endowment advice please, should I cash in?

notanexpert_4

my endowment (no mortgage attached to it) only has three years to run, but am wondering if I'd be better off surrendering it to buy premium bonds?!

Or making it paid up?

Or just keeping it?

Here are the details:

• start date 29 April 1986
• maturity date 29 April 2011
• target amount £27,075
• monthly payment £40.42

• declared bonuses £7,057.46
• min guaranteed cash sum (incl bonuses) £16,371.46

• Projected pay out:
• at 4% £18,700
• at 5.5% £19,400
• at 8% £20,800

• surrender value at 29 April 2008:
• £15,038

Would be really grateful for any opinion.

Thanks.

EdInvestor

notanexpert wrote: »

• at 4% £18,700
• at 5.5% £19,400
• at 8% £20,800

.

This is a Friends Prov endowment, where the WP fund is likely to perform in the 4-5% range.If you cashed in this endowment and put it on deposit at 5% net also paying in the premiums to maturity you would end up with 18,962, which is more than you would receive at their non-guaranteed projection at 5.5%.

The extra return you expect for taking a risk on the investment has disappeared, indeed you get less for taking a risk thannot taking one..

If you want to invest the money in a risk based product (like the endowment) but with the chance of a proper high return,you would be better to cash in and pick some quality unit trusts in a tax free ISA (endowments are taxed at 20%).Use a discount broker such as https://www.h-l.co.uk which will rebate charges..

notanexpert_4

thanks ed,

are endowments taxed when they mature or only when you surrender?

EdInvestor

notanexpert wrote: »

thanks ed,

are endowments taxed when they mature or only when you surrender?

If it's a qualifying policy (eg for instance if you've had it for 10 years) there's no tax to pay on surrender or maturity.You have of course been charged 15- 20% lifeco corporation tax on your gains over the life of the policy.

This is why it's usually better to surrender endowments and reinvest the funds in a tax free environment, such as an ISA.

Capricorn_One

or sell (if there's a buyer) rather than surrender?

notanexpert_4

sorry I haven't been back. Life just got in the way.

thanks ed and capricorn for your input.

One small thing, am not resident in the UK so can't hold an ISA. Am starting another thread for info.