News This
Season
What
should I do about my endowment?
Anyone who holds
a with profits endowment mortgage or pension mortgage should have
been alarmed by recent banner headlines stating that millions of
these policies are on course to fall short of their target payouts.
Bonus rates
have been slashed across the board and terminal bonuses are being
withdrawn leading to cuts in maturity values of up to 40% over the
last four years.
Even the mighty
Standard Life, the UK's largest endowment provider, recently announced
it was cutting 10% off terminal bonuses and introducing penalties
for early encashment.
Up
to 40% cuts
Figures from
Money Management magazine show that for a 29 year old man with a
£50 a month policy with a 25 year term would have seen cuts
over the last four years ranging from 7% with Royal London to 40%
with Royal Life.
Legal &
General and Scottish Mutual have slashed payouts by around 25%,
Norwich Union by 30% and Scottish Widows by 35% since 1998.
Stockmarket
turmoil has been largely blamed for this state of affairs, but bonus
rates have been falling for several years and surrender penalties
for cashing in your policy early have always been a feature of these
policies.
So what should
you do if you are worried your endowment will fall short of the
amount needed to pay off your mortgage or provide you with a decent
income in retirement?
FSA
says "Everything's fine"
The Financial
Services Authority (FSA) recently issued a statement that UK life
insurers are sufficiently robust to survive the current downturn
and that their solvency margins are being monitored on a daily basis.
It said that in 2001, UK life insurers had a solvency cushion of
6.3% - but that was when the FTSE 100 stood at around 5,200.
Sadly, the future
looks just as gloomy. Further savage cuts are expected before the
end of this year, unless the stock market makes a dramatic recovery
and even then, life insurers will want to hold back part of these
returns to bolster their reserves.
All this begs
the question whether endowment policy holders might be better off
taking their money now, (albeit with hefty surrender penalties and
market value reductions) rather than suffering further cuts in annual
bonuses and the possible disappearance of their terminal bonus.
Whether you
would be better off doing this is impossible to tell. Much depends
on your life assurer, its history of bonus payments, the level of
its reserves and its recent statements on future bonus payments.
As always, seek professional advice.
Some financial
advisers still recommend holding onto policies until maturity but
if you are determined to cash in early, (perhaps because your policy's
current cash-in value currently matches your mortgage debt), be
sure to use the traded endowment market to sell your policy.
Traded
endowment market makers, of which there are around two dozen, are
often able to sell unwanted endowment policies for a higher amount
than the surrender values offered by insurance companies.
(To contact the Association of Policy Market Makers:
Tel: 0207 739 3949 for a list of members, or visit the website below).
Alternatively,
if you feel you were mis-sold your endowment policy in the first
place, Complain2Us
has launched a website to help people make a complaint and seek
compensation.
Go to the endowment compensation link below for further details.
Links:
www.apmm.org
www.endowmentaction.co.uk
endowment
compensation
Other UK links
UK
Finance Portal
uklinks.org
Disclaimer
Please
note that whilst The Mortgage Helpline U.K. makes regular efforts
to provide up to date information in this news section, we accept
no liability for the content or accuracy of any articles contained
herein, and the contents therefore are used entirely at the readers
own responsibility.The Mortgage Helpline do not provide financial
advice. All
links to other websites are provided on an information basis only,
and The Mortgage Helpline U.K. accept no liability for the service
or content that may be provided by other companies. Always seek
legal and/or professional advice. Please remember that your home
is at risk if you do not keep up repayments on a mortgage or other
loan secured on it
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