Grown up endowments question...
Posted by: Top Cat on 17 May 2005
Hi folks.
Got a letter through today. We've got an endowment. I took it out in 1998, before I met my wife (who has her own, Standard Life endowment which isn't doing so badly in comparison).
My endowment is projected to fall short even at the optimistic growth end of the scale (i.e. 8% per year). At the projected 5.5% point we'd be down around 30% of the final required value; at the 4% low end we barely scrape to half what's needed.
Last year we converted to an offset mortgage and we're on-track to have the lot paid off within 10 years. So the endowment is, in a sense, a little nest egg rather than a lifeline.
The big question, for which I know the answer is 'ask an IFA' - but seeing as I respect a lot of you guys, your advice is appreciated - is whether to cash in the endowment (and then be down by ~£1600 relative to what I've paid in) or stick by it and let my provider mismanage it some more... or not.
I reckon I can beat their 5.5% anticipated growth quite easily myself, but I'm also aware that I'm playing with fire. I'd need to factor in the benefit of the life assurance, but by and large I'm not sure what way to turn.
One thing I can say, as a decent, honest bloke, is that I don't personally feel that I was missold. I did indeed know the risks, and whilst those risks might have been somewhat downplayed (in the heady summer of '98), I'm big and ugly enough to have known they were there. So, I don't know if going after the IFA or provider on the basis of 'mis-selling' is really worth the bother.
Anyone else been through this?
John
Got a letter through today. We've got an endowment. I took it out in 1998, before I met my wife (who has her own, Standard Life endowment which isn't doing so badly in comparison).
My endowment is projected to fall short even at the optimistic growth end of the scale (i.e. 8% per year). At the projected 5.5% point we'd be down around 30% of the final required value; at the 4% low end we barely scrape to half what's needed.
Last year we converted to an offset mortgage and we're on-track to have the lot paid off within 10 years. So the endowment is, in a sense, a little nest egg rather than a lifeline.
The big question, for which I know the answer is 'ask an IFA' - but seeing as I respect a lot of you guys, your advice is appreciated - is whether to cash in the endowment (and then be down by ~£1600 relative to what I've paid in) or stick by it and let my provider mismanage it some more... or not.
I reckon I can beat their 5.5% anticipated growth quite easily myself, but I'm also aware that I'm playing with fire. I'd need to factor in the benefit of the life assurance, but by and large I'm not sure what way to turn.
One thing I can say, as a decent, honest bloke, is that I don't personally feel that I was missold. I did indeed know the risks, and whilst those risks might have been somewhat downplayed (in the heady summer of '98), I'm big and ugly enough to have known they were there. So, I don't know if going after the IFA or provider on the basis of 'mis-selling' is really worth the bother.
Anyone else been through this?
John
Posted on: 17 May 2005 by Sir Crispin Cupcake
There are a number of options you could explore. You could make the policy "paid up", i.e you stop paying into it and you get the value of it whenever it is due to mature. Or you may be able to sell the policy on to a third party, who will then continue paying into it and cash it when it matures. There are companies which specialise in this, but I haven't got any contact details with me at the moment. The worst option would probably be to cash it in now yourself, because it is very likely that any surrender penalties would eat a sizable chunk out of it.
Good luck with whatever you decide.
Good luck with whatever you decide.
Posted on: 17 May 2005 by Top Cat
Seems like a case of "damned if you do, damned if you don't" to me...
Would I be right in thinking, then, that the life assurance portion of the endowment ends (and therefore doesn't continue to eat into the capital) when a policy is 'paid up'? That might be the best option for me.
John
Would I be right in thinking, then, that the life assurance portion of the endowment ends (and therefore doesn't continue to eat into the capital) when a policy is 'paid up'? That might be the best option for me.
John
Posted on: 17 May 2005 by Sir Crispin Cupcake
Not sure about the life assurance bit - you may have a choice of whether or not you want to continue with it, but whoever you have the policy with should be able to advise. It may well be that you could get cheaper life assurance elsewhere.
Posted on: 17 May 2005 by Justyn
John,
It may be worth having a look at the web-site below, they are one of a number of companies who buy out peoples endowments.
http://www.robinlloyd.co.uk/
Hope things work out for you.
Justyn.
It may be worth having a look at the web-site below, they are one of a number of companies who buy out peoples endowments.
http://www.robinlloyd.co.uk/
Hope things work out for you.
Justyn.
Posted on: 17 May 2005 by Matt F
quote:Originally posted by Top Cat:
Would I be right in thinking, then, that the life assurance portion of the endowment ends (and therefore doesn't continue to eat into the capital) when a policy is 'paid up'? That might be the best option for me.
John
My understanding (from memory) is that the life assurance portion would cease if you make the policy paid up. Basically, from each premium you pay, part goes to provide life cover and part into the investment fund (and probably part is a plan fee). As the fund value increases the life assurance bit decreases.
What you should do is ask if there is a difference between the paid up value and the surrender value as this may help you to decide whether to actually take the money or just leave it paid up (or to carry on paying).
You should also check whether making the policy paid up will make it become non qualifying as this will dictate whether the proceeds will be tax free or not (only relevant if you are a higher rate tax payer I believe). There are certain rules with regards to qualifying policies and stopping premiums early (certainly within 10 years of commencement) can be relevant. The life company will be able to advise you of this.
Hope this helps.
Matt.
Posted on: 17 May 2005 by Top Cat
Thanks, Justyn, I'll check that out. Matt, thanks for that too. I've a bit of reading to do now...
John
John
Posted on: 17 May 2005 by Matthew T
There are likely to be two options that make financial sense. Sell the endowment to a third party or keep it running. If you make it paid up or surrender it you will likely lose out, the exit costs are usually large. If you have a good IFA get their advice, though some are not very good are will recommend what is best for them and not you, better you pay for their advice on a as required basis rather then them making money from commission selling funds etc.
Matthew
Matthew
Posted on: 17 May 2005 by seagull
Remember the projected figures do not include the final bonus figure which you would lose if you cashed in or sold it now.
I'm in a similar position with my endowment but I decided to keep it going. Life cover for me, with my health record, would probably cost more than the endowment does.
There must be money to be had in these things otherwise these companies wouldn't buy them would they?
Best to get independent advice though as others have said.
I'm in a similar position with my endowment but I decided to keep it going. Life cover for me, with my health record, would probably cost more than the endowment does.
There must be money to be had in these things otherwise these companies wouldn't buy them would they?
Best to get independent advice though as others have said.
Posted on: 18 May 2005 by charliestumpy
Because of the life-cover factor it is probably worth continuing.
Both my endowments were 'sold' to me pre-1988 (different protection laws implemented then theoretically) solely for house-purchase purposes. Fortunately I had cash to pay off mortgage last year, and continue paying for another 3 years or so into both policies. Most people were mis-sold endowments, and I had good fun making a start on suing the whatsits off people involved. Now I have been fortunate to write the greed of the sellers off to experience ...
It is the life-insurance element that keeps me coughing up for a few more years ... if I last that long, the no-longer-to-pay-off-mortgage cash will go towards Linn Sondek LP12 etc/ Linn (Ekos??) arm number 6 etc etc 'for sentimental reasons' in this house... (and maybe a nice tube amplifier combo if I don't like price of Naim stuff then) ...
Good luck in making your decision.
Both my endowments were 'sold' to me pre-1988 (different protection laws implemented then theoretically) solely for house-purchase purposes. Fortunately I had cash to pay off mortgage last year, and continue paying for another 3 years or so into both policies. Most people were mis-sold endowments, and I had good fun making a start on suing the whatsits off people involved. Now I have been fortunate to write the greed of the sellers off to experience ...
It is the life-insurance element that keeps me coughing up for a few more years ... if I last that long, the no-longer-to-pay-off-mortgage cash will go towards Linn Sondek LP12 etc/ Linn (Ekos??) arm number 6 etc etc 'for sentimental reasons' in this house... (and maybe a nice tube amplifier combo if I don't like price of Naim stuff then) ...
Good luck in making your decision.
Posted on: 18 May 2005 by Top Cat
Thing is, at my age I can get £100k life-cover for around £8/month. The endowment I have has significantly less value in it than I paid in, and there's no reason to think that that's about to change. So, I'm leaning toward the 'sell it on' side - and chalk the rest up to experience.
John
John
Posted on: 18 May 2005 by Polarbear
John,
carry on paying your monthly premium until your endownment mattures.
Use it as a savings policy.
The reasons being you have paid all your up front charges in the first five years of the fund. Endownments are geared up to make most of their profits in the final years of the policy. The policy will also acrue terminal bonuses which are only paid at the end of the term.
By all means increase your monthly mortgage payment and reduce your mortgage at a reasonable rate.
If you need life cover this can be done cheaply as you have already found out.
As far as the endownment is concearned don't stop it, sell it or do anything other than continue with it.
If you do pay of your mortgage within the next ten years then in 2023 you should receive a large lump sum with no mortgage to clear.
Regards
PB
carry on paying your monthly premium until your endownment mattures.
Use it as a savings policy.
The reasons being you have paid all your up front charges in the first five years of the fund. Endownments are geared up to make most of their profits in the final years of the policy. The policy will also acrue terminal bonuses which are only paid at the end of the term.
By all means increase your monthly mortgage payment and reduce your mortgage at a reasonable rate.
If you need life cover this can be done cheaply as you have already found out.
As far as the endownment is concearned don't stop it, sell it or do anything other than continue with it.
If you do pay of your mortgage within the next ten years then in 2023 you should receive a large lump sum with no mortgage to clear.
Regards
PB
Posted on: 18 May 2005 by Matt F
quote:Originally posted by Polarbear:
The policy will also acrue terminal bonuses which are only paid at the end of the term.
The only thing I'd argue with there is the word "will". Yes, a Terminal Bonus is only payable on maturity but there is no guarantee that there will be one or, if there is, what it might be. It all depends upon what bonuses the company declares in that final year.
In the all the years I've worked in the industry I've seen terminal bonuses vary from adding a huge 40% to the final value to adding nothing because there wasn't one. They're great when they happen but you can't rely on there being one.
Top Cat knows what the projected values are (and can work out how much he will have to pay in between now and maturity) but I'd still suggest he gets both a surrender value and a paid up value (these two can vary a lot) before deciding what to do.
Matt.
Posted on: 18 May 2005 by Mick P
Chaps
Despite everything that has been said here, ask yourself one question.
If endowments are so bad, why are investors buying them up on traded auctions.
The answer is obvious......they are good investments.
Regards
Mick
Despite everything that has been said here, ask yourself one question.
If endowments are so bad, why are investors buying them up on traded auctions.
The answer is obvious......they are good investments.
Regards
Mick
Posted on: 18 May 2005 by Berlin Fritz
I'm not even going to say the obvious 
Posted on: 18 May 2005 by phil. S
I think you will only find companies interested in buying your endowment if it is a "full with profits" plan, which if bought to cover a mortgage most likely won't be. Low cost, low start or unit linked endowments don't have a second hand market. Whether you surrender it or keep it going will depend on which company it is with, how much longer it has to run, and your own financial situation. For example if its an NPI plan ditch it. If its a Standatd Life plan then try to keep it. Depending on the term of the plan you should get back at least what you have paid in which means you have had free life cover over the years. If money is currently tight then surrender it, but remember you will lose the life cover. Speak to an IFA, although some people here would have you believe we are all crooks, I can assure you that is far from the truth.
Phil
Phil
Posted on: 19 May 2005 by Top Cat
Phil, it's a Friends Provident endowment. I can afford to keep paying into it, but their projected 5.5% growth over the longer term seems pretty poor. Of course, it could be more or less than that. My wife has a Standard Life endowment, which we've agreed to keep for when they finally go public.
I wondered about reducing the amount paid in - say, from £x per month to £x/2 per month, and putting the remaining half into cash ISAs and/or a FTSE tracker. The idea being, of course, to spread the risk somewhat.
John
I wondered about reducing the amount paid in - say, from £x per month to £x/2 per month, and putting the remaining half into cash ISAs and/or a FTSE tracker. The idea being, of course, to spread the risk somewhat.
John
Posted on: 20 May 2005 by living in lancs yearning for yorks
I too have a Friends Provident and Standard Life Policy. On a simple basis, comparing FP's projected return of 5.5% (which, if I understand correctly is before the deduction of charges - and is massively better than it has actually achieved to date over a 15-year period when the cumulative growth in the stock market and inflation have both been substantially more than that) with my current mortgage rate of around 6% suggests I'd have to be mad to continue with it - but I keep on dithering...
Posted on: 23 May 2005 by greeny
quote:Originally posted by Top Cat:
Phil, it's a Friends Provident endowment. I can afford to keep paying into it, but their projected 5.5% growth over the longer term seems pretty poor.
I think the projected growth figures are dictated by the government. So mean nothing really. I am in a similar position to U but mine has been going since 1991. I figured that with most of the charges payed already that keepoing it going was the best option
Posted on: 24 May 2005 by charliestumpy
Coincidentally our 2 are also Standard Life & Friends Prov.
Logically there are better alternative ways to spend money/have insurance. Despite ours being well pre-1988 'Financial Act', I'm convinced that anyone who can be arsed to sue the pants of 'sellers' would 'win'/get suitable compensation if endowment policies 'missold' for mortgage-purposes. As we paid off mortgage anyway, we think of it as a mini-life insurance policy with cash back in a few years.
We had 'bonus shares' long since from UK (Friends) Prov., and possibly will have some more soon.
IMO it is probably sensible to 'dither'/hang on (& sue for those whom it concerns...) and to select additional investments/insurance if required.
Logically there are better alternative ways to spend money/have insurance. Despite ours being well pre-1988 'Financial Act', I'm convinced that anyone who can be arsed to sue the pants of 'sellers' would 'win'/get suitable compensation if endowment policies 'missold' for mortgage-purposes. As we paid off mortgage anyway, we think of it as a mini-life insurance policy with cash back in a few years.
We had 'bonus shares' long since from UK (Friends) Prov., and possibly will have some more soon.
IMO it is probably sensible to 'dither'/hang on (& sue for those whom it concerns...) and to select additional investments/insurance if required.
Posted on: 24 May 2005 by living in lancs yearning for yorks
You are right to say that the projections have to be based on certain rates, set by the govt / regulator. However, FP have said they reckon they should be able to get 5.5% - ie, this is not the govt-imposed rate, this is what they say they can get.
The trouble is, I have paid in about £9,500 since starting the policy 15 years ago, and the current value is £10,500 (which I could cash in for £10,000). How am I supposed to believe that they have a cat in hell's chance of actually achieving anything near 5.5%?
I know the charges come out at the start, but the overall return is completely pathetic, and cannot be possibly be blamed on the fall in share values over the last 3 years or so... ie, the real problem is not investment risk, but rubbish management.
Unfortunately, as an accountant, I am deemed to be "financially sophisticated" and therefore suing / claiming compensation will do me no good as I'll just get told that I should have known there were risks. Risks I can live with, but piss poor investment skills / ludicrous charges are another thing entirely... but there we go
The trouble is, I have paid in about £9,500 since starting the policy 15 years ago, and the current value is £10,500 (which I could cash in for £10,000). How am I supposed to believe that they have a cat in hell's chance of actually achieving anything near 5.5%?
I know the charges come out at the start, but the overall return is completely pathetic, and cannot be possibly be blamed on the fall in share values over the last 3 years or so... ie, the real problem is not investment risk, but rubbish management.
Unfortunately, as an accountant, I am deemed to be "financially sophisticated" and therefore suing / claiming compensation will do me no good as I'll just get told that I should have known there were risks. Risks I can live with, but piss poor investment skills / ludicrous charges are another thing entirely... but there we go