endowment policy ... PICKING UP ????

trademark

anyone noticed their endowment policy picking up of late

just had mine valued and its showing a substantial gain on two years ago .

ive got 3 policy's all taken out 10 or more years ago with scot am ... now prudential , just to give you an idea of recent gains in the last two years the money paid in has more than doubled .....

ie value at 2003 < 20k ...... value at july 2005 27k .....

monthly premium £142 ... x 12 = £1704 ... x2 years = £3408

considering the valuation at 2003 was less than 2001 and 2002 im beginning to get my hopes up about the future value

i received 4k in compensation .... and after being assured by the prudential that some 40% of the fund my money is invested in is in equity ive decided not to surrended or sell

im very interested to see how others are doing based on the times and figures ive given above

Voyager2002

Interesting..

I have a Scottish Amicable with-profits endowment. Taken out in 1992, the sum assured is 42,000. Not long ago they sent me the dreaded 'red letter' so I am considering making it paid up. Perhaps I should have a re-think.

Any opinions?

EdInvestor

Hi Voyager

IMHO making the policy paid up is not a good option unless you must keep the life cover.It will reduce the policy benefits, and usually charges are increased which eat into the policy gains. Better to either keep on paying in or surrender/sell.

Prudential/Scot Am have of course got the best performing WP fund of all the life companies.They were smart enough to move half the fund into bonds before the stockmarket crash five years ago, and thus lost much less money than other WP funds. So, unfortunately this improvement is unlikely to be replicated eslewhere though a few other WP funds will probably recover in time.

Moneysavers can always consider keeping the policy but switching the money out of a non-performing WP fund into a better performing fund, of course. Particularly if the MVA penalty charged to switch out of WP is quite low ( eg under 10%), this could boost the endowment's performance considerably over the years.

You can check the performance of your providers' other funds by clicking on the link below:

http://www.trustnet.com/life/funds/perf.asp

jnd

Trademark,

Hope you don't mind me asking but did you got a red letter prior to claiming compensation?

dunstonh

There is another thread which has a few posts about terminal bonuses starting to appear again on policies.

The problem with this endowment misselling and off target projections is that the whole thing is flawed.

When an endowment is set up, it has the charges front loaded so the growth is more on a curve basis than a straight line. Most of the gains are in the later years.

However, the projections work on a straight line annual growth rate. If you set up an endowment today and made one payment and then got a projection letter, if would show a shortfall.

How anyone expected to get a green endowment letter after 5 years, I dont know.

The problem is then compounded as terminal bonuses are not included in projections (unless the provider can only project from surrender value and not current value in which case a few do include it). We have seen endowment maturities well in excess of target. Yet 12 months earlier, they had shortfall letters.

Then, just to make it all worse, there was the stockmarket crash. Having a stockmarket crash in the early years of a long term savings plan is a good thing. yes, the units you bought before arent going to be worth a lot but those after are being bought a lot cheaper. Over time as it recovers and goes on, that is where you make most of your money. However, get a projection after a crash and it will be showing a shortfall. (this applies more to unitised with profits than conventional with profits in general).

So, everything points to you keeping the endowment. HOWEVER, and this is a big HOWEVER, the stockmarket crash was severe enough to lower the solvency of a number of insurance companies. Indeed, a couple did go insolvent for a short time. Because of this, they have reduced their own stockmarket holdings down because they cannot afford for another crash to happen. They now invest more in lower risk investments which have lower returns over the long term. They did this after the crash so sold at the bottom after buying at the top (not always their fault, the rules forced some to do it even if they didnt want to). So, these companies will have to recover their losses before they can increase bonuses again. Some of them will take 15-20 years to recover. So dont expect any bonuses on those again (or minimal at best).

If you are with one of the stronger financial services companies and understand the risk involved with investing, then yes, it is probable that returns will continue to improve. Pru and NU are the two strongest WP providers.

trademark

jnd ..... yes i did ...and ive just received 2 more ....... for 2 of the 3 policys i own .

im lucky in that it seems they are seriously improving , i got some compensation and i do not really need the money to settle my mortgage in 9 years time

any advice then please feel free to ask

EdInvestor

Apart from the stockmarket crash and the requirement to move more money into bonds, there's also the the lower returns we are now seeing in the low inflation/low interest rate environment.This economic change alone would be likely to cause many endowments to fall short.

On the other hand, the lower interest rates on the mortgage have meant that policyholders have saved a lot in recent years as well.That's not to mention the rise in the value of their properties ;)Overall, it's hard to see that many people will be out of pocket, though of course an unexpected shortfall can be a real shock, especially for those who didn't realise they were taking a risk.

But my own sympathies lie more with the older people who invested in With-profits pensions and have seen their fund halve in value as they are on the point of retirement. Plus the people who are already retired who were sold With-profits bonds and are now trapped in them by swingeing exit penalties. These people have undoubtedly lost money and they are too old to replace it :mad:

It is no wonder there has been such a loss of confidence in pensions.

dunstonh

It is no wonder there has been such a loss of confidence in pensions.

Cant just blame the insurance companies though.

Gordon Brown for taxing most stockmarket investments and taking over £50 billion out of them since he introduced that tax. The FTSE100 would be about 1000 points higher if that money was still in the stockmarket. In turn, most endowments wouldnt be facing shortfalls, over 70 insurance companies wouldnt have closed their doors to new business. MVRs wouldnt exist on with profits plans and terminal bonuses and the bonus rates would be higher. (btw pension gap is estimated at £50 bill which is the same GB has taxed extra from mostly pension funds)

The change in the economy from boom/bust to steady, low inflation means that expectations have to be lower as well. In real terms, returns are not much different to they were before. Its just that inflation isnt taking a big a chunk out of it.

Lastly, projection rates have dropped from 9,11 and 13% p.a. to 5,7,9% and often with a further 2.5% deduction for inflation. Its not that the pension is going to give any more or less back than it was from day one. Its just that the projected growth rates are now more realistic.

EdInvestor

Lastly, projection rates have dropped from 9,11 and 13% p.a. to 5,7,9% and often with a further 2.5% deduction for inflation. Its not that the pension is going to give any more or less back than it was from day one. Its just that the projected growth rates are now more realistic.

As are the annuity rates - 6% instead of 10%+.It's a double whammy. Instead of having a fund of 100k paying an income of 10% (10,000p.a) you have a fund of 60k paying an income of 6% (3,600 pa.):( Many people won't be able to afford to retire.

You can't blame it all on GB. The latest research suggest the damage attributable to him is more like 30bn in total - the black holes in With profits and company pension schemes are 10 times as big.Companies took too many contribution holidays, actuaries invested too much in equities and left it there too long.

....and investors failed to pay attention to what was happening to their money....

carnet

trademark wrote:

anyone noticed their endowment policy picking up of late

Can much of the increase in value not just be attributed the MVRs being gradually reduced over the last couple of years ?

As an example, I have a policy with Royal London, the MVRs for which have run as follows:

10/03 = 12.5%, 4/04 = 10%, 10/04 = 10%, 4/05 = 2.5%

So the overall value of the policy has increased by 14.8% in those 18 months -but the actual unit price has only increased by some 3% .

dunstonh

MVRs only tend to be mentioned when you ask for surrender. Its the current values that have been increasing. (although MVRs have been going down as well)