Was this 1988 pension projection hopelessly unrealistic and can I blame anyone?

Silvertabby

katejo said:

Silvertabby said:

Similar to the mortgage endowment policies of the 1980s.  "You'll have enough to cover your mortgage plus £KKs over to do what you want with". 

And we all know how that panned out......

I was very sceptical about those mortgage endowment promises then.  I was a ftb in 1993 and remember walking out on 1 mortgage advisor because she would not discuss a repayment mortgage with me. I got my way eventually and only ever had repayment mortgages. 

We bought in 1994, and our mortgage advisor started the conversation by saying that he hoped that we weren't after an endowment mortgage, because he really couldn't recommend them any more.  We had already decided on a repayment mortgage, so no problem.

tr7phil

katejo said:

Silvertabby said:

Similar to the mortgage endowment policies of the 1980s.  "You'll have enough to cover your mortgage plus £KKs over to do what you want with". 

And we all know how that panned out......

I was very sceptical about those mortgage endowment promises then.  I was a ftb in 1993 and remember walking out on 1 mortgage advisor because she would not discuss a repayment mortgage with me. I got my way eventually and only ever had repayment mortgages. 

We also bought in 1993 and went for an endowment mortgage, the endowment policy was £77 per month which was supposed to cover the £52500 mortgage.  I was suspicious and wanted to pay £100 per month instead but that wasn't allowed.  In the end our £23100 investment paid out just under £40000.  If we'd paid what I wanted to it probably would have been spot on!  As it happened we switched to a tracker mortgage at 0.19% above base just as interest rates plummeted and never reduced the monthly standing order so the endowment more than covered what was owed. Our final monthly interest payment was about £7.50 when it had started off at over £400.

dunstonh

We also bought in 1993 and went for an endowment mortgage, the endowment policy was £77 per month which was supposed to cover the £52500 mortgage.  I was suspicious and wanted to pay £100 per month instead but that wasn't allowed. 

Whilst fixing a specific amount was not possible, it was possible to adjust the target growth rate on endowments.  The lower the target growth rate, the higher the monthly premium as more was diverted to investments.     

So, either you were not speaking to an IFA (where that option was possible) or an FA that didn't have that option.

In the end our £23100 investment paid out just under £40000.  If we'd paid what I wanted to it probably would have been spot on! 

That is where the target growth rate would have worked for you.
Its worth noting that endowment mortgages over 25 years on a typical mortgage amount of that time would be around £20pm cheaper than repayment mortgages plus life assurance.     So, often, even with a shortfall of several thousand, the person was still better off.

The biggest issue with endowments wasnt the fact it was an endowment.  It was the target growth rate.  Many were set up with 10% or even 13% target growth rates and were handicapped from the start.  Whereas a nice 2.2% target growth rate was pretty much nailed on for a surplus no matter what.

tr7phil

dunstonh said:

We also bought in 1993 and went for an endowment mortgage, the endowment policy was £77 per month which was supposed to cover the £52500 mortgage.  I was suspicious and wanted to pay £100 per month instead but that wasn't allowed. 

Whilst fixing a specific amount was not possible, it was possible to adjust the target growth rate on endowments.  The lower the target growth rate, the higher the monthly premium as more was diverted to investments.     

So, either you were not speaking to an IFA (where that option was possible) or an FA that didn't have that option.

In the end our £23100 investment paid out just under £40000.  If we'd paid what I wanted to it probably would have been spot on! 

That is where the target growth rate would have worked for you.
Its worth noting that endowment mortgages over 25 years on a typical mortgage amount of that time would be around £20pm cheaper than repayment mortgages plus life assurance.     So, often, even with a shortfall of several thousand, the person was still better off.

The biggest issue with endowments wasnt the fact it was an endowment.  It was the target growth rate.  Many were set up with 10% or even 13% target growth rates and were handicapped from the start.  Whereas a nice 2.2% target growth rate was pretty much nailed on for a surplus no matter what.

Thanks for the insight.  I was not as financially savvy then as I am now.  There was no IFA, the mortgage was arranged through the estate agent, probably the worst possible way!  However we had just put in a joke offer £10000 under the asking price which had unexpectedly been accepted straight away so we wanted to get the ball rolling ASAP.  I don't feel at all hard done by and it made buying our house (which we're still in today) laughably easy, much easier than my children will have it and probably easier than my parents.  1993 was probably just about the perfect time to buy with hindsight!

Hoenir

LookingForAnAnswer said:

JoeCrystal said:

No. Did you not get an annual statement with up to date projection? It is set by the regulator these days.

I always maxed out on mortgages instead in the hope it would be my best financial investment in life.

Unless you increased your contributions by a annual compound 5% there'd be zero chance of hitting the projection. Conversely you've no doubt done very well from leveraging with debt and trading up properties over the past 3 decades. 

MallyGirl

tr7phil said:

dunstonh said:

We also bought in 1993 and went for an endowment mortgage, the endowment policy was £77 per month which was supposed to cover the £52500 mortgage.  I was suspicious and wanted to pay £100 per month instead but that wasn't allowed. 

Whilst fixing a specific amount was not possible, it was possible to adjust the target growth rate on endowments.  The lower the target growth rate, the higher the monthly premium as more was diverted to investments.     

So, either you were not speaking to an IFA (where that option was possible) or an FA that didn't have that option.

In the end our £23100 investment paid out just under £40000.  If we'd paid what I wanted to it probably would have been spot on! 

That is where the target growth rate would have worked for you.
Its worth noting that endowment mortgages over 25 years on a typical mortgage amount of that time would be around £20pm cheaper than repayment mortgages plus life assurance.     So, often, even with a shortfall of several thousand, the person was still better off.

The biggest issue with endowments wasnt the fact it was an endowment.  It was the target growth rate.  Many were set up with 10% or even 13% target growth rates and were handicapped from the start.  Whereas a nice 2.2% target growth rate was pretty much nailed on for a surplus no matter what.

Thanks for the insight.  I was not as financially savvy then as I am now.  There was no IFA, the mortgage was arranged through the estate agent, probably the worst possible way!  However we had just put in a joke offer £10000 under the asking price which had unexpectedly been accepted straight away so we wanted to get the ball rolling ASAP.  I don't feel at all hard done by and it made buying our house (which we're still in today) laughably easy, much easier than my children will have it and probably easier than my parents.  1993 was probably just about the perfect time to buy with hindsight!

Same here but I bought in 1991. That low cost endowment was helpful in the early days when the interest rate on my £42k mortgage meant that every penny of my £14k salary was earmarked for something. I did take out a top up at some point but was still short when I paid off the mortgage many years later so that I could buy again with my partner

enthusiasticsaver

Interest rates were higher then and 13% average growth may have been realistic then but not over the last few decades.  As others have said people living longer has led to lower annuity rates and lower interest rates has meant lower growth. They may have over egged it as the mortgage endowment brokers also did but given this was almost 40 years ago surely you could see by annual statements how much it was growing. Projections are usually set by a calculation which is set by the regulator anyway and there are numerous caveats.

What percentage of salary were you putting in and how much did your employer match?  I have a defined benefit pension but half of my DHs pension was DC (after DB scheme closed) and he paid in 10% of his salary which was matched by his  employer from the mid 90s and he retired 8 years early on a pension of around £33k. 

Pensions like any investments are a movable asset and there are no guarantees. 

sheramber

Silvertabby said:

Similar to the mortgage endowment policies of the 1980s.  "You'll have enough to cover your mortgage plus £KKs over to do what you want with". 

And we all know how that panned out......

Ours did very well and more than covered the outstanding amounts. 

First was taken in 1978 and two further ones  when we moved house and later added an extension.