AXA (Sun Life) surrender?

weatherwax_2

We have a with profits endowment with AXA(Sun Life) maturing in September 2006: target amount £23,400.

In June 2004 projected payout at 3% growth was £28, 300.

If we cashed in the policy now, the payout would be £20,211 plus an interim bonus of £3173, making a total of £23, 384.

Terminal bonuses are currently being paid at 44% of accrued annual bonuses. If the policy was cashed in now, a percentage of the terminal bonus would be paid but AXA could'nt tell us exactly what the percentage would be. (We assume it would be based on the length of time the policy has been running, which in our case is 23 years 1 month, so we assume it would be a fairly high percentage of the terminal bonus).

The premiums are £36.37 a month.

Terminal bonuses are plummeting and there is no guarantee that in 2006 AXA will pay any terminal bonuses. Also, annual bonuses are dropping, so that between now and maturity date any further annual bonuses may be not much more, possibly less than the total premiums paid.

The question is, should we let the policy run to its maturity date, or cash it in now? If payout in September 2006 is £28,300 plus little or no terminal bonus, it appears to make sense to cash it in now, taking £23,384 plus a proportion of 44% of annual bonuses (full 44% of bonuses to date is £5779). Also, £800 would be saved in premiums.

Is it safe to assume that terminal bonuses won't exist in 2 years time? What would be a reasonable percentage of terminal bonus of policy if cashed in now?

Apologies for rambling post, I'm sure it could have been expressed more succinctly, but we are really anxious about the course of action we should take and feel rather overcome by the intricacies of the situation.  :-[

We would be very grateful for any advice.

dunstonh

The question is, should we let the policy run to its maturity date, or cash it in now?

who knows?

Is it safe to assume that terminal bonuses won't exist in 2 years time?

No it is not safe to assume that.  It could be higher or lower.  

The endowment has hit its target now.  The aim of the endowment when you took it would have been to cover the mortgage and hope for further lump sum or repay mortgage early.     You are now in the situation to meet one of those aims - Repay mortgage early.    

If you decide to prolong it, you may get more, you may get less but it is unknown.    So, do you take the unknown or go with what is known?  that is really your choice now.

One thing to note: If the endowment has a guaranteed sum assured, look at that and add the annual/reversionary bonuses to it and that is the minimum maturity value. If that is higher than what you have now, then you may consider holding on to it.

weatherwax_2

Thankyou DD.

Re my question "The question is, should we let the policy run to its maturity date, or cash it in now?", and your reply:

who knows?

I accept that nobody can actually know but hoped that, given the information I provided, someone, perhaps in a similar situation, might share their experience and thoughts.

Re my question

Is it safe to assume that terminal bonuses won't exist in 2 years time?

Perhaps 'assume' was too strong a word. A couple of weeks ago Money Mail published an article about the collapse of terminal bonuses, part of which stated "payouts on with-profits endowments have fallen so far and so fast that some now give less on their total maturity payout after 25 years than they did on their terminal bonus alone 5 years ago".

The article specifically mentioned (among others) AXA as one of the worst (dare I say it?) offenders.

Also, AXA annual bonuses are dropping too, eg: our annual bonus in 2001 was £690 and in 2002 it was £440.

Would it be fair to 'assume' that our bonuses are unlikely to increase over the next 2 years thus making it highly possible that they will not be covered by the premiums (mentioned above)?

You comment

If the endowment has a guaranteed sum assured, look at that and add the annual/reversionary bonuses to it and that is the minimum maturity value. If that is higher than what you have now, then you may consider holding on to it.

I'm not sure what you mean. I thought that the amount I mentioned in my above post (£23,384) covered that. The sum assured is £9637 plus annual bonuses plus interim payment, if cashed in now. Actually the bit I'm most puzzled about is "If that is higher than what you have now".

I take a certain degree of cold comfort from the fact that there has only been one reply to my enquiry which may mean that most people are as flummoxed/confused or undecided as we are. ::)

On the other hand it could be that people think we're old enough and (ought to be :-X) financially savvy enough to work it out for ourselves. eh?

Which sort of begs the question, but c'est la vie...... ;D

dunstonh

We have had quite a lot of endowment posts over the last few weeks which have been quite similar. Thats a lot of repeating and you can only say the same things so many times. They are good reading and will explain things more so I recommend you read back a few weeks and see.

I'm not sure what you mean. I thought that the amount I mentioned in my above post (£23,384) covered that. The sum assured is £9637 plus annual bonuses plus interim payment, if cashed in now. Actually the bit I'm most puzzled about is "If that is higher than what you have now".

You have to look at the guaranteed amount which is £9637 (not mentioned in first post). At the start this is the worst case scenario as to what you may get back. However, on top of this you get the annual bonus. This is also guaranteed when paid (although the rate is not guaranteed). The final bonus is the variable bit and that can be taken away in full or played around as Axa see fit.

Currently the minimum guaranteed amount you will have on maturity is £12,570. So, the amount between that and your surrender value of £20,211 is at risk.

It is generally considered that we are over the worse and that there should be some growth again in the stockmarket over the coming years. However, many insurance companies have reduced their holdings in the stockmarket to a very small level. This means that they wont really benefit from a stockmarket rise. Equally, they wont suffer too much from a stockmarket fall. The problem with this though is that the returns on the safer investments will average 5%. Out of that 5%, they will take their charges. Lets assume 2% on the endowment. Then they have to rebuild their reserves so thats 2% and that leaves 1% for the policyholder. Many are not paying anything to the policyholder as their reserves are in a pretty poor state.

So future returns are likely to be very limited in the short to medium term (lets say up to 10 years).

Now, as to the final bonus. Will they add to this or take it away from you? This is tricky. Because it is the flexible part of the bonuses, this is the safer bet for the insurance companies to play with. So, they can increase the terminal bonus on good years knowing full well they can reduce it down on bad years. That is something they cannot do with annual bonuses.

What you are asking is: are the next two years going to be good or bad? The answer to that is "who knows". If it is good, you are unlikely to see much improvement on the current situation. If it is bad, you will likely see a drop in the value.

weatherwax_2

You have to look at the guaranteed amount which is £9637 (not mentioned in first post).

Mea culpa.

Currently the minimum guaranteed amount you will have on maturity is £12,570.

???

Puzzled again but 'twas ever thus.

dunstonh

Quote:Currently the minimum guaranteed amount you will have on maturity is £12,570.

Puzzled again but 'twas ever thus.

Dont worry. This type of endowment is harder to understand than a unitised with profits or unit linked endowment.

Your endowment value on maturity is going to be made up of 3 things:
1 - Guaranteed sum assured
2 - annual/reversionary bonuses
3 - final/terminal bonus

When the plan starts, the only thing guarnteed sum assured is guaranteed to be paid. Each year, the AXA decided what, if any annual bonus to add. Once added, this bonus cannot be taken away so becomes guaranteed. They may also add some final bonus but this figure has no guarantee at all.

So, in your case, you have the guaranteed sum assured of £9637 and annual bonsues of £3173. The rest of the value is made up of final bonus.

Therefore the minimum value on maturity of your plan is the guaranteed sum assured plus annual bonus (9637 + 3173). This is £12,570.

AXA can choose to remove your final bonus and not pay annual bonuses for the remaining years if things were bad enough leaving you with just 12,570.

I cant give advice here, nor can anyone else but read this carefully. You took out the endowment to repay the mortgage. If things went well, you could look to repay the mortgage early or take an additional lump sum. Currently, your endowment can repay your mortgage two years early. Therefore your endowment has made its goal. You can save two years of mortgage payments by paying it off now. Or you can risk the value of the endowment going down and having a shortfall on maturity.

weatherwax_2

Thanks DD for your patient input. It is much appreciated.

Just one further comment:

Re

So, in your case, you have the guaranteed sum assured of £9637 and annual bonsues of £3173. The rest of the value is made up of final bonus.

Therefore the minimum value on maturity of your plan is the guaranteed sum assured plus annual bonus (9637 + 3173). This is £12,570.

The £3173 is what AXA referred to as an interim bonus. They told us that our guaranteed annual bonuses are £13,174.

Having said that, the final paragraph of your previous post is still relevant and ties in with our thoughts (such as they are!) on possible action to be taken.

Cheers
Weatherwax

dunstonh

Its a right pain when insurance companies change long standing insurance terms such as reversionary and terminal bonus. Annual and final bonus is fine as that is clear but interim bonus suggested annual bonus to me.

Well, the principle remains but the figures are a reversed a little.

£13,174 now appears to be the annual bonus total.
£3173 now appears to be the final bonus currently.
£9637 remains the Guranteed sum assured.

So, 9637+ 13174 = £22,811 guranteed minimum maturity. If you were to assume no more bonuses and no removal of the final bonus you could add on the £3173 making a total of £25,984.

So, that is £2600 higher than the current surrender value.

So, is the cost of the mortgage and endowment over the next 2 years going to exceed £2600?

If it it doesnt, I would still stick with the direction we were heading.

weatherwax_2

So, is the cost of the mortgage and endowment over the next 2 years going to exceed £2600?

If it it doesnt, I would still stick with the direction we were heading.

Yes, DD, definitely thinking along those lines.

I errr have'nt mentioned until now that the AXA policy won't pay off m/gage by itself. We have another policy that we're also thinking of cashing in, but appealed for misselling and are awaiting the result.

Plenty to think about.

Best wishes
Weatherwax