Aviva low cost endowment payout

VXman

A slightly light hearted post. I received a payout of an endowment policy taken out 25 years ago. At the time it was to cover part of a mortgage on a new house. I already had a couple of smaller endowment policies and a reasonable deposit from the sale of a previous house.

I think it was taken out with General Accident but was transferred to Norwich Union and the Avivia. It was £65 per month for 25 years. I converted to a repayment mortgage many years ago so was not reliant the payout to settle the mortgage. It was originally intended to cover £46000 of the mortgage though. Of course these were the days that you were told endowments were the best thing since sliced bread. It would pay your mortgage off and give you at least the same amount in cash on top!

So light-hearted question...

How much do you think I got?

Brodiebobs

ill say not much more than you paid in, £24,000?

SonOf

It was originally intended to cover £46000 of the mortgage though. Of course these were the days that you were told endowments were the best thing since sliced bread.

To be fair, until 2000, all endowments not only hit target but also paid surpluses. Often 2-4 times the target amount. Best one I saw was 10 times the target amount.

How much do you think I got?

Impossible to say without knowing details of the policy.

For example, when the plans were set up, they set the premium based on a target growth rate. That target growth rate was adjustable. So, if you had one with a low target growth rate, you paid more in premiums but were more likely to see a surplus. If you had one with a high target growth rate, you paid less in premiums and were more likely to have a shortfall.

The difference between the highest and lowest target growth rates was large. So, without knowing what your target growth rate was set at, any guess would be completely pointless.

Best we can say is that if yours had a high target growth rate then you would be in shortfall and probably not get much more than yoiu paid in premiums. If you had a very low target growth rate, you would probably saw a small surplus.

Crag30

I reckon around £39000. I had a CIS one pay out recently which paid out more than expected

fewcloudy

£45900..it might've had an MEP...:p

Old_Lifer

When low-cost endowments were first introduced the size of the endowment for a 25 year term would have been around 45 percent of the mortgage amount, the rest being just term assurance. The formula usually used was to project the current annual bonus rate for 25 years and take 80 percent of that figure. This left 20 percent surplus at maturity plus the terminal bonus.



Annual bonuses were stable for decades. In good times they were increased by a few pence each year and in bad times they remained at the current level. Even after the 1973 Oil Crisis when stock markets fell 70 percent in 18 months or so, annual bonus rates were held at current levels and not cut. The famous 'smoothing process' in action. Terminal bonus rates were cut but levels of terminal bonus were much lower in the early days.



Low-cost endowments, if premiums were maintained to the end of term, really did pay -off the mortgage with a sizeable sum left over.


When in 1984 life assurance relief was withdrawn for new policies, this made endowments more expensive relative to a repayment mortgage. To counter this, my understanding is that the whole of the annual bonuses projected forward was used in the assumptions which meant that the size of the endowment could be reduced and the cost kept down. However, this meant there was no 'slack' in the annual bonus projection which could act as u buffer should annual bonus rates be cut in the future.


When annual bonus rates were cut (1993?) I understand one large life office said it was the first time they had cut annual bonus rates since the Second World War, nearly 50 years earlier. As a number of companies cut annual bous rates, more followed the next year. Thereafter, year after year after year annual busus rates continued to be cut. I can only imagine that all the compensation for mis-selling of pensions etc...etc... has to come from somewhere.

Old_Lifer

The premium of £65 per month would be based upon your age when you took-out the policy. Someone younger would have paid less and someone older would have paid more.


Although performance tables were published each year during the heyday of endowments, few people would have received the maturity amounts shown, since the tables were only an illustration and only applied at the age stated in the small print underneath the table. At other ages the maturity payout would be different. It would also be different if the life assured was female.

gingerdad

on a £50 premium this year we got £36K so on that basis close to what you were expecting.

Thrugelmir

£32,759 ........

Peter999_2

I also had a LCE80 with General Accident from 1993 to 2018. I paid £36.46 a month in premiums and got £27,000 odd on expiry (including the mortgage promise). I was quite happy with it - I had already paid the mortgage off 8 years previously.


The real scandals were the economy low cost endowments which started with a low premium, but the premium was increased 20% for the first five years, therefore doubling the remaining premiums. They were only supposed to be used by doctors etc. i.e. people whose salary would increase exponentially. However, when I worked there they were sold to practically everyone. I was only 18 at the time and I used to bring it up whenever we had meetings with the financial advisors - I just couldn't understand that nearly all the policies we sold were ELCE. Of course they couldn't really give a fig as they got a lot more commission from the ELCEs.


Even worse were the unit-linked endowments. I worked at Halifax Life at age 22 and went to a meeting where the financial advisors gave talks on how the policies worked. They would draw a big graph with a line going up and down and up and down - they would say that every 5 years there was a cycle of going up and down but in effect it would smooth things out over the 25 years of the policy.



I did bring up the question of what happens if your policy finishes when the unit-linked curve was at the bottom - weren't you then screwed and wouldn't have enough to pay off your mortgage? - I never got an answer to that. A few years later the policies were scrapped. I always wondered if the people with them actually ever got enough to pay off their mortgage.

Old_Lifer

Peter, I share the views expressed in your second paragraph. Low-start endowments were intended for young professionals whose incomes were expected to rise rapidly.


It seems to me that your comments regarding unit-linked endowments are also well expressed.


The earliest unit-linked endowments sometimes allowed the units at maturity to be transferred to the policyholder who could then cash them in at a later date when it was adventageous for the policyholder to do so. I took-out a unit-linked policy with Save and Prosper in 1968 which if I recall correctly, had this option. Later, unit-linked endowments became a case of 'you'll get what its worth at maturity'. In theory, the policyholder with just a few years to maturity could, on a stock market high, consolidate the gains and move to a deposit fund. In reality I would expect very few policyholders to have done this.