FOAK:Endowments final bonuses and the ride to hell in the handcart

What's the current sentiment on endowments? We have a couple of small ones (supposed to pay out i.r.o. 30k) that have about 5 years left. Up to now I have thought that it wouldn't be any worse than putting the money in a building society so I might as well hang on and see what the terminal bonus might bring. Even now I am thinking that it might be worth chancing my arm that the stock market might be ripe for a little rally in 5 years time and I might see a nice terminal bonus that might cancel out the current losses.

Or should I see what I can redeem them for now :) I'm not relying on them to pay off any mortgages.

Comments welcome :)

Reply to
mark
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I'm in a similar situation - except that I probably want the cash from them in a year or so to buy a house..

What I'm finding at the moment is that even though the predicted payout is less than the surrender value (from August) plus the premiums to the end, it's not worth me surrendering them right now.

Most companies (certainly the ones I'm dealing with) have applied a Market Value Adjustment at the moment, which reduces the surrender value significantly.

Took me a while to figure it out, so I'll try and regurgitate the best explanation I found here, with nice numbers:

Start with five people all invested in an overall fund currently worth a nominal £10,000, so they have a £2000 share each.

If one of them decides to surrender his policy at the point where the market is severely depressed (like now), then the fund might actually only be worth £8000.

If he is given his £2000 then the funds invested for the remaining four people are only £6000, so even if the market recovers, getting back to the nominal £10K will take much longer.

To compensate for this, the MVA is applied to reduce the payout to a 'fair share' of the actual fund value - in this case they would apply an MVA of £400, to give him £1600 - i.e. a 1/5th share of the £8000 the fund is actually worth.

In my case, one of my policies had a surrender value of £3600 in August. As of last week an MVA was applied which meant I would only get £3100.

I'm sure there is more to it than I've figured out. And it doesn't seem to work the other way, somehow - when the market was doing very well for years through the late nineties, my policy didn't get 'market value adjusted' upwards. Strange, that.

Reply to
PCPaul

In message , PCPaul writes

Indeed :)

Reply to
mark

Maybe the market value adjustment upwards is reflected in the terminal bonus?

Reply to
BigGirlsBlouse

You think? Want to buy a bridge?

Reply to
PCPaul

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