Mortgage free, what about endowment?

999MSE

Pleased that I have just paid off my 54k interest only mortgage using savings, there was less than 2yrs left on the term and as I was on a tracker I decided to just clear the debt rather than continue to watch the interest payments increase each month the BOE raises the rate.

Since taking out the mortgage I have been paying into an endowment, current value is just over 50k (it is all in "AV Unit EL" fund). Speaking to Aviva the policy will pay out at maturity or I can cash it in at anytime, there is no option to leave the endowment invested after the end date.  So given that I don't need the money to pay off the mortgage and will now want to invest it for minimum of 10 years, would it be prudent to cash it in now and feed it into my S&S ISA and maybe pension over the next 8 months.  I'm thinking that leaving it in the endowment is risky as, if there is a big drop in the funds value just prior to the end date, I can't wait for a recovery.  But I suppose that's less important if I want to re-invest rather than spend the cash.

Although apparently there is a 2 day delay after informing Aviva by phone that you want to cash it in, so if I'm very unlucky a big drop could occur in that window!

Appreciate it would depend on performance of the endowment v my S&S ISA / pension and nobody can really say, but fees are higher within the endowment (0.75%). My company pension = 0.43% while My modest S&S ISA is currently in VLS60 (I only started this in March).

Apologies that turned into a bit of a ramble, I'd be grateful to hear any thoughts? What would you do?

400ixl

Is it a policy with a maturity bonus? This bonus can be considerable with some policies so would be a key factor in making a decision.

dunstonh

Speaking to Aviva the policy will pay out at maturity or I can cash it in at anytime, there is no option to leave the endowment invested after the end date.

It wouldn't be an endowment policy if it was able to be left.  Not that you would want to leave it in anway.

would it be prudent to cash it in now

Maybe.  Maybe not.  You have given insufficient information for us to comment.  Is there an MEP?  Is there a surrender charge?  Is there an MVR in force?

I'm thinking that leaving it in the endowment is risky as, if there is a big drop in the funds value just prior to the end date, I can't wait for a recovery. 

How does that differ from it being in an S&S ISA?

Although apparently there is a 2 day delay after informing Aviva by phone that you want to cash it in, so if I'm very unlucky a big drop could occur in that window!

Daily movements are completely irrelevant to what you are proposing.

Albermarle

If you in the end withdraw it, then what you do with it depends on what you think you might eventually want to use it for.
If it is unlikely you will need that cash before say age 60, then putting it in your pension is usually the best bet as you gain a tax relief advantage, How much you can contribute in one go is limited by your annual salary.

Voyager2002

999MSE said:

I'm thinking that leaving it in the endowment is risky as, if there is a big drop in the funds value just prior to the end date, I can't wait for a recovery.  But I suppose that's less important if I want to re-invest rather than spend the cash.

Although apparently there is a 2 day delay after informing Aviva by phone that you want to cash it in, so if I'm very unlucky a big drop could occur in that window!

As Dunstonh hinted, there is a 'smoothing' function built into this kind of product.Short-term market movements do not make much difference to the amount that you receive.

Things that you need to find out:
1. Does your policy come with a "terminal bonus"? If so, cashing it in a few months early would be very costly for you.
2. Do the terms include a "market value reduction"? Again, this is a penalty charge for an early surrender.

Be aware that your endowment provides some insurance cover, which you would lose on surrender or maturity. Consider whether this is important to you.

999MSE

Thanks for the replies.

There is no MEP.
I don't believe there is a MVR but I will double check with Aviva when I call them again.
No terminal bonus either, as I understand it the policy value is calculated by multiplying the number of units by the price per unit and that is exactly what I'd get if I cashed it in (so no surrender charge either).

My main worry was that if there is a big drop in the fund unit price between now and the maturity date it will wipe out a big chunk of the current  value and as I can't extend the term of the endowment that loss would be crystallised.  If I cash in now and reinvest in my S&S ISA I can leave it for 10 years + and choose when to move back to cash.  I think I feel like this because the savings I used to pay off the mortgage were 'real' money, the endowment with current value of 50k only becomes 'real' when I cash it in - if I cash it in and reinvest long-term that feels less risky. Does that make any sense?

It also feels wrong to keep paying £120 per month into it if in the current climate, I could be paying that into my S&S ISA (with much lower fees) where I can leave it longer term.

The life insurance included is limited to the value of the original mortgage value so if I cashed in, then immediately snuffed it, the family should only be maybe 4 or 5k worse off.

dunstonh

My main worry was that if there is a big drop in the fund unit price between now and the maturity date it will wipe out a big chunk of the current  value

It doesn't matter as the S&S ISA would have gone down as well and you would move into that at lower prices.

Albermarle

 If I cash in now and reinvest in my S&S ISA I can leave it for 10 years + and choose when to move back to cash

Yes it will give you more flexibility. In the long term best normally to keep invested and not be thinking about 'cashing out' at some point. Apart from when you actually need the money of course. 

If you added some of the money into your pension, you would get the benefit of tax relief, assuming you earn enough to do that.