Scottish Widows Endowment Advice please

m_c_s

I have a scot widows endowment:

Matures 2014
Pay £50pm
Payments left £4200
Sum assured £10190
Bonus to date £1895
Surrender value as of today £8810

Projections for growth [EMAIL="£16300@4%"]£16300@4%[/EMAIL] and [EMAIL="£21000@8%"]£21000@8%[/EMAIL]

Interest only mortgage is £82000 @4.64% until 2009 and I have £34000 in MaxiISAs/PEP. I pay £250pm into Maxi ISA each year. I was hoping to pay off mortgage in 2013/2014 with a combination of endowment and ISAs with some extra cash for a world cruise with misses;) .

I put endowment details on www.apmm.org to sell but received no offers! I assume therefore it is not a good performer:rolleyes: . Is it sensible to surrender the endowment and pay off some of the mortgage (I will drip feed over the next year and pay £500pm off capital since this is maxmium allowed) and then put the £50pm into the ISA or other investment/savings vehicle?


Any help would be welcome...thanks.

EdInvestor

m_c_s wrote: »

I put endowment details on www.apmm.org to sell but received no offers! I assume therefore it is not a good performer:rolleyes: . Is it sensible to surrender the endowment and pay off some of the mortgage (I will drip feed over the next year and pay £500pm off capital since this is maxmium allowed) and then put the £50pm into the ISA or other investment/savings vehicle?

Yes.The problem at Widows is that it has a lot of pension investors in the With profits fund who have hefty guaranteed annuity policies.They are ahead of you in the queue for the WP profits. It's best to leave.

Spirit_2

The link https://www.endowmentcheck.co.uk will calculate the maturity value at current bonus rates. It is very straightforward. It does cost - 4.99, but may be of help to you.

m_c_s

Thankyou for replying, it looks like this Scottish Widows endowment may not be a good vehicle to pay off part of my mortgage. I have been told to hold on until 2014 by an IFA (spoke to one this morning) since he believes that 6% to 8% growth is possible but reading your replies it sounds like this return will never be realised.

dunstonh

I have been told to hold on until 2014 by an IFA (spoke to one this morning) since he believes that 6% to 8% growth is possible but reading your replies it sounds like this return will never be realised.

Nobody knows. Its a judgement call you need to make. The SW WP fund is not the strongest but its not just the reduced protential growth in future but also the penalty to exit.

C/V = £12,085 plus terminal bonus (not mentioned in your post)
S/V = £8,810
S/V + payments = £13,010

So, unless the terminal bonus is currently worth more than just under £1000 I would be included to call it a day.
4% is certainly within the potential so your cost of keeping is £13,010 and 4% would give you £16,300. A gain of just £3,290. Not big enough to make it worthwhile.

m_c_s

Thanks for your thoughts dunstonh, current terminal bonus is £2817, so the numbers are not clear. As you say it is a judgement call which I will have to make - life is never easy! I just feel that 4% return is not great but then again the IFA is spoke to this morning indicated that 6 to 8% was possible:rolleyes: .

dunstonh

I dont think 8% is probable. I would estimate between 4 and 6% with the bulk of the return being reflected in the terminal bonus.

Revising the figures now you mention the TB, the cost to keep (SV + premiums) remains £13,010. C/V = £14,902. So, if you assumed no more growth and no change in terminal bonus, you will make £1892.

I havent seen a Scot Wid WP endowment projection for some time (seen a lot of unit linked Scot Wid plans). Does the projection take into account the current terminal bonus. Many do not. It would state if it does.

Lets compare against an ISA with no initial charges and 7% p.a. growth.

£50pm for 7 years at 7%p.a. = £5387
S/V for 7 years at 7%p.a. = £14,147
Add those together then you get £19,534.

So, if you dont need the life cover, the ISA still gives you the unknown future return but 7% is a fair projection for similar risk and in this case gives the better figure.

m_c_s

Thanks again dunstonh, the formal written quote I got from SW yesterday does not state a terminal bonus in relation to the projected growth figures - so I assume this is making the endowment a bit more attractive?
Projection @4% with TB = £19117
If more than 4% then this would return better than ISA I think.

dunstonh

It makes it a bit more attractive if its not included. It really then comes down to your risk profile and whether you believe a decent spread of funds in an ISA will give you better potential for growth in the remaining years.

Personally, I would go with the ISA and pick a spread of funds and go with the increased potential with the view of getting double digit returns. However, if you were going to use a FTSE tracker or similar then that wouldnt be good enough to make it worthwhile. I think what we have seen here is a case of all the options really being very similar. I think holding on to next Spring is probably the best option now. Lets see what next years bonus announcement is like and how the terminal bonus gets adjusted. With this year being a mixed bag for investments, next years bonus announcement will give a clue to the strength of the Scot Wid WP fund.

m_c_s

Thanks again for the thoughts, cleared up a few things in my mind. At least I have a few options and some time to make a decision.

EdInvestor

I suggest you actually ask Widows whether the projections include terminal bonus amount rather than just assume they don't.Dunstonh has been wrong on this issue before.