Calculator needed on phoenix zombie endowment

bennyuk

I wish I'd found this site years ago....

I have a zombie phoenix (ex Roy Sun Al) with profits endowment policy for £116k as my mortgage.
I've had it 10 years, 15 to go. Currently it's perfoming at 0.2%!!!! grrrrr

It looks to me like the terminal final bonus needs to be around 30% to reach the 3.75% overall projection (leaving me a shorftfall of £32k). Problem is, that final bonus is no way guaranteed.

Is there a calculator, or some advise I can get on how much I could get if I took the surrender value of £22k, plus monthly payments of £215 and invested it in some other investment vehicle for 10 years?

Thanks in advance for any wisdom,

Ben

Death benefit £116,112
Guaranteed basic sum assured £52,907
Declared bonuses up to dec 06 (inc) £5612
Surrender value (28/9/07) £22,029
Monthly payment £215.85
maturity date 20/11/2022
maturity forecasts 3.75% £83,900
5.5% 100,000
current performance 0.25%

shaunrc

Hi Ben

I have been doing some work in this area ( I am an IFA) and have a further question for you. This is do you know the investment spread for this endowment?

I can see you have plenty of numbers and are wondering what you might get. This is all reasonable but in my view to make progress you need to know where the money is invested.If you are able to get it then it will provide some clues in itself and I can use it for two purposes.

1. To explain what has happened

2. Give an idea of likely return.

Also please do not take this as advice but instead as help as I am an IFA and work under regulated rules.

Shaun

bennyuk

Hi Shaun,

Thanks for the reply. Looking through the Phoenix literature it looks like the proportions of shares and property are 36% / 25% (which leads me to guess that the remaining 39% must be cash or equivalent).

Also, reading through, it appears that 25year policies maturing now, have a terminal bonus of 30%, but the expected payouts in the future will be less each year.

My initial thoughts are to cash it in and try to find some sort of 10 year investment that I can also top up each month (so that may need to be a mix of funds and investments/savings).

I can't see that the risk of waiting 10 years for a suspect terminal bonus is worth the stress.

Is it reasonable to me to expect to get some sort of 10 year plan with an average of 10% interest per year?

shaunrc

Hi Ben

There are several issues to consider. But first I would like to return to the investment spread and ask what date your figures relate to. One of the issues with this type of bond is that people have made a long term investment based on an investment strategy and in many cases it has changed. Another is that by its very nature the funds are opaque.

So far you may not be in a zombie fund but if you are using initial literature it may be out of date.

The other part will be either in gilts/corporate bonds or cash.If you could find the figures for these it would help as I particular views on each.

An underlying issue is that the numbers are usually not so easy to find and these bonds are in some respects a relic of a bygone age!

Shaun

bennyuk

Hi Shaun

It's definately a zombie fund, even the people at Phoenix confirmed that on the phone.

As for the investment spread, the figures were taken from a leaflet received last week that gives breakdowns of the funds. Mine comes uner the area of those to mature on or after 2020 (the last lot in this zombie).

You are corect about the gilts/bonds, as the latest leaflet does not specifically mention this, but previous bonus declarations have mentioned this. Actually, previous bonus declarations have mentioned different investment spread %'s for each year; and the literature from Phoenix is washy and does say that the investment spreads are subject to change year on year.

EdInvestor

Hi Bennyuk

I'll do you a calculation but can you tell me what interest rate you are paying on the mortgage?

bennyuk

Here's where it gets complicated. Psychologically I have told myself that the RSA / Phoenix endowment shower of a thing is not going to pay off my mortgage, (actually my mortgage is £160k now) which is now a firstdirect offset mortgage (currently just over 6%).

I am reducing the amount every six month with lump sums, and due to quite a few family deaths I have £110k (most of which is a family loan which I cannot actually "spend") of savings to offest the £160k, plus wll be getting another £80k when sale of recently passed away grans flat goes through.

So I am then planning to keep £160k in my offset account to bring monthly interest payments down to zero. and with any surplus, invest/save it.

The reason that I am not paying off the mortgage quite yet, is because I am self-employed, it would be hard for me to get another mortgage is I wanted to move again, so keeping the mortgage on is very usefull to me.

So, this leaves the endowment as a sort of pension plan.

EdInvestor

bennyuk wrote: »

maturity forecasts 3.75% £83,900
5.5% 100,000
current performance 0.25%

If you surrendered the policy and used the lump sum to reduce the mortgage also paying in the monthly premiums to the offset @6% up to maturity, your return would be 115,068 and that would be a guaranteed return.

If you want a risk based return like the endowment, then you would look at a growth rate over the period of 7.5% in unit trusts (feeding the money into a stocks and shares ISA over three years or so) and producing an eventual return of 135,600.

On the assumption you do not need the life cover or can replace it at no significant cost, then I would bin this one and choose one of the two alternatives above. Old fashioned plans like endowments are no longer suitable for investment as they have high charges, are highly taxed and have limited fund choice.

bennyuk

Thanks EdInvestor

You've confirmed my thoughts on binning the endowment (I'll see if anyone wants to buy the old zombie from).

However, I don't understand where you say that putting the money into the offset would give me a "return of 115,068"? Surely if I put anything into the offset mortgage it just reduces my martgage payments, but does not actually return any money to me. (unless by "return" you mean money saved, over 15 years).

Great advice, many thanks, is good to know that you think 7.5% is a typical target for unit trusts.

All in all, it confirms that I need to get rid of the zombie and move on.

Thanks to EdInvestor and Shaun

shaunrc

Hi Ben

I have some further thoughts for you but as I work in the industry I would just like to say my thoughts are generic and not specific!

In terms of investment strategy you fund is better off than many in that it still has a reasonable amount of its money in equities and property. So you could argue that it is a similar vehicle to what you originally took out.In terms of ownership however presumeably you had some sort of trust in RSA and have found yourself with someone else. I think that companies which offer long term contracts should be made to honour their agreement by keeping it not selling it on because it suits their business plan.

Looking at a with profits policy there is also a view implied in it that the company knows best. It is hard to find out the investment strategy even if you read the relevant document or PPFM. So the information you receive is out of date at best. Also with profits funds have no obligation to pay out what they have made as they smooth their returns so it is hard to tell if they have been fair or unfair. Many of them have given guarantees to policyholders which will affect their investment strategy and hence your returns.

So if you want a policy over which you want clarity and control it isnt it. There may be circumstances where people want others to be in control and in these circumstances a with - profits fund may be of use.But these days I suspect that number has rather thinned out.

The next question would be if you take out an investment where you might like to invest in terms of how much risk you are willing to take. In general the higher the risk the higher the return but there are exceptions. I am a little nervous of Ed's numbers below. One of the aspects of this are that future returns are unknown. If you had an equity based fund in the 80s/early 90s you might think 11% was reasonable based on your experience but then an event like 9/11 occurs and suddenly more like 6/7% seems reasonable.

One other issue is the life cover given by the endowment can be valuable particularly if you are a smoker or have any illnesses so I would be wary of doing anything until you have replaced it. This assumes that you or your family need it.


Also by leaving there will probably be a cost.Many firms do not offer the full value of the policy if you surrender early.Some of this difference you may be able to reclaim if you sale the policy on but probably not all of it.


Anyway whatever you decide I wish you good luck but please think it through carefully.What returns you get will depend on the funds you select.

Shaun

shaunrc

Hi Ben

I have some further thoughts for you but as I work in the industry I would just like to say my thoughts are generic and not specific!

In terms of investment strategy you fund is better off than many in that it still has a reasonable amount of its money in equities and property. So you could argue that it is a similar vehicle to what you originally took out.In terms of ownership however presumeably you had some sort of trust in RSA and have found yourself with someone else. I think that companies which offer long term contracts should be made to honour their agreement by keeping it not selling it on because it suits their business plan.

Looking at a with profits policy there is also a view implied in it that the company knows best. It is hard to find out the investment strategy even if you read the relevant document or PPFM. So the information you receive is out of date at best. Also with profits funds have no obligation to pay out what they have made as they smooth their returns so it is hard to tell if they have been fair or unfair. Many of them have given guarantees to policyholders which will affect their investment strategy and hence your returns.

So if you want a policy over which you want clarity and control it isnt it. There may be circumstances where people want others to be in control and in these circumstances a with - profits fund may be of use.But these days I suspect that number has rather thinned out.

The next question would be if you take out an investment where you might like to invest in terms of how much risk you are willing to take. In general the higher the risk the higher the return but there are exceptions. I am a little nervous of Ed's numbers below. One of the aspects of this are that future returns are unknown. If you had an equity based fund in the 80s/early 90s you might think 11% was reasonable based on your experience but then an event like 9/11 occurs and suddenly more like 6/7% seems reasonable.

One other issue is the life cover given by the endowment can be valuable particularly if you are a smoker or have any illnesses so I would be wary of doing anything until you have replaced it. This assumes that you or your family need it.


Also by leaving there will probably be a cost.Many firms do not offer the full value of the policy if you surrender early.Some of this difference you may be able to reclaim if you sale the policy on but probably not all of it.


Anyway whatever you decide I wish you good luck but please think it through carefully.What returns you get will depend on the funds you select.

Shaun