Prudential endowment policies - sit tight?

eaustin

I have 2 policies (originally Scottish Ammicable) with an original combined target of £55,000. By remortgaging and making overpayments I have reduced the amount outstanding to £40,000.

The 1st policy is with profits and has a target of £35,000 (monthly premium £43.35) and matures in March 2013. The declared bonuses for 2006 were 0.8% / 1.5% and total bonuses at December 2006 were £19,403.

Current targets: 4% £27,000, 6% £30,300, 8% £33,900

The 2nd policy is a unit-linked fund and has a target of £20,000 (monthly premium £43.20) and matures in November 2013. The value per the last statement (May 2007) was £9,140.

Current targets: 4% £14,000, 6% £15,800, 8% £17,700

My understanding has always been that I would be better off sticking with these policies until maturity and not selling/surrendeing them, but having recently discovered this forum that doesn't always seem to be the case.

Given the information above do you think I should sit tight until these policies mature? If you require further information please let me know. You're advice will be greatly appreciated.

Edward

EdInvestor

Post updated surrender values for them plus the interest rate you're paying on the mortgage and we can work it out.

eaustin

Thank you. Is the surrender value included on the statement or do I have to write and request this. How quickly can they give this information?
With regard to the interest rate on my mortgage I have a Woolwich offset at 75 bases points over BoE base rate i.e. currently paying 6.50%

Thanks for tresponding and please let me know anyting else I should provide.

dunstonh

Prudential have a 100% record so far on paying the required amount. Indeed, their average surplus has been increasing each year for the last 4 years.

Scot Am policies are not quite as good as Pru's own but they made 100% hit rate last year with 96% the year before and 95% before that. Average surplus also increasing each year.

My understanding has always been that I would be better off sticking with these policies until maturity and not selling/surrendeing them, but having recently discovered this forum that doesn't always seem to be the case.

Tied agents are not allowed to recommend cancellation of policies (officially) so that is often how that myth is spread as they are told to tell people to sit tight. IFAs are allowed to recommend cancellation but most people never see an IFA.

The declared bonuses for 2006 were 0.8% / 1.5% and total bonuses at December 2006 were £19,403.

You are only looking at annual bonuses there. The bulk of the returns are in the final bonuses. Pru usually don't include final bonus in their projections (at least they don't in the data they supply IFAs).

EdInvestor

eaustin wrote: »

Thank you. Is the surrender value included on the statement or do I have to write and request this. How quickly can they give this information?

Ring up and ask.Most companies give an S/V over the phone.

eaustin

The surrender values are as follows

With-profits surrender value £21,512

Updated projections: 4% £29,100, 6% £32,100, 8% £35,300

and the unit-linked fund surrender value £8,923

Updated projections: 4% £14,200, 6% £15,800, 8% £17,500

Hope this updated is of use in giving me advice. If you require further information please let me know.

glastowinebar

My projections with Standard Life go up and down like a brides nighty... so do what the policy is worth now/surrender value

no need to phone up I can see it all on line

EdInvestor

eaustin wrote: »

Current targets: 4% £27,000, 6% £30,300, 8% £33,900

Using a compound interest calculator we can see that if you cashed in the policy and used the proceeds to repay the mortgage @6.5%, also increasing the monthly mortgage payment by the amount of the endowment premium, your guaranteed net return at maturity would be 32,514.This is quite a bit higher higher than the unguaranteed proejected return from the policy @6% (which most people think is the likely return on ScotAm policies).Of course it does include free life cover, do you still need that?

The second unit linked policy
Current targets: 4% £14,000, 6% £15,800, 8% £17,700

If you did the same as above with this one your return at maturity would be 15,266 guaranteed, not far off from their projection of 15,800 unguaranteed.

These endowments reflect the main problem with the policies these days : there is no longer any extra premium for taking a risk, because the risk return is much the same as the current interest rate on the loan.