Keeping or redeeming endowment policy

worldtraveller

I would be grateful for any help on the following situation:

I have an endowment policy with Prudential (formerly with Scottish Amicable). Details are as follows:

START DATE: 7TH AUGUST 1987
MATURITY DATE: 7TH AUGUST 2017
BASIC SUM ASSURED: £13066.00
ATTACHING BONUS: £9088.52
BONUS DATE: 31ST DECEMBER 2006
GROSS PREMIUM: £43.77 MONTHLY
SURRENDER VALUE: £20,443.00

I have been offered £22,225.00 for the policy by a third party.

My situation is that I have recently paid off my mortgage (which this policy part-covered). I do not require the life cover (£47000.00 on death) anymore either.

Can anyone let me know if they feel it worth maintaining this policy, rather than redeem and use the funds to deposit in, say, an account paying 6%+ gross. I am a 40% taxpayer.

Many thanks!

EdInvestor

Please post the maturity projections for the endowment.

One of the best places to put money in a cash investment if you are a high rate taxpayer is NS&I index linked certificates, so I will use that rate of return to compare with the potential endowment return.

https://www.nsandi.com

worldtraveller

Many thanks for the reply EdInvestor. The projected maturity values are:

£34800.00 @ 4%
£41400.00 @ 6%
£49100.00 @ 8%

If decide to turn policy into paid up:

£29100.00 @ 4%
£35100.00 @ 6%
£42200.00 @ 8%

All these projections are based (I assume) on premiums paid to date 9th October, 2007.

dipsomaniac

as endowment policies go these have performed better than most. just the fact that you are being offered a premium (albeit a small one for selling) means that somebody thinks the policy is worth keeping. although they are probably more interested in the life cover than any investment return.

you are currently paying for something you say you don't need - life cover. you need to ask prudential how much of your premium is paying for this.

if you could deposit the proceeds into a cash account paying net interest of 5.5% and maintained regular monthly savings of £43.11 you would have approx £45,000 at the end of 10 years - investment risk free.

what isn't known if you keep the policy is the level of future revertionary bonuses, the level of terminal bonus or the amount of any inherited estate which may be distributed in the future. it is this lack of transparency which i don't like about with profits policies.

whether you sell or keep the policy also depends on your situation, what other investments you have and the level of risk you are prepared to accept. if you are not maximising your £7000 isa allowance it may be worth selling and drip feeding the proceeds into an isa for the next few years.

is that the only offer you received for the policy? if yes, i would get a couple of more quotes from apmm.co.uk You need to make sure that you sell to a cash buyer and not a middleman as the length of time it takes to receive the proceeds could be considerable.

worldtraveller

dipsomaniac wrote: »

....what isn't known if you keep the policy is the level of future revertionary bonuses, the level of terminal bonus or the amount of any inherited estate which may be distributed in the future. it is this lack of transparency which i don't like about with profits policies.

Agree with you there! :beer:

The third party offer was from a cash buyer and was the best I had. I also had an estimate from auction, which was higher, but the fees would have given a similar figure, and, as you rightly say, would take longer to settle.

Thanks for your other suggestions/comments, which I will take aboard for my decision and are much appreciated.

dunstonh

Prudential have a 100% success rate on their own plans and in excess of 95% on Scot Am plans. 2005 saw 95% success, 2006 saw 96% success and 2007 saw 100% success with the average surplus increasing each time.

Pru are one of the few with profits funds you can say are good. Plus you have the orphan assets dispersal around 2009.

worldtraveller

dunstonh wrote: »

... Plus you have the orphan assets dispersal around 2009.

TBH I had not even heard of the orphan assets dispersal before your post, so thanks for that! Having done a bit more research, do you know if it is likely to be paid out for solely original Pru policies, or would my Pru (ex Scottish Amicable) policy apply as well? I don't seem to be able to find any information on that query.

Now I think about it, I also remember that there is a special bonus of around £800 due on maturity of the policy, as a result of the transfer of SA business to the Pru back in 1997.

Obviously these all need to be taken into the "mix".

Thanks! :beer:

EdInvestor

worldtraveller wrote: »

Many thanks for the reply EdInvestor. The projected maturity values are:

£34800.00 @ 4%
£41400.00 @ 6%
£49100.00 @ 8%

If you surrendered the policy and invested it at a return of 6.15% in index linked certs over the period also paying in the premiums, then at maturity you would have a return of 44,372.If you sold the policy, the return would rise to 47,608.This is a guaranteed no risk return.

The Pru WP fund is reckoned to be likely to return 6%, so you be likely to get somewhat less by sticking with the endowment.This is because you are paying for unnecesary life cover, your gains are being taxed at 20% in the life fund and you are paying high (and opaque) charges.

IMHO you would be better to sell this policy and reinvest the proceeds and the premiums either in index linked certs as above, or in a tax free ISA in a selection of funds or other risk based investments with higher likely returns and lower charges - or a combination of both.

Even though Pru/ScotAmic policies are more likely than others to perform the basic function of the original investment - to pay off the mortgage - they are still failures, in that they are providing to additional lump, as promised.

They are obsolete products which can easily be bettered today and if the mortgage has already been paid and the life cover is unnecessary, there seems little point in hanging on to what is basically a relic of the past.

EdInvestor

worldtraveller wrote: »

would my Pru (ex Scottish Amicable) policy apply as well?

No

Now I think about it, I also remember that there is a special bonus of around £800 due on maturity of the policy, as a result of the transfer of SA business to the Pru back in 1997.

It seems they are trying to wriggle out of paying this.

http://forums.moneysavingexpert.com/showthread.html?t=71259&highlight=Amicable

worldtraveller

Thanks for the feedback on my policy. I will now need to put my thinking cap on further. Your contribution, as others, is much appreciated.

EdInvestor wrote: »

It seems they are trying to wriggle out of paying this.

http://forums.moneysavingexpert.com/showthread.html?t=71259&highlight=Amicable

Thanks for the link. You will notice that I've added my two-penny's worth, should it be of any use. I did some further checking after your post and the Special Bonus was actually added into the "Existing Declared Bonus" in 1997.