should i surrender endowments? Mortgageman

wyatt_earp_2

???
For Mortgageman & payless.
Can you give me some pointers to my dilemma?

I have two endowments scheduled for completion in 8 years. Together they have a projected shortfall of £13000 (using 4% guide rate).

I have complained about the fact i was mis-sold both policies and heave been awarded redress from the providers under the FSA guidelines.
One policy is from Prudential and one from Standard Life.

I have calculated that if if surrender both policies and add the redress value and use it to pay off some capital, the remaining mortgage balance would cost me approx £23 per month more than i currently pay (this includes a new life policy for the remaining term).

I feel i should follow this course of action but i am uncertain whether i should wait for a possible payout from Standard Life, upon conversion to PLC in 2006, which i could also use to reduce the balance owed.

What do you think?
Thanks
Wyatt

payless

Hi

thanks for asking -

I have sent you a PM

dunstonh

Shame you only want info from those two as I am sure I could offer useful information.

payless

go on be a devil - reply anyway

Mortgageman

in fact, replace "MortgageMan" with "DD" - I try and avoid these endowment questions, as I don't have the expertise that others (including DD) do on this board.

wyatt_earp_2

DD if i have offended you - i am sorry.

I would be pleased to hear your advice as well as anyone else on this board.

Thanks for all responses so far.

They give me something else to think about.

dunstonh

No, you havent offended me. I was just being a little sarcastic (with a smile) in my response as you asked two people who in real life would not be able to deal with your enquiry as they specialise in other areas (and very well too based on how they contribute here). Perhaps that's why payless has gone to PM Plus we have a little humour between the regular contributers and it was more for their benefit than yours.

I'm going to eat something shortly and will offer my "opinion for discussion" later. Don't surrender it whilst i eat ::)

payless

Perhaps that's why payless has gone to PM

 



its actually harder for me to comment than if I was a layperson- and even in private I limit myslef to
-  "think abouts"  & "worth askings"

dunstonh

 


its actually harder for me to comment than if I was a layperson- and even in private I limit myslef to
-  "think abouts"  & "worth askings"

Nice answer.  Your compliance team would be proud  ;D

Together they have a projected shortfall of £13000 (using 4% guide rate).

Using 4% is sensible.

I have calculated that if if surrender both policies and add the redress value and use it to pay off some capital, the remaining mortgage balance would cost me approx £23 per month more than i currently pay (this includes a new life policy for the remaining term).

I feel i should follow this course of action but i am uncertain whether i should wait for a possible payout from Standard Life, upon conversion to PLC in 2006, which i could also use to reduce the balance owed.

If you surrender, you could be kissing goodbye to more than you realise.    Standard Life, for example, are one of the companies that has a guaranteed sum assured to which the bonuses are added and then the terminal bonus applied at the end.  This means that their projections are not very reliable as the base value they project from is not always what it seems.   They are one of the companies that has supplied projections for plans, in their last few years, which show a shortfall, yet on maturity have a surplus.   This is not uncommon with plans with a guaranteed sum assured.  Although there is little discussion on the reasons why this happens, it is believed by some IFAs that there is no system in place to give the plan a current value so they use the surrender value as the base figure and then project that forward at 4,6 & 8%.   This not only starts at the lower figure but also removes any accrued terminal bonus.    

I don't know about your plans so cannot say whether or not this applies to you.  However, it is an area that can be checked by comparing the surrender value of the plan against the base value used on the last projection.

Standard Life demutualisation and payout method is still unknown.   Based on the estimated company value the payout is quoted to be anything from £1000 to £1400 average.   How it will be distributed is also not known.   It may be shares in the new company, it may be a cash injection back into the plans.  

Prudential has one of the best with profits funds out there and although bonuses have fallen in recent years because of the stockmarket crash, Prudential didnt panic and there is good potential that Pru will be able to achieve 6% again providing we dont get another stockmarket decline.  I wouldnt be surprised if it is more in terminal bonuses than annual bonus though.

It is impossible to tell here whether you should surrender or keep as there isnt enough info on your plans but you do have two providers that have the potential to hit 6% (More so with prudential).

payless

and in my PM I forgot to mention Standard's "Promise"

http://www.ifasok.co.uk/Downloads/BWhmp28203%20(1).pdf

not saying you will get any comfort from it ( exclusions and get outs!) - but worth checking to see if you might!

wyatt_earp_2

Thanks payless - i remember getting a letter about the endowment promise, so i will dig it out and confirm with Standard Life (SL) that my policy qualifies.

DD - I am glad you were able to pass on your thoughts on my situation. It makes interesting reading and you are not the first to say about keeping hold of the SL policy.

I am shifting more to this course of action:

1) Using the redress in full to reduce the outstanding mortgage balance.

2) Keeping the SL policy until at least the conversion and review it then.

3) Overpay my mortgage by £25 per month to help reduce the balance at the end.

4) I am uncertain about the Prudential (PRU) policy - should i surrender it? After all, they have a very good track record on endowment returns.

What do you think? I suppose that i really want to avoid a shock at the end of the term.

Can you explain any more about 'Termianal Bonus's' i.e. are they always paid out?

Also, is my situation complicated enough that i should consider going to an IFA in my area (Southampton) and obtain fee paid advice?

Thanks very much so far. It's much appreciated.
Wyatt