Royal London mortgage endowment policy

Sirlaughalot

Hi Guys,

I have a Royal London mortgage with-profits endowment policy to cover an Abbey National/Santander mortgage that started in 1998. It will shortly have 5 years to run.

These policies were all the rage in the 80`s but our policy along with thousands of others had been performing woefully not even beating the returns of a basic savings account.(around 1.5% annual returns).

These closed funds so-called zombie funds had been left to rot with minimal attention from fund managers.

All of a sudden this zombie fund has sparked into life over the last couple of years achieving annual returns of around 7-8 %. It`s still falling way short of its target maturity expectation and even at these high levels of return will still leave a mortgage shortfall. I`m scratching my head as to why the sudden shock improvement of the fund. I know the stock market is at near record highs but the market has had many highs during the life of this policy and the fund has continually failed to deliver.

Putting on my cynical head is it that fund managers leave these policies unmanaged so that they will be surrendered back to them knowing that in the last period of the fund they will give it more of their attention knowing that profits will soar?

Anyway has anyone had similar experiences to mine and what did you do?

Also with 5 years left to run before maturity are endowments like pensions where the investment portfolio balance is altered to reflect less risky investments

Thanks in advance

Thrugelmir

There's been a number of good years of stock market returns recently. 7-8% in such times is far from exceptional.

Sirlaughalot

Yes i agree but as i mentioned there have been many highs in the stock market over the 20 years of the policy, The dot com boom etc., But the policy never duplicated that performance until recently and would just like to know what has suddenly changed

dunstonh

These closed funds so-called zombie funds had been left to rot with minimal attention from fund managers.

Although facts do not quite back up that definition. Returns on many so-called zombie funds are actually pretty good and in some cases quite a bit above market average. Some of them are being run better today than they have ever been.

There has been a bit of assumption in media and internet that a closed fund means its a zombie fund when it isnt.

These policies were all the rage in the 80`s but our policy along with thousands of others had been performing woefully not even beating the returns of a basic savings account.(around 1.5% annual returns).

Most WP funds moved the returns from the annual bonus to the final bonus. Mainly due to solvency reasons. it allowed the companies to pass on gains in good times knowing they could take them back in bad. unlike annual bonuses which do not allow that.

Also with 5 years left to run before maturity are endowments like pensions where the investment portfolio balance is altered to reflect less risky investments

Pensions do not do that unless you happen to be in a minority fund known as a lifestyling fund. A fund that is actually considered to be out-of-date now. Endowments in WP funds do no risk reduction in most cases. I say most as there are a few unit linked endowments that did offer that functionality (either automatic or manual).

Yes i agree but as i mentioned there have been many highs in the stock market over the 20 years of the policy, The dot com boom etc.

And lows. Such as the dot.com crash. Indeed, some WP funds have still yet to recover their pre dot.com crash position (excluding money in/out) due to the change of focus that they had to comply with from the regulator.

Sirlaughalot

dunstonh wrote: »

Although facts do not quite back up that definition. Returns on many so-called zombie funds are actually pretty good and in some cases quite a bit above market average. Some of them are being run better today than they have ever been.

There has been a bit of assumption in media and internet that a closed fund means its a zombie fund when it isn't.



Most WP funds moved the returns from the annual bonus to the final bonus. Mainly due to solvency reasons. it allowed the companies to pass on gains in good times knowing they could take them back in bad. unlike annual bonuses which do not allow that.




Pensions do not do that unless you happen to be in a minority fund known as a lifestyling fund. A fund that is actually considered to be out-of-date now. Endowments in WP funds do no risk reduction in most cases. I say most as there are a few unit linked endowments that did offer that functionality (either automatic or manual).


And lows. Such as the dot.com crash. Indeed, some WP funds have still yet to recover their pre dot.com crash position (excluding money in/out) due to the change of focus that they had to comply with from the regulator.

My WP fund is index linked, when i tried to get a better surrender value than offered by RL by a brokerage firm they said it would be hard to sell to another party.

I have spoken to RL today and they indeed do offer risk reduction when 5 years are left on the policy. They go to 46% shares and the remainder goes property, government bonds etc,

So the next question is would this affect the recent 7-8% gains i`ve been getting and with the terminal bonus being as you suggested optional based on market conditions would it be better to cut my losses and make a capital repayment on the mortgage?

getmore4less

if you cashed in now would the current payment and the endowment payment clear the mortgage in 5 years?

dunstonh

My WP fund is index linked, when i tried to get a better surrender value than offered by RL by a brokerage firm they said it would be hard to sell to another party.

The market for third party endowments is virtually dead. It is now a small market due to the small number of endowments still running and those left have near maturity dates.

So the next question is would this affect the recent 7-8% gains i`ve been getting and with the terminal bonus being as you suggested optional based on market conditions would it be better to cut my losses and make a capital repayment on the mortgage?

What is the cost for early surrender vs the current position?

Sirlaughalot

getmore4less wrote: »

if you cashed in now would the current payment and the endowment payment clear the mortgage in 5 years?

No. I would still need £30K spread over 5 years about £500 on top of my normal mortgage amount.

Not quite that bad as i have saved a monthly amount since i last posted

Sirlaughalot

dunstonh wrote: »

The market for third party endowments is virtually dead. It is now a small market due to the small number of endowments still running and those left have near maturity dates.



What is the cost for early surrender vs the current position?

Would be left with a £30K shortfall but not quite that bad as i thought savings at 2.5%/ 3% was better than capital repayment @ 1.25%. so i have a small nest egg to offset some of that 30K

Sirlaughalot

The terminal bonus is this calculated/paid annually? Is there historical performance data available on the net for these type of funds?