TEP's and School fees plan

john.s_8

I have been looking at this site www.schoolfeesplanning.co.uk and have had some further conversations with them. At it first it seamed to be to good to be true, but further investigation has made be think harder.
The scheme effectively enables you to fund school fees for several years without having to pay out for them!
You use the equity in your house, plus a specialist leveraged investment loan to purchase TEP'S ( Traded Endowment Policies). These then, over a ten year plan, pay off both the extra mortage, leaverage loan and cover all the school fees and interest etc.
Has enyone done this? Does it work? Would it work?

EdInvestor

Hello John

Err, have you noticed the performance of endowment policies lately? (There's a forum on this very website which covers their failing returns in great detail )

I always feel it's a wise policy never to invest in something you don't understand.

dunstonh

Although editor is correct in the principle of not investing in things you do not understand, I would clarify that TEP funds performance have generally been very good and do not corrospond with the investment performance of the endowment policies themselves. You have to include the fact that the policies are being bought much cheaper than the guaranteed minimum maturity value. So half the of the return is almost guaranteed.

i.e. fund buys policy for £8000 but guaranteed minimum maturity value is £14000. You have a £6000 gain plus any bonuses which will be added in the future.

Also remember that not all endowments are bad. The TEP funds focus on those which are not. Although people have been getting rid of bad endowments, a lot of good endowments have been sold due to the inaccurate projections given out which have put people off.

For example, I came across one today that had a red letter shortfall but the surrender value was higher than the same point on the illustration which, if continued would have shown a significant surplus.

TEP funds can be appropriate and can provide the potential for a decent return. However, I do feel that these tend to be sold mainly on big presentations and roadshows. Possibly, the average person doesnt like messing around with the equity in their home.

EdInvestor

What is it about school fees plans?

Last time round it was zeros (split caps) IIRC :rolleyes:

john.s_8

Thanks dunstonh and editor for comments,

Its not that I do not understand, it's more that it just seams to good to be true! Having looked at it in some detail I can see how the plan works and because the TEP's do have a set guaranteed minimum maturity value you, it becomes a medium risk. I just wondered if anyone had looked into this themselves and if anyone has taken it up. When looking at things like this, as you say useing your equity in the house, you want as much information as possible!

EdInvestor

....because the TEP's do have a set guaranteed minimum maturity value you, it becomes a medium risk.

Just to remind of Equitable Life where a guarantee wasn't a real guarantee: it does happen. It's to be hoped that Equitable is a one-off, but I can't guarantee it .

Deplorably, the Ombudsman has been of no help whatsoever in compensating people for their losses in that case, so be warned.

dunstonh

A guaranteed minimum fund value is not the same as guaranteed annuity rate that was present on Eq Life. In addition, these funds focus on the stronger providers and not your NPI or Pearl for example.

EdInvestor

A guaranteed minimum fund value is not the same as guaranteed annuity rate

Indeed it's not, and both of them turned out to be not necessarily guaranteed at Equitable - many people's policies have been cut below their original guaranteed value, even on maturity.

I would just say that posters should treat TEPs with caution.There are plenty of other much better long term investments around, why take the risk?

dunstonh

I'm neither saying as they are good or bad. The fact I have always avoided them from a professional point of view perhaps indicates my feelings. However, like most products, there is a place for them with the right person.

Ok, a rare opinion, I too believe there are safer and simpler solutions which offer just the same potential.

EdInvestor

I see the Telegraph has a piece on this today.

Frankly I would regard those projected maturity values as very suspect in many cases and the comments of the Towry Law man to be much more to the point.