endowment mortgages

[Polremy]

yes, i know, they were not a good idea.

however, ours is due to mature in 4 years' time. (25 year plan)

we pay just over £100 a month into this (which we can afford but dont really want to give money out if it won't bring any in!)

can anyone let me know, reassure me or otherwise, that it is ok to just continue to pay this for another 4 years.

are we likely to have anything to look forward to?

could the present turmoil perhaps be a good thing (such an optimist!)

should we perhaps cash it in now?

we have no mortgage to pay off.

we are both just over 60, living in frqnce, and in good health.

[AnOther]

First thing to do is get a surrender value but I'd be sitting down when you open it. Until fairly recently some endowments had almost got back on track but the credit crunch will have put paid to that.

The only benefit you are getting from it at the moment is the life cover and if you don't need that I'd seriously consider surrendering it, selling it in the traded endowment market (probably very difficult at the moment) or making it paid up.

I think continuing to pay £100/mth is money straight down the drain. Give it to me instead and I'll guarantee to give you 100% back in 5 years time, probably a better deal and a safer bet [blink]

[Graham & Brenda]

You should read the terms and conditions. Have you received notices of bonuses, guaranteed or otherwise, Is there a terminal bonus? etc.etc. As Ernie says, a surrender value will give you an idea of its current value.

[Nicos]

Remember..it pays a life insurance..could/would you wish to replace that??

Our initial endowment  was for £90 T...surrender value £ 40K  a couple of weeks ago...( well - actually selling on  -  not selling) Surrender date 2015.

Advised to leave be as w are in our 50's and life insurance would be high for the same cover.

How much d you need the cover/cash???...you need some quotes- (they'll be with you within the week for selling on..)

[Pickles]

We went through the process of reviewing ours earlier this year - ours has 5 years to run.We had kept the endowment on, essentially as a savings plan after we had paid down the mortgage by converting it into a repayment one.

When we asked for surrender values and projected values, the first thing that we noticed was that the projections were based on lower rates of return than they used to give; this is reasonable given the performance of the funds underlying the endowment, and I think is a message to expect lower returns in the future. Then we looked at the make-up of the underlying funds from the annual reports, and came to the conclusion that we would get a better return for our remaining monthly payments by putting them into - well, almost ANYTHING else. I think that a lot of endowments are essentially in "run-out" mode: the companies that provide them do not really need to use their performance as references to get people to invest: the endowment is pretty much a dead product now, and so I would really not expect them to give a very good return. Following the stock market debacle of a few years ago, the providers of endowments chose very defensive investment profiles which will not give good returns (although they are pretty safe). We did not need to surrender the policy (we did not have any immediate application for the money that we could get out via the surrender value), so what we chose to do was to make the policy "paid up". Basically what this means is that the policy continues until its normal termination date (ie we do not take the hit of surrendering it), but we make no further payments into it. Bear in mind that if you do this then the life insurance aspect of the endowment is affected - ie the minimum guaranteed payment on death is reduced, because you're not paying into it any more. We felt that, for us, this was a suitable balance which would get the best out of the money that we had "thrown away" into the endowment, without throwing good money after bad.

Fine.

And then we thought we'd put the monthly payments into a high-interest-bearing account .... thank-you very much, Icesave ... the queue is over THERE ...

D'oh!

Regards

Pickles

[bigears]

hi

I don't like the idea of selling an endowment to a third party, its scary to think that another had an interest in your life (death).  The endowment I sold a few years ago went back the providing company.   Also be aware of the tax implications if you are french resident of benefiting from a maturing endowment.  When we were deciding a few years ago whether to become french residents, this issue of the tax implications of maturing endowments wasn't definitively answered.  Would have hated to see it taxed.  We, in the end stayed UK resident and have not regretted it.  We now have one endowment left that has 2.6 years to run.  It was on track to produce the original value, not sure what it will be like now, never mind will keep paying and keep my fingers crossed. 

[Will]

It's not all doom and gloom. Endowment mortgages got a bad press, but this was mainly because government regulations forced all providers to use a standardised way of forecasting returns - this worked OK at times of very high interest rates, when the endowment was a particularly good investment, but gave totally unrealistic expectations when rates fell. Unfortunately a lot of advisers, as well as the general public, used these sham figures (which they had to, by law) but without giving the necessary warnings, and the widely-reported mis-selling problems stemmed from that. The particular problem with endowment mortgages was that the forecast sums fell well short of the amount needed to pay off the mortgage - but as you have no mortgage this will not affect you.

Although a lot of companies under-performed, some did better. If your policy is long-established then it may well be worth keeping it going as the good rates you got in the past could have underpinned any shortfalls in more recent years, when rates were lower. As indications are that rates are on the rise again, then abandoning it now could be a bad move. It's extremely unlikely that the money you are paying in is being 'thrown away' - it still gains interest, though, as Pickles rightly says, it might be at a rather low rate compared with what you can get elsewhere, albeit at much lower risk. The only way you will know the true picture is to look at values, including surrender values and effects of making it paid-up, for your individual policy. Don't forget that most have a terminal bonus. Then do the sums to see which looks like the best option. Consider, too, the assurance aspects.

It is true that if you are French fiscally resident then lump sums - like those arising from sale of an endowment (or even it maturing) - are likely to be taxable, so this is something you should definitely take into account. There can be ways round this, but you would need to take professional advice about whether your individual situation permits any of these.

 

[kizpip]

Our 25 year plan matured in August. A lot smaller than yours, the "target amount" was £10,000. I calculated we paid in £4176 over the 25 years and received £11,600 at maturity. Not a great investment but, yes, we have made worse ones[:(]

For another small endowment which is

due to mature in 5 years' time we have received several shortfall

notices from the insurance company. However, as it won't be needed to

pay off a mortgage we are continuing to pay the premiums in the hope

that, however poorly it performs, we'll still get out more than we paid

in (which probably wouldn't apply if we cashed it in, especially in the

present climate).

At least if yours has 4 more years to run, there's a chance of an

up-turn between now and then, which will help to increase the terminal

bonus.

Having said all that, some insurance companies have performed better than others.

[Benjamin]

[quote user="bigears"]

hi

I don't like the idea of selling an endowment to a third party, its scary to think that another had an interest in your life (death).  The endowment I sold a few years ago went back the providing company.  

[/quote]

There is strong evidence that third party companies specialising in purchasing endowments consistently offer better deals than the encumbent company.

[krusty]

I would not sell them , if someone is willing to buy them it proves they are worth having. If you have had them all these years the bonuses in the early years will have been good.Some of mine paid out this year ...well pleased with the terminal bonus.

[Anton Redman]

Endowment companies used to cheat by paying the biggest bonuses in the final year to ensure their yields to redemption looked good.  Also most endowments have high front end loads ( big commision to be funded in early years ) so tend to be better investments in the final years.

[Polremy]

thanks everyone for all your replies.

i have just written to Phoenix - for tis they! - well this week anyway, they keep changing names. started off as Royal, then Sun Alliance and then i lost track.

have asked them for surrender value, news of final bonus, info about possible 'made up' deal.

it will be interesting to see if they reply at all - i dont have much faith in them - and, if they do, whether they have anything sensible to say.

i would still like to know what other people think so keep writing please.

[Bob T]

Pol, No need to write to them, I phone Phoenix every month to check on the surrender value of mine (which was also a Royal Life one once). They will give you value over the phone. The number is: From the UK 0845 0708877, and from France 0044 151 2393000. They will ask you for the policy number and some security questions, but it only takes 5 minutes.

[bigears]

hi

I've just obtained a quote from prudential (for an old scottish amicable policy) yesterday, just panicking a bit I suppose.  Its only got 2.7 years to go and its on target.  A couple of questions, perhaps Will could help.

If the present crisis really went deep, could the likes of Prudential go bust, if so would my with profits endowment disappear?

What are the underlying investments for such policies and how much are they likely to suffer in this crisis?

The surrender value with Pridential, plus interest over the next 2.7 years plus the premiums we would not have to pay adds up to almost its target value.  It doesn't back any mortgage, its just a saving scheme.

If I take it out I trust its not taxable. we are UK resident.

 

 

 

 

[Will]

I can't be much help, nobody really knows what will happen.

It's highly unlikely an institution like Prudential would be in danger of going bust - if it did the government would certainly have to step in, as with Northern Rock etc.

Most institutional investments, and endowments are not likely to be any exception, will have some of the funds in the stock market and some in property. At present stock market investments are falling, average current losses of around 20% are being talked about for stock market investmements over the past few months. But the fund should be well spread around, and things will go up again.

Informed opinion at present is that this is a very bad time to sell shares unless you actually have to - the same would seem to apply to endowments.

If you are UK tax resident, then you would not be taxed.

[bigears]

hi

Thanks Will for your reply.  Ok I take what you say about Prudential, but the underlying investments will have taken a big hit (shares & property) and in the short term my policy has to run I cannot see things getting back to the good times enough so that there would not be any overall negative affect on the policy.  If the surrender quote is the same as I was given over the telephone, I will surrender it.  I will bang the cash ibto a high interest but safe account, the next couple of  years is just too unpredictable.  I can achieve a return of  the target value by this course of action.  I had always planned to let it run, I'm a bit disappointed I haven;t the bottle to do that. 

[united]

According to the Pru website the with profit asset mix at 31/12/07 was

UK Equities 35%

Non UK Equities 17%

Fixed Interest 28%

Property 14%

Alternative Investments 3%

Cash 3%

I would imagine the percentages will have changed a little as a result of investment decisions and current valuations. Re the tax position on cashing in I understand there can be a higher rate tax charge if the policy has run less than 10 years.

[Bob T]

Just to drag up an old thread.

My Royal Life policy, now administered by Pheonix, is about to mature. I have been asking for surrender values about every 6 weeks for the past few years to follow how the investment was going. Every time that I asked, over the phone, I was given a surrender value for that day and told that if I leave it to maturity, I will get a final bonus of 16% added.

They sent me some paperwork to claim the final amount on maturity and guess what? The 26% has gone. I complained and the complaint was upheld, so they offered me £100 for giving me wrong information. Nothing is said about the £7000 of terminal bonus.

So if you are told not to surrender and wait for the terminal bonus, then take no notice, they are telling porkies, because there is no terminal bonus.

I will now wait for the reply to my further complaint and then take it to the Finacial Ombudsman.

[Chancer]

You could not make it up could you but it is all too believable these days [:(]

Was the mythical terminal bonus purported to be 16 or 26% ?

The best decision I ever made was to convert my endowment mortgage that I was tricked into accepting or lose the house, into a repayment after 12 months, I even got back £50 more than I had paid in.

That was 1987 when all the FA's were still speiling about making fortunes on maturity, everyone thought that I was an idiot, I was actually acting on instinct and principle having been forced to accept it by the building society manager. I am probably one of the few people to have actually benefitted from an endowment mortgage.

I wonder what the FA's are pushing in these difficult times, wine, llamas, classic cars?.........................

I wont be sorry to see a few of them hit hard times.

[AnOther]

Sadly I don't think you'll get very far with a complaint to the Ombusman Bob.

Surrender values and terminal bonuses are a moving target, neither are guaranteed and are all the more volatile in troubled times. They made a sloppy mistake by telling you one thing on the phone but then something else on paper but I'm very doubtful that you have any grounds for claiming the sum mentioned.

I do wish you the best of luck with it though.