hing in an endowment early

[V8Dom]

ok poss been talked about before

i have a 14 year old endowment which i pay 77.70 a month
if i cash it intoday its worth 15k
projection is 4% 30k, 6% 38k if i wait a further 11 years. if it gains at those amounts

so far it has gained 4.5% which isnt far above inflation.

if i cash in now i save 11 years of £77 a month another 10k saving

is it worth waiting and seeing another crash effect it or cashing in now and reinvesting on an isa or high interest scheme?

morgage im not worried about as my other is well on track to pay off morgage in 4 years time..

[sidicks]

V8Dom said:

ok poss been talked about before

i have a 14 year old endowment which i pay 77.70 a month
if i cash it intoday its worth 15k
projection is 4% 30k, 6% 38k if i wait a further 11 years. if it gains at those amounts

so far it has gained 4.5% which isnt far above inflation.

if i cash in now i save 11 years of £77 a month another 10k saving

is it worth waiting and seeing another crash effect it or cashing in now and reinvesting on an isa or high interest scheme?

morgage im not worried about as my other is well on track to pay off morgage in 4 years time..

1) What are the terms of the endowment (i.e. annual management charges, policy fees etc) - can you obtain a similar investment exposure within a cheaper vehicle?
2) Are there any charges for cashing in the investment early?
3) What funds is the endowment invested in (if with-profits, there may be some valuable underlying guarantees)?
4) You won't be able to transfer the proceeds into an ISA, but you might be able to invest in a unit-trust type vehicle at lower cost and with a variety of different investment choices to meet your needs
5) I could be wrong but if it is a pensions endowment (unlikely) rather than a life endowment, there may be tax advantages of contonuing to pay into this investment

Sidicks

[V8Dom]

hi
no penalties, no tax on cash in as it was introduced as a morgage repayment
50% standard life managed life fund
50% standard life uk equity life fund

not sure what else i could get for the same return if stock market stable... certainly paying off credit card and saving in payments each month would help..


way i see it is its not the 4.5% increase its doing its the 15k +10 still to invest=25k against 30k it might make... 30/25 is 12% increase if i kept it going but over 10 years thats only 1.2 % per year return...or do i have my maths wrong?!!!!

[sidicks]

V8Dom said:

hi
no penalties, no tax on cash in as it was introduced as a morgage repayment
50% standard life managed life fund
50% standard life uk equity life fund

not sure what else i could get for the same return if stock market stable... certainly paying off credit card and saving in payments each month would help..


way i see it is its not the 4.5% increase its doing its the 15k +10 still to invest=25k against 30k it might make... 30/25 is 12% increase if i kept it going but over 10 years thats only 1.2 % per year return...or do i have my maths wrong?!!!!

You already have the numbers based on 4.5% return, 6% return etc

I assume that the interest on the credit card is at a much higher rate than 6% (typically 20%, unless you have an interest free offer?) in which case you should definitely pay off the credit card!

Sidicks

[cymtriks]

How are those interest rates calculated?

I tried a simple spread sheet and got very close to 2%:
77*1.02^(168/12)
77*1.02^(167/12)
etc
i.e. 77 pounds left in for 168 months, 167 months, etc

and got just under 15K

Genuinely interested!

[sidicks]

cymtriks said:

How are those interest rates calculated?

I tried a simple spread sheet and got very close to 2%:
77*1.02^(168/12)
77*1.02^(167/12)
etc
i.e. 77 pounds left in for 168 months, 167 months, etc

and got just under 15K

Genuinely interested!

Points to note:

1) OP - When looking at the policy growth to date you need to recognise the value of the life cover you have had, so the actual return is higher than the 4.5% you quote

2) Cymtriks - Note that there are 11 years remaining, not 14


You have to remember that the endowment contract is actually 2 contracts. Strictly speaking, what the OP refers to as an 'Endowment' is actually an 'Endowment Assurance' which comprises a "Pure Endowment" (i.e. a policy that pays out the accumulated fund at the end of the defined term) plus a 'Term Assurance' (i.e. a policy that pays out the accumulated fund (possibly with a minimum guaranteed amount) on death ).

So, if the OP cancels the endowment, they won't have any life cover. This may not be an issue for them, but is worth bearing in mind to make sure you are comparing like with like.

On a very simple basis, the existing £15k fund would accumulate to around £23,100 at 4% interest over 11 years. However, the 4% is the assumed asset growth rate, and charges need to be deducted from that - assuming a typical 1.0% annual management charge, we get to around £20,700.

Similarly, for the continuing monthly premium, let's assume that the life cover is say £17.70 a month, so that in fact only £60.00 is being saved towards the final endowment payout. As above, we assume a 1.0% annual management charge - the £60 accumulates to around £9,400 after 11 years.
In total we therefore have £30,100 which is close to the OP's figures.

At 6% growth the numbers produce a total of £36,100 - again "broadly" consistent with the OP's numbers.

Sidicks

Edited by sidicks on Friday 29th July 09:19

Edited by sidicks on Friday 29th July 09:20

[cymtriks]

Further to the above post can anyone explain this:
59.07 pounds a month
6 years to go
current value (not cash in, the current value as stated in their letter) 25586

so if the interest rate was zero, i.e. no growth at all, we would have:
25586 + 59.07 x 72 = 29839

yet the letter claims that if funds grow at 4% the projected final amount will be 28500. How is this 4% calculated? It looks like the fund is actually losing money!!!

Are lots of fees deducted at the end which aren't included in the interest calculation?

Edited to add
Just noticed the post above! Thanks. I shall read with interest

Edited by cymtriks on Friday 29th July 10:02

[sidicks]

cymtriks said:

Further to the above post can anyone explain this:
59.07 pounds a month
6 years to go
current value (not cash in, the current value as stated in their letter) 25586

so if the interest rate was zero, i.e. no growth at all, we would have:
25586 + 59.07 x 72 = 29839

yet the letter claims that if funds grow at 4% the projected final amount will be 28500. How is this 4% calculated? It looks like the fund is actually losing money!!!

Are lots of fees deducted at the end which aren't included in the interest calculation?

Need more information.

1) Is this an endowment? If so, then as explained above, part of the premium will be funding life cover and hence is not available to earn interest
2) As above, the projections are based on an assumed growth rate of the underlying assets. From that, the provider takes their charges e.g. 1% per annum, so in this case the net return achieved would be 3% p.a. etc

Having said all that, if the current value is £25,586 and that grew at 4% less 1% costs, you would still achieve £30,550 even if no future premiums were paid, so something doesn't look correct...


Does that help?

Sidicks

[V8Dom]

sidicks said:

You have to remember that the endowment contract is actually 2 contracts. Strictly
Similarly, for the continuing monthly premium, let's assume that the life cover is say £17.70 a month, so that in fact only £60.00 is being saved towards the final endowment payout. As above, we assume a 1.0% annual management charge - the £60 accumulates to around £9,400 after 11 years.
In total we therefore have £30,100 which is close to the OP's figures.

At 6% growth the numbers produce a total of £36,100 - again "broadly" consistent with the OP's numbers.

Sidicks

looking at the paper woirk it states
£77.00 premium
plus
£0.70 monthly waiver of premium
total £77.70

£73.92 will be used to buy units. current monthly service charge is £1 a month

[sidicks]

V8Dom said:

looking at the paper woirk it states
£77.00 premium
plus
£0.70 monthly waiver of premium
total £77.70

£73.92 will be used to buy units. current monthly service charge is £1 a month

The waiver of premium component simply means that the life company will pay your premiums for you if you lose your job (in certain circumstances).

From the above, I would assume that there is a 5% bid-offer spread applied to premiums before units are purchased, and then units are surrendered to fund the term assurance component.

(The alternative is that the difference between £77.70 - 0.70 - 1 - 73.92 = £2.08 is the contribution towards the term assurance, which seems quite low (but that would depend on your age, health, and the size of the sum assured)).

Sidicks

[V8Dom]

sidicks said:

The waiver of premium component simply means that the life company will pay your premiums for you if you lose your job (in certain circumstances).

From the above, I would assume that there is a 5% bid-offer spread applied to premiums before units are purchased, and then units are surrendered to fund the term assurance component.

(The alternative is that the difference between £77.70 - 0.70 - 1 - 73.92 = £2.08 is the contribution towards the term assurance, which seems quite low (but that would depend on your age, health, and the size of the sum assured)).

Sidicks

so is it worth keeping it going then, as i havent cashed it in due to the recent drop in the share prices and ft.,.

dom

[sidicks]

V8Dom said:

so is it worth keeping it going then, as i havent cashed it in due to the recent drop in the share prices and ft.,.

dom

Well, I’d make the following comments:
Be very careful when accepting financial advice via an internet forum!

If you don’t need the life cover then you may well be worth ceasing paying further premiums into this investment and transferring the accumulated fund into a new investment vehicle which has lower fees (low amc, no other charges). If you have not used up your ISA allowance then future contributions could be directed into an ISA instead.

This depends on whether there are any surrender penalties, and whether the investment strategy in the old fund can be achieved in the new one
An IFA is best placed to advise you on what options are available, but this will cost £…!

Sidicks