Endowment -should I take the money now?

jimatko

It isn't that the market makers think the wp funds will make 7-8% (per annum going forward) but because they are buying assets at less than net asset value.

Some wp funds will make the square root of !!!!!! all until maturity but still make a good return for the purchaser because of the amount paid for the plan. That is the second hand market.

Of course the only reason the market exisits is because the insurers themselves are offering way below net asset value on surrender.

If end purchasers, market makers and brokers are all making money from the 2nd hand market imagine how much money insurers are making from surrendered plans by offering low surrender figures?

The way to tell how much a policy will yield (as a purchaser) is to go to a market maker and buy one. YThey don't have the info on their websites for very obvious reasons. They would be saying on the one hand "look how much you can get from selling your investment" and on another section saying "look how much you can make by buying second endowments". It would put sellers off!!!

Clearly yields on buying a 2nd hand policy are far more attractive for higher rate taxpayers as there is no further liability to tax.

By the way I'm not talking about wp bonds here. Current asset allocation on them is far more important.

EdInvestor

jimatko wrote: »

Any purchaser of a 2nd hand endowment policy will be looking for a risk premium for doing so. They will be expecting returns to maturity circa 7-8% pa.For plans close to maturity remember that buyers are looking for a low risk investment that will pay a premium over cash. On top of that the market maker and broker will make a margin.

Most buyers of TEPs these days are German investors who are looking for a guaranteed return over cash in Euros, where the interest rate is currently 3%.

So any thoughts of a 7-8% return are way off the mark, but an underlying return of 4-5% might still supply a return to the investor and a margin to the trader,just.But pretty vanishingly small, thus I doubt there will be much interest in Widows policies.

EdInvestor

jimatko wrote: »

The way to tell how much a policy will yield (as a purchaser) is to go to a market maker and buy one. They don't have the info on their websites for very obvious reasons.

Sure they do.

http://www.foster-and-cranfield.co.uk/endowment-auction-catalogue.htm

It's quite a transparent market in fact - though of little interest in the UK these days.Much more transparent than the underlying product....:cool:

jimatko

Ed,

I agree it is a transparent market. That said I doubt you would know how much to bid on the Foster's site Try and find much info you can find on purchasers sites.

The point I'm making is that if someone wants to buy your policy they will expect a reasonable return for doing so. If a plan has only a few years to go why not keep hold of it and keep that return yourself.

TEP funds are yielding a bit less than I thought, about 6%, add on top an amc of probably 1.5% then you are talking a gross yield which isn't too bad for not much risk (although I'd personally buy a policy rather than fund).