Are the projections for my endowmetns accurate?

stedwell

Hi
I have 3 rather naff endowments. All are underachieving. 1 with Scottish Widows and 2 with Norwich Union. Meant to make 82,000 but looking at a shortfall of about 20,000. They finish in 6 years and too late now to complain. I have hung onto them cos my IFA has said that the way the FSA regulates the projections does not give realistic figures and that they will do better than is being predicted. Is this the case? Really fed up with all this and not looking forward to worrying for the next 6 years! Is there anybody whose endowment has recently matured? Are they underachieving as badly as predicted? My first and biggest policy started in 1988.
Any thoughts would really be appreciated as I'm a bit lost here. Ta!
(PS thinking seriously about cashing in Scottish Widows as it's small - 11,500 and doing worst of all.)

dunstonh

I have hung onto them cos my IFA has said that the way the FSA regulates the projections does not give realistic figures and that they will do better than is being predicted. Is this the case?

Yes it is.

Is there anybody whose endowment has recently matured?

There are about 15 different types of endowments. Then you have the different providers who over the years offered different versions investing in different areas. What anyone else has doesnt have any impact on what you have. Each one needs to be considered in isolation.

Are they underachieving as badly as predicted?

They are not predictions. They are example projections using three example rates. Those rates may or may not reflect the true potential of the investment. They could understate or overstate the real position and that which is most likely.

With Norwich Union, for example, they have a mortgage promise value and terminal bonus (on with profits versions). Neither of which are included in the projections. So, lets say you have a £8000 shortfall projection at the mid rate, you could have a terminal bonus of £10,000 but that isnt included. So at this point you would be looking at a surplus despite the projection showing a shortfall.

Standard Life have a history of boosting the terminal bonus on maturity. It is very common for them to issue a maturity notice 3 months before maturity with an indication of the amount. Sometimes showing a shortfall. Yet on maturity, the value paid is higher and often in surplus.

I did a review of a Standard Life plan this week that has a target growth rate of 7% a year and it has exceeded that is above track to where it needs to be to hit target and be in a surplus position. Yet the projections at lower and mid show a shortfall. It's just the way the projections work.

EdInvestor

If you want a realistic idea of whether there is any hidden value, try and sell them. The traders know the real worth of endowments.

https://www.apmm.org

stedwell

Ok - I'm having to think carefully about this as I find finance mind boggling. So even though I have a 13,000 shortfall at 4% on my Norwich Union which they say includes any final bonus and even though it didn't perform anywhere near 4% this year - there is still some home that the final figures may not be as bad as they are projecting.

stedwell

Thanks EdInvestor I had been thinking along those lines myself. If they aren't any good then why would anyone want to buy them. Worth a try!

dunstonh

So even though I have a 13,000 shortfall at 4% on my Norwich Union which they say includes any final bonus and even though it didn't perform anywhere near 4% this year - there is still some home that the final figures may not be as bad as they are projecting.

NU projections do not normally include the current terminal bonus. I just looked at the last one I reviewed and final bonus isnt included. Indeed, the final bonus didnt even show on that statement and there is a file note showing that the figure needed to be obtained via NU, along with the mortgage promise value (£26k target, 16k current minimum value, mid projection 20k) Looking at the mid projection (which slightly underestimates current performance) when current terminal bonus accrued was added in and the mortgage promise value put on it was £800 short of target)

Also, NU did perform above 4% in the last year. The annual bonus didnt but the annual bonus plus terminal did.

stedwell

"This projection takes into account the actual performance of your policy up to........etc etc, including any final bonus." (From this years update).
My advisor said they performed at 1.5%. Is that because she was looking only at the annual bonus. I'm not disputing what you are saying but just trying to get the situation straight in my mind. I have been told so many different things that I am rather muddled.

dunstonh

"This projection takes into account the actual performance of your policy up to........etc etc, including any final bonus." (From this years update).

Interesting. Although NU issued many different versions over the years and of course they bought a number of companies who all operated differently. This makes it difficult when you havent got the documentation in front of you.

My advisor said they performed at 1.5%. Is that because she was looking only at the annual bonus.

Yes. Annual bonuses are low and will remain low. The bulk of the returns are going to be built into the terminal bonus (and that has been the case for the last 3 years or so).

Do you have a mortgage promise value on your endowment? That certainly isnt included in any projection.

stedwell

I have never seen anything in the policy termed as a mortgage promise value. I have a minimum life cover which will pay at the end. Is the same thing?

EdInvestor

Only some people have mortgage promises: you had to be in shortfall in the year 2000 IIRC. You can always ask if there is any mortgage promise value.

Obviously you do need to bear in mind that any terminal bonus is not guaranteed.

Post some info on the policies and we can take a look:

Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
Maturity forecasts
Interest rate payable on mortgage

stedwell

Thanks edinvestor. I will come back to you with the surrender value. I am ringing on monday. I do realise that the terminal bonus is not guaranteed but I thought NU were better than most?? Also I did have a shortfall in 2000. Does this mean I should have a mortgage promise and what does IIRC mean? Thanks

Target amount - 51,000
Guaranteed sum - 16,799 (Is this the minimum life assurance amount?)
Declared bonuses - 13, 579
Surrender Value - ?
Monthly premium - 77.60
Maturity Date - 1 Aug 2013
Maturity forcasts - 4% 37,900 6% 43,400 8% 50,300
Interest rate on mortgage - 4.69% for another 3 years