Scottish Life/Royal London Endowment

bigchipper

I have a 30 year Scottish Life With Profits policy that is due to mature in May 2019. The associated mortgage has long gone and it is merely a savings vehicle. The policy was intended to pay out £34k and did have a Guarantee Value but this was dependent on me taking additional top up policies back in the day which I didnt do as it didnt seem good value.

I know it doesnt perform well as it is a closed fund and as I reach maturity have been getting regular updates on its surrender value (SV) to try and ensure I am not throwing too much good money after bad by continuing to pay the £40 odd premium (although I appreciate this gives a little life cover).

Generally the SV has fluctuated a bit but not by much in the last couple of years however the last SV in April was £21370 but today was only £19430. That's almost 10% down over 4 months and Im slightly surprised at this level of fall because I thought as a closed fund it was invested in pretty boring but safe investments.

Seems to me to be very poor performance if accurate and I'm regretting not cashing in back in April. Any views on whether to do so now or would I be missing a trick by just seeing it out to maturity ?

[Deleted User]

Hi,


is this it?


It may be a closed fund but that is only for new money.


Whatever funds/shares it's invested will go up/down, which value of your fund will reflect.


You could've cashed in in April, but if fund had gone up £3K since then you would be saying why didn't I hold on.


Who knows what things will be like in May 2019.


Your decision, good luck.

bigchipper

Yes that is it.


I fully appreciate the underlying investments can go up/down but the fact is this is a closed fund which is low risk and, as a consequence, opines to be invested extremely conservatively yet has suffered a 10% loss in 4 months. That doesnt strike me as conservative!! If there had been a crash I may have expected that even if its only 20% in equities.

Not unsurprisingly its never went up anywhere near as much in a "good" year.

bigchipper

So does this level of fall seem feasible for this policy?

dunstonh

Markets fell over 10% over Winter/Spring. Recovered mostly now but WP funds tend to have a lag.

Lower risk investments have been loss making in recent months.

bigchipper

dunstonh

Thanks. I have known for a while that its a poorly performing olicy but the recent relatively sizeable drop in SV in such a short space of time made me question the accuracy of the valuation I had been given, particularly so when its equity exposure is relatively small.

Just trying to work out in my head whether its worth paying the remaining £300 or so in premia or to cut my losses. Probably should have done it years ago but the life assurance element was useful for a while.

Flip a coin time I think.

dunstonh

I have known for a while that its a poorly performing olicy

A loss period does not mean it is poorly performing. Nor does a shortfall.

For example, an endowment policy with 7% target growth rate returning 5% will show a shortfall but a 4% target growth rate returning 4% would be on track. The one with the shortfall is the better performer.

Markets go up and down and when they go down it is normal and expected. It doesnt make it bad.

but the recent relatively sizeable drop in SV in such a short space of time made me question the accuracy of the valuation I had been given, particularly so when its equity exposure is relatively small.

There is always a lag and the final bonus figures would have been set around the bottom of the market falls this year. Older WP funds do not adjust the final bonus as frequently as later versions. Sometimes only 2 times a year (some only once a year).

Just trying to work out in my head whether its worth paying the remaining £300 or so in premia or to cut my losses. Probably should have done it years ago but the life assurance element was useful for a while.

Impossible to say without hindsight. We do know the markets have recovered since the bonus setting months. However, we dont know if they will be like this or higher or lower when they next review it. That is the unknown.

bigchipper

dunstonh wrote: »

A loss period does not mean it is poorly performing. Nor does a shortfall.

For example, an endowment policy with 7% target growth rate returning 5% will show a shortfall but a 4% target growth rate returning 4% would be on track. The one with the shortfall is the better performer.

Markets go up and down and when they go down it is normal and expected. It doesnt make it bad.

Sorry but I'm afraid I can't be convinced that a policy designed to return £34500 over a 30 year period but which returns less than £20k has been anything other than a bad policy (no matter how long I have been aware of this situation).

There is always a lag and the final bonus figures would have been set around the bottom of the market falls this year. Older WP funds do not adjust the final bonus as frequently as later versions. Sometimes only 2 times a year (some only once a year)..

Do you mean that the final bonus element of the surrender values I have been given may not be based on real time figures? I naively thought surrender values (and indeed whatever the settlement will be on maturity next year) were based on asset share at that time. I should point out that the settlement figures given in April and this week were on request not part of my annual statement?

Impossible to say without hindsight. We do know the markets have recovered since the bonus setting months. However, we dont know if they will be like this or higher or lower when they next review it. That is the unknown.

I agree its impossible to predict the future and the underlying asset pot may go up or down but a 10% fluctuation over a few months seem a lot to me for what is supposed to be a low risk investment. My view is probably coloured however by the policy's proximity to maturity.

Thanks again

dunstonh

Sorry but I'm afraid I can't be convinced that a policy designed to return £34500 over a 30 year period but which returns less than £20k has been anything other than a bad policy (no matter how long I have been aware of this situation).

If you make no attempt to understand why there is a shortfall and assume underperformance then it will lead to bad decision making.

Do you mean that the final bonus element of the surrender values I have been given may not be based on real time figures?

Correct. Some only amend the final bonus as a little as once a year and on maturity.

I naively thought surrender values (and indeed whatever the settlement will be on maturity next year) were based on asset share at that time.

If you were in unit linked funds then they have a daily value. WP funds have an element of the bonus (potentially the biggest bit) that is not set daily. Hence the lag that I was referring to. They will smooth out the ups and downs but periodically set the bonus based on a position on a given day and will not be updated daily like a unit linked fund unless there is some event that triggers them to look at it early.

I agree its impossible to predict the future and the underlying asset pot may go up or down but a 10% fluctuation over a few months seem a lot to me for what is supposed to be a low risk investment.

As I said, the period in question was a negative period of just over 10%. Most low risk areas were down around 6% in the period you mention and equities down over 10%. So, it is within the ballpark.

My view is probably coloured however by the policy's proximity to maturity.

These old plans with the obsolete investment method are not ideal as you would derisk in a modern investment option. You are at risk right up to the final day.