indicate year by year performance.

Its embarrassing for you that you continue to post this misinformation and lead unsuspecting posters towards decisions which is based on inaccurate reading of data. It also isnt fair on the posters here who read what you say thinking you may actually know what you are talking about.

EdInvestor

This information is not wrong.

Indeed, the overall return on Standard Life 25-year endowments has fallen every year for the past seven years....That is why financial advisers say people with 25-year endowments that have not yet matured need to think carefully as to whether they should continue with their investment. Of course, it does depend on your individual circumstances and whether you need the money that is available if you cash in.

dunstonh

It is wrong how you are using it.

Just ask the Standard Life policy holders here how their values have jumped up in recent years mainly due to the increasing final bonus.

Every year performance is unique. Lets say we have a line of 10 values and each year the oldest drops off and is replaced with current performance.

10, 9, 8, 8, 7, 5, 2, 1, 3, 4.

So, if 10 drops off and is replaced by 5 it shows a 10 year performance lower than the previous year. 9, 8, 8, 7, 5, 2, 1, 3, 4, 5

The following year 9% drops off and is replaced by 6%. Again this shows 10 year performance lower than the year before. 8, 8, 7, 5, 2, 1, 3, 4, 5, 6

So, it looks like performance is getting lower as the overal return has dropped (as a higher year figure has been replaced with a lower year figure) . However, that isnt the case as the performance is getting better every year as the above example shows the rate increasing by 1% a year. The decline has already happened. The figures are increasing currently. Its the individual year performance that matters. Not cumulative.

It doesnt matter to the OP what the performance was 25 years ago as they were not in the endowment 25 years ago. That 25th year that is going to drop off and not have single impact on them whatsoever. They are adding to their policy each year and not having a year drop off which is what is happening in your chart.

EdInvestor

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/08/06/cnstan06.xml

Some figures for 2005/2004.

Spirit_2

dunstonh wrote: »

It is wrong how you are using it.

Just ask the Standard Life policy holders here how their values have jumped up in recent years mainly due to the increasing final bonus.

Every year performance is unique. Lets say we have a line of 10 values and each year the oldest drops off and is replaced with current performance.

10, 9, 8, 8, 7, 5, 2, 1, 3, 4.

So, if 10 drops off and is replaced by 5 it shows a 10 year performance lower than the previous year. 9, 8, 8, 7, 5, 2, 1, 3, 4, 5

The following year 9% drops off and is replaced by 6%. Again this shows 10 year performance lower than the year before. 8, 8, 7, 5, 2, 1, 3, 4, 5, 6

So, it looks like performance is getting lower as the overal return has dropped (as a higher year figure has been replaced with a lower year figure) . However, that isnt the case as the performance is getting better every year as the above example shows the rate increasing by 1% a year. The decline has already happened. The figures are increasing currently. Its the individual year performance that matters. Not cumulative.

It doesnt matter to the OP what the performance was 25 years ago as they were not in the endowment 25 years ago. That 25th year that is going to drop off and not have single impact on them whatsoever. They are adding to their policy each year and not having a year drop off which is what is happening in your chart.

Thankyou for taking the trouble to explain this. Can you direct me to a recent illustration of how recent maturity values have been greater than expectations? I am just off to read the Telegraph article referred to; but it would be good to see how SL has recently worked for others.