Endowment questions

apb1

We took out a mortgage endowment with CU (since subsumed into Aviva) in 1994. This was a mistake, of course, and we've since switched all our mortgage to repayment so the endowment is just savings.

As it's coming up to maturity (November next year) I'm trying to estimate what it will be worth, using the letters we've had from Aviva and their public information on with-profits bonus rates.

I know that there are variables (two years almost to go, plus two years prior - which we won't have - on policies maturing now) but wondered if anyone can help me predict!

So:
I think it's a conventional endowment as it's not unitised pension or bond.
It was meant to be £33,000 on maturity, and we pay £58.70 per month in.
Aviva's latest report - I can't link to it due to forum rules unfortunately - says a policy maturing on 1/1/18 based on £50 per month would be worth £27,027.
This assumes male non-smoker aged 29 which is what I was when we took out our mortgage (it's joint with my partner -female, younger, non-smoker - though).
I presume as my payments are higher the value for this policy maturing now would be higher in proportion i.e. £31,730 (27027 divided by 50 times 58.7).
Tracking these payouts over the last 8 years, they have been declining in value by about 3.6% every year.
So I'm assuming the worst and saying it will decline by 7% for the next two years and I'll be left with £27,443.
QUESTION ONE: is this method (bearing in mind assumptions) a reasonable way to estimate (not guarantee, just estimate) a rough payout?

The other source of information is alarming letters from Aviva
The latest was in October last year and suggested:
If growth was at 0.4% per year £22,100
3.4% = £23,700
6.4% = £25,400
None of these, even the optimistic one, are near what I thought was a pessimistic £27,000.
QUESTION TWO: any idea why this might be?

Finally we have something called the mortgage endowment promise, which 'means any actual shortfall will reduce by up to £2,300 (maximum promise amount). As I understand it this would be providing we have a shortfall of at least £2,300, which seems likely!
QUESTION THREE: Would this have been applied to Aviva's fact sheet linked to above, thus making the payouts higher than I expected?

Sorry for all the detail, just hoping an endowment expert can shed a bit of light...

dunstonh

This was a mistake, of course,

Not necessarily. Endowment mortgages were cheaper than repayment mortgages. A typically sized mortgage would have been around £20pm cheaper. Over a 25 year term, that is £6000. So, if there was a shortfall under £6000, you could still have been better off.

You probably got Norwich Union shares out of it too.

Aviva's latest report

should be ignored. Your endowment doesnt match the same term. May not be set up on the same target growth rate or even use the same version of the WP fund. Generic figures are next to useless in these things.

QUESTION ONE: is this method (bearing in mind assumptions) a reasonable way to estimate (not guarantee, just estimate) a rough payout?

No.

The latest was in October last year and suggested:
If growth was at 0.4% per year £22,100
3.4% = £23,700
6.4% = £25,400
None of these, even the optimistic one, are near what I thought was a pessimistic £27,000.
QUESTION TWO: any idea why this might be?

Rates are set by the regulator. Even if you had a fund that had grown at least 10% a year every year since it existed, it would have to use the same rates. They are not forecasts. They are projections using assumptions.

Finally we have something called the mortgage endowment promise, which 'means any actual shortfall will reduce by up to £2,300 (maximum promise amount). As I understand it this would be providing we have a shortfall of at least £2,300, which seems likely!
QUESTION THREE: Would this have been applied to Aviva's fact sheet linked to above, thus making the payouts higher than I expected?

The MEP is paid out in addition and not included in any projections or generic factsheets as it is personalised.

apb1

Thanks dunstonh. I think it was a mistake as we got compensation for mis-selling which to me meant I was a mug! Of course there is life assurance etc, but I'm over it now in any case.

So the overall picture is - I can't make any sort of guess other than that laid out with the projected growth rates (plus the MEP if shortfall happens). Presume also that if there is a crash (shares and/or property) then the value could be less than these figures project.

One more question, I used to get a letter which told me the guaranteed minimum value at maturity, but these have stopped. The last one, in 2015, said £15,454, so presume this, at least, is guaranteed? So the worst I can get is this plus MEP?

Also I see the phrase terminal or final bonus - does this get added on top of the GMVAM?

Thanks for your help.

Arkers

Hi apb,
I have an Aviva policy (previously GA and CU) maturing in 19 days. The original amount was to cover £37995. The estimate I have been given is £32,451.27 (MEP of £5995). Although the life cover was for me only not joint and I paid £47.16 pcm.

Although below the original target amount, this is better than I was expecting. Hopefully the estimate won't differ too much.

Arkers x

dunstonh

. I think it was a mistake as we got compensation for mis-selling which to me meant I was a mug!

Dont assume that. I was at a compliance meeting many years ago that talked about the importance of record keeping. Something that before the endowment issue was very poor. They were saying that out of 1000 complaints, only 25 were genuine missales. However, another 225 would result in redress because of missing records or insufficient records. Now, some of those 225 could well have been genuine missales too but it is telling that more were being paid out on because of poor record keeping than actual genuine missales.

I used to get a letter which told me the guaranteed minimum value at maturity, but these have stopped. The last one, in 2015, said £15,454, so presume this, at least, is guaranteed? So the worst I can get is this plus MEP?

Aviva have fully funded the MEP since it was introduced and the maximum figure remains exactly at what it was set at (in 2001 IIRC).

Also I see the phrase terminal or final bonus - does this get added on top of the GMVAM?

The final bonus accrues as you go along. Aviva can tell you how much final bonus is currently on the plan. You can get a rough idea from the surrender value (which is current value plus final bonus accrued to date minus surrender penalty). The final bonus is not included in the guaranteed minimum value.

Tigercub_uk

Hi I dont know if this helps but I have my old Ga/CGU/ now Aviva endowment maturing at the end of this month. They wrote to me frequently about it underperforming, had since remortaged for a slightly longer term and also a part and part repayment mortgage. I was paying 43.59 and have just had estimated paperwork through although final value figures might be different saying that I should get esimated maturity value 23988.62 and estimated promise amount 5450.00 = 29438.62. Was meant to cover around 34500 when took it out. I never got round to finding out about if was missold I had managed to remortgage to part repayment and extend the term. I dont know if theres still time to find out about if was mis sold I believe somewhere I have some of the original illustrations of this and the other favoured mortgages suggested from the intial sale. 25 years ago though so probably very well buried in loft box somewhere, which is why I never enquired about mis selling.

dunstonh

I dont know if theres still time to find out about if was mis sold

Aviva endowments utilised the timebar which allows the seller to timebar after the 3rd year of receiving a shortfall notice. So, by around 2007, over 2/3rd of endowments were timebarred from a complaint.

somewhere I have some of the original illustrations of this and the other favoured mortgages suggested from the intial sale.

Illustration rates were set by the regulator and reflected the previous decades (where maturities were coming in 2-3 times the target amount). If you had a comparison then that would suggest you were not missold as the comparison was a good thing.

telmanchicks

Hi
I had taken out three endowment policies with buy to let mortgages in 1987, 1988, and 1989. All of them with major shortfall. They have now matured and I took the money whatever I got. I was ill advised about these policies.
One of them in 1987 was with a broker who was not qualified to give me advice. Second one I could not find him as he immigrated to France and third one seized trading and cannot trace him.
Although I have now cashed these policies as it has been for 25 years.
I wonder if I can still claim for the shortfall! And if so whom from? The three were namely sun alliance (now known as phonix) , friends provident, and Scottish life. I do still have the paperwork. Would be grateful for your input.

dunstonh

I wonder if I can still claim for the shortfall!

No. One is pre-regulation. The second one may be as well if it was before Aug 1988. Third one could be if it was a FIMBRA member

However, the additional killer here is that you have three years to complain from first being notified of a high risk of a shortall. Most of those first notifications happened between 2001-2004. So, your timebar clock started ticking back then. Nowadays, the bulk of endowments are now timebarred.

telmanchicks

Thanks for your reply. As you mention I should have claimed within three years of getting a letter of shortfall. I did try to claim within this time limit but the broker who had sold it were not trading and the endowment companies such as friends provident and Scottish life told me to approach the brokers who had sold such policies, whom I found it impossible to contact as one had immigrated and the next was not trading and I could not get hold of him. Is there anything I can do now ?
Please let me know. I appreciate your help.

dunstonh

For the endowments sold after 28th August 1988, you can try the FSCS as long as the sellers were not FIMBRA. If they were SIB/PIA then FSCS should consider it. However, the FSCS do also check for timebars too.