Endowment, should i sell

tas75

hi, i have a with profits endowment which is due to end in 3 yrs, it is no longer linked to my mortgage as i changed to a repayment mortgage early on and that is due to be paid off shortly. My question is the endowment appears to have performed reasonably well considering the ups and downs of the last 20 yrs. It was originally bought to pay off a mortgage of
£69000. It is currently guaranteed to pay £46000, £10800  of which are bonuses.
I have recently enquired and the cash in value stands at £80700 which i was surprised at and i am wondering whether to sell the endowment or to hold onto it the only thing that i am concerned about is the current covid situation and the investments start to lose money and how will that affect future growth and bonuses including a possible final bonus. What are the thoughts of you more qualified people? Thanks.

Socajam

If you were to see how much would you receive?
You need to weigh this against leaving it until it expires - which may mean a loss or a slight gain on where you are today
This is a hard one, unless someone else have a crystal ball, you have a tough decision to make

dunstonh

I have recently enquired and the cash in value stands at £80700 which i was surprised at 

Endowment projections on statements are notorious for understating the likely maturity value. A  lot of people have surrendered/sold endowments that on the statement were projecting large shortfalls but in reality were doing much better than that.  

 the only thing that i am concerned about is the current covid situation and the investments start to lose money and how will that affect future growth and bonuses including a possible final bonus. 

The markets fell from 24th Feb to 23rd March.  They have been rising since then and most people are back to around their January values now.  A  second wave would hit the markets.

tas75

Thanks both, i know at the minute i am lucky as this endowment now at 3 yrs still to run could have been cashed in and paid the mortgage with some spare cash. I've asked to see how much i could get if i sell it. It's just now that i have seen the £80k, i don't like anyone else want to lose any of it if possible. But then i also think it won't make no return in a bank and could the final bonus be a nice little bump up on top.

tas75

Socajam said:

If you were to see how much would you receive?
You need to weigh this against leaving it until it expires - which may mean a loss or a slight gain on where you are today
This is a hard one, unless someone else have a crystal ball, you have a tough decision to make

I have just received the first reply and they cannot match or better the surrender valuation. Would this make you think that they don't expect it to grow much in the next 3 yrs.

dunstonh

The final bonus accrued to date is included in the surrender value.  It is not added at the end any more.  That was last seen with conventional with-profits plans from a different era.

I have just received the first reply and they cannot match or better the surrender valuation. Would this make you think that they don't expect it to grow much in the next 3 yrs.

The TEP market is virtually dead.   A short term maturity is not really of interest.   Do not mistake market liquidity and your short timescale to mean they dont expect it to grow.

Old_Lifer

When a firm offers to buy an endowment it is because they are pretty certain  they can sell it on at a profit.  They will offer the policyholder a little more than  the surrender value, will add-on their profit and will sell it on to a new owner.   The new owner who will have paid way more than the surrender value to acquire the policy,  will  have to pay the remaining premiums and will also expect to make a profit.     If you receive an offer to buy your policy,  you may perhaps take the view that it may be worth keeping the policy.     On the other hand,    if you do not receive  an offer for your policy,  this suggests that they may not be confident of selling it on at an acceptable profit    but this may simply be down to the current virus uncertainty.

The  annual bonuses attaching to a conventional  with-profits endowment are guaranteed and cannot be taken away  but they are reversionary bonuses    This means that they are only become payable  when the policy becomes payable    i.e. at the end of the term or on death within the term.    If you decide to  terminate your policy early  by surrendering it,   the surrender value will include  the current surrender value of  the attaching annual bonuses and not the amount shown on the annual bonus notice.   I expect few policyholders will realise this    but  the  firms that buy endowments will be aware of it.

Since you are guaranteed  the sum assured  and annual bonuses at maturity,     your only risk is a cut  in terminal bonus rates in the next three years.     However, only part of a with-profits fund is invested on the stock market  (often only around half  or less) so any cut  in terminal bonus rates is likely to be less  than  the dramatic falls in stockmarkets seen in the media.     In any event, a steep fall in stockmarkets is often  followed  not long afterwards by a recovery  of sorts

tas75

Thanks old_lifer for the info.
Still not sure which way to go as thinking the surrender offer is a good price and i am well in profit compared to what I've paid in. If i continue paying the policy it will cost me another 6k over the 3yrs. With us probably going into a recession i think it could start to lose or grow a little and I'm wondering if i would be better just to cash it in.

tas75

Also as this is a shared policy, if i cash it in would any of the funds be taxed?

Old_Lifer

I would expect a mortgage-related endowment to be a  Qualifying Policy  and if you have not altered the policy in any way and have paid the same premium each month this will not have changed    and the payout will be tax-free at maturity and  any profit on surrender would also be tax-free after 10 years or three-quarters of the term,  whichever is the shorter.

tas75

Thanks again you are correct in what you've said as i asked the policy supplier this morning, thankyou for your help