Can someone please advise on my endowment ?

Somerset

i just got my 2006 statement today. If the endowment is performing reasonably I'd rather keep it just because it's a little 'pot' I don't count as savings and won't be tempted to spend. Can someone have a look and tell me what they think ?

Legal & General
Maturity Date : 07/11/14
Basic : £ 18,360
Existing Bonuses : £ 9887
2006 Annual Bonus rate applied to basic sum assured : 0.75%
2006 Annual bonus rate applied to existing bonuses : 1.25%
Total annual bonus added for 2006 : £ 261.30
Total of basic sum assured and annual bonuses to 31/12/06 : £ 28,508.80
Current final bonus rate : 91%

The statement says '' the amount of final bonus you get would be calculated by taking the final bonus rate at the time and multiplying it by the amount of existing bonuses you have ''.

So if the maturity date of this policy were tomorrow, I would receive the £ 18,360 basic plus £ 9,887 existing plus £ 261.30 2006 actual plus £ 9234.95 ( 91% of £ 9887 + £ 261.30 ) Total £ 37,743.25. Is this correct ?

So I'm actually guaranteed at this point the £ 18,360 plus £ 9,887 plus £ 261.30 = £ 28,508.30. The final bonus rate could in theory disappear, although unlikely.

So questions are ;
1 ) Are my annual bonus amounts from 2007 to 2014 likely to rise ? I thought you got little at the beginning but they rose as the endowment ages - is that right ?
2 ) Is the final bonus rate, currently 91%, a reasonable expectation ?
3 ) I think this is in just a ' general with profits fund '. I rang L&G before to ask them and that's what they said. Are L&G performing ok ie I don't think it's a zombie fund but I really don't know.

Basically what do people think ? Thanks.

Somerset

Forgot to add - endowment started in 1989 for 25 years. Monthly premium is £ 73.10.

EdInvestor

Can you post a bit more info?

Surrender value
Maturity forecasts
Interest rate payable on mortgage


Then we can take a view.

Somerset

EdInvestor thanks

I'll ring L&G Wednesday and get current surrender value.

On the maturity value, do you mean the 4% 6% 8% forecasts they send out when they advise you there might be a shortfall ? I haven't had one of those in about two years. Or do you mean something else ?

The mortgage interest rate isn't relevant. This question is about whether the endowment is worth keeping as a long term investment ( 7 years ) or if it's never going to produce a reasonable return.

dunstonh

Projections are a bit misleading.

I did a review of a Standard Life one yesterday and it has a target growth rate of 7%. It has been exceeding that target growth rate just and if that continued until maturity, it would pay a surplus. Yet the projections at lower and middle show a shortfall. So, the endowment is on track as it was originally set up to pay a surplus.

L&G certainly have 6% within their potential but you will need to remember that the projections on with profits plans rarely include current accrued terminal bonuses. This also tends to understate the real position.

EdInvestor

Somerset wrote: »

On the maturity value, do you mean the 4% 6% 8% forecasts they send out when they advise you there might be a shortfall ?[/quite]

Yes.

The mortgage interest rate isn't relevant. This question is about whether the endowment is worth keeping as a long term investment ( 7 years ) or if it's never going to produce a reasonable return.

What do you regard as a reasonable return?

Somerset

dunstonh wrote: »

L&G certainly have 6% within their potential but you will need to remember that the projections on with profits plans rarely include current accrued terminal bonuses. This also tends to understate the real position.

So back to the core question - how can I evaluate how good or bad the endowment is, and consequently whether to keep or surrender/sell it ?

I take your point about terminal bonuses not being included in the projections. So how do I work out what it's likely to be worth ?

Somerset

Ed

Ok, on the projections front, I'll ask L&G tomorrow but I suspect they won't produce it for me. The last one I had was about 2 years ago so will be unreliable now ? And I suspect they do 'runs' of them periodically so I doubt they'll do a 'one-off' for me tomorrow - but I'll ask.

A ''reasonable return ''. When I had a surrender value from L&G two years ago it was about 20K. If I assume that it now has a surrender value of 22K (?) , and invested that 22K in a savings account paying 6% gross ( net it to deduct tax ), compound that to 2014 - then I would know what the cash value in an account would be. I can do that calculation. But I can't work out the equivilant on the endowment ie what it will be worth in 2014 because the workings seem to be shrouded in mystery. I don't know what the terminal % will be, whether it'll be reduced because it's a bad fund as opposed to normal market conditions.

I just get the feeling it's a lottery and a person only knows whether they win or lose on maturity - there must be a way of assessing it as it goes along so that a person can cut their losses. if it doesn't look good. But I don't know how to do it.

Somerset

Spoke to L&G today - and I must say I was impressed with their competence and attitude.

Current surrender value : £ 27,860.30

4% : £ 43,000.00
6% : £ 48,600.00
8% : £ 54,800.00

dunstonh L&G said there is some percentage of the final bonus included in the projections above but the % is decided by the actuaries and is not a full %.

What do you guys think ?

EdInvestor

Somerset wrote: »

4% : £ 43,000.00
6% : £ 48,600.00
8% : £ 54,800.00

The L&G WP fund is expected to perform in the 5-6% percentage range long term based on its asset mix, thus you can expect a return of around 45k at maturity.

You would however expect a higher return in the region of 7-8% from a risk based product like an endowmewnt: a 7% return would generate 52,602 at maturity.

if you wanted a guaranteed return and surrendered the policy, investing in cash @6% you would get 49,481 at amaturity.At 5% the return would be 46,526.The above assumes you are also investing the monthly premiums.

This endowment looks unlikely to produce more than a risk free cash return, although it does include life cover.

If you want a risk based investment IMHO you'd be better to cash in and put the proceeds in a tax free ISA (endowment gains are taxed) into some decent modern funds. And if you want a guaranteed return you'd be better to cash in and put the money in tax free National Savings index linked certificates.

You could try to sell, to see if anyone thinks there's any hidden value in the policy:

https://www.apmm.org

Somerset

Ed, if I assume 5.5% that gives a projected maturity of approx £ 47,200 but dunstonh said L&G didn't include terminal bonuses in their projection numbers so then this £ 47,200 could be way out ??