What makes an endowment policy more attractive to the TEP market?

Heh heh! Another SL endowment holder who's paid off the mortgage and doesn't quite know the best way to go! I was advised by SL a year ago that selling it now would preclude me from any potential benefit from the demutualisation. The drift was clear: Stick with SL and who knows what amazing magic might be just around the corner. My policy is similar to yours in terms of value and dates. However, I was surprised recently to receive their latest letter (and red warning, although that no longer applies since I, too, have long since paid off the mortgage) and the surrender value *today* is less than the sum of the surrender value a year ago plus what I have paid in since then. This cannot continue. But if I paid up to the due date of maturity, ignoring any shortfalls in surrender value in the intervening years, who knows whether by then the market wouldn't have recovered and a hefty bonus earned?

MM

In message , MM writes

Sadly, due to FSA interference stock market performance isnt the strong factor it used to be on With Profit funds as the Nanny FSA have forced SL (and the other w/profit offices) to put the 'bonus reserve' into 'safe' fixed interest securities such as (by chance) Gilts which they have to buy, (again by chance) from the Government just when the Govt needs some more dosh. What a coincidence!

It will take many years for the bonuses of the past to recover and I dont think they will ever go back to the glory years.

In message , Chris writes

The expectations for SLs terminal bonus are less because, in effect, when they demutualise the 'membership value' in the w/profit bonus pool will be distributed by the issue of shares.

Suggest you consider this : cancel the Direct Debit make the policy 'fully paid'. If the policy number starts with an X then the life cover will stop but you will still be a 'member' of the fund.

If it starts with a W (I think - well anything that isnt an X) then the life cover will continue and there will be a monthly mortality charge to the fund which is likely to be greater than any reversionary bonus being earned, but at least you have some life cover.

In both cases, next year take your shares and run.

John,

Thanks for reminding me about the demutualisation issue and its potential rewards for members. I'll have a little rethink...

Chris

I agree their recent performance has been woeful. In 2003 they projected that by the time my policy matures it could (assuming 4% growth) be worth £30,200. In 2004 the projection was £28,700. This year the projection slumped to just £24,300. Huh? I thought the stock market had grown about 20% over the last 2 years, so what exactly have SL's highly-trained fund managers been doing with our money recently?

That's the problem. I'm tempted to compromise by stopping paying the premiums but keep the policy and remain a member to benefit from any demutualisation windfall next year (as John Boyle suggested in another post) - then decide what to do.

Thanks for all the comments/suggestions, everyone.

Chris

John, you seem pretty clued up on this. Should I sell my policy (I don't need life cover) or keep it until demutualisation?

MM

In message , Chris writes

With Profits funds dont work like that, they are supposed to 'smooth' things which is why the sharp rise in the stock market a few years ago wasnt reflected in bonuses either. As already said, the main reason though is that the SL boys have been duffed up by the FSA who have forced them to switch OUT of equities a year or so ago and INTO Gilts! You have a chance to stop all this on Thursday.

In message , MM writes

Thanks for the compliment, Im not necessarily clued up, but Ive been watching it all quite closely.

Youve asked the million dollar question!

I think the surrender value of your policy will drop between now and next year because terminal bonuses will drop again. This is partly due to the reasons explained elsewhere about FSA intervention but also because as every year goes by, the really good years for w/p funds when loads of dosh was shovelled into the with profits pool (alveit during a time of high inflation) get further away and have less effect. So, will the value of the demutualisation make up for this? Frankly I dont know, but its certainly with a go. Its a bit of a gamble but I would stick with it till next year.

Dont sue me if Im wrong.

No, I promise I won't! I rang SL this morning and was given a new, higher, current surrender value, which is higher than the figure which appears on the recently received yearly statement, but still shows a shortfall between last year's surrender value plus the amount I've paid in monthly since then. The shortfall, given the latest figure from SL, is not as bad, but we're still talking about 80-odd quid that I appear to have just donated to SL over the past year. Will that lost £80 along with any future 'losses' until maturity be recompensed in the final maturity payout? I wonder.

The only thing to hope for is (a) that the final sum on maturity is far closer to what it was originally designed to be (at the moment it is some £6,400 below that), and (b) that demutualisation will bring some kind of additional benefit. On that issue the adviser on the phone said that nothing would be know about possible windfalls until at least the end of 2005.

If I do the sums, from 1 Aug 1986 until 1 Aug 2011 I will have paid in approximately £7,000. Until today I have paid in around £5,000. The policy was supposed to cover a mortgage of £16,242, which I paid off several years ago. The current minimum amount on maturity is £9,874. The current surrender value is £7,431. (Some of these figures are approximate.)

MM

In message , MM writes

If this were anything other than a policy from SL, I would surrender it right away!

There is also a question of tax if you sell the policy rather than surrender it or let it mature.

Robert

Does this mean there is no tax payable if surrendered or matured?

MM