Question
I currently have an existing with profits endowment policy running with the Police Mutual Assurance Society.The policy is a 20 year policy which has approximately seven and a half years to run.The monthly premiums are £200.
As it stands the policy has a guaranteed payout (if premiums continued to the end) of about £53K which is only about 5K more than i would of paid in. I have contacted them and they stated that they are currently paying a terminal bonus of 5.5% (this can obviously go up/down in 7 years). If the policy was maturing now that would mean that the policy would still only payout about 56K .The policy has been adding yearly bonuses of about £150. This seems extremely poor performance over a 20year period.Its my belief that i could of done better by saving my money in a building society account.
I'm also concerned by the fact that they never appear to feature in any performance league tables either on the internet newspapers etc.There has been a lot of negative feedback over other companies endowment's performance, such as standard life but even their policies with the same premiums and time period has paid out approx £82K. I would welcome your views on the above.
I guess my main question is would it be better for me to cash in the policy (current surrender value £31,724) and reinvest in the stock market?Answer
I’m sorry to hear you were sold such a hopeless savings plan. Based on the surrender value offered your annual return to date is equivalent to just 0.88% - so yes, you would have almost certainly done better using a savings account instead (although the endowment does provide some life insurance cover, for what it’s worth).
Getting hold of information regarding the Police Mutual Assurance Society (PMAS) with-profits fund is not easy, which is probably why they rarely feature in with-profits performance tables. There’s no straightforward information on its website concerning how much is invested in different asset types – I had to turn to its annual accounts (covering 2008) to glean some information. Based on that (out of date) information, it seems around 40% of the fund is invested in equities and the rest in fixed interest and cash (but even this isn’t very clear). PMAS cut its equity exposure by £100 million in 2008, a shame given strong stockmarket returns in 2009 – although in fairness difficult to predict at the time.
Incidentally, the same accounts show that Graham Berville, the chief executive who resigned that year, received total remuneration of £475,614 over the year and had a pension pot worth £650,000. It’s sad to see that even mutual societies reward failing executives handsomely.
If you hold the policy until maturity and receive just the guaranteed minimum payout, the annual return between now and then would equal 1.04% (using the surrender value as the current value). PMAS’s small print says it pays surrender values equal to 95% of your entitlement to the underlying fund.
The low potential return suggests you should almost certainly get out. However, it’s not that simple as it’s nigh on impossible to predict the terminal bonus. Also, double check whether a market value adjustment (MVA) is being applied to the surrender value – if so you’ll have to decide whether it’s worth waiting for that to potentially fall away.
I’d take the view that in order to get a worthwhile terminal bonus performance will have to pick up over the next seven and a half years – and if that does happen you might do better in conventional investments anyway. You’d at least know exactly where your money is invested and be able to get daily valuations, escaping the ambiguity of the PMAS with-profits fund. But, of course, there’s no guarantee you’d do better by surrendering and reinvesting the proceeds elsewhere.
Given the policy has run for more than 10 years there should be no tax implications of surrendering. The policy has ‘qualified’ meaning no further tax to pay, although underlying returns will have been taxed at basic rate.
If you decide to surrender it’d be worth checking whether a second hand endowment trader will pay you more than PMAS. You can find out more on the Association of Policy Market Makers website.
When it comes to re-investing be very careful you don’t jump out the frying pan and into the fire. Ensure a good spread of investment across a range of asset types, such as cash, fixed interest, stockmarkets, commodities and property – the split will depend upon how much risk you’re comfortable taking.
Alternatively, putting the money in a cash savings account at a fixed rate of around 5% (before tax) for five years might still earn you more over the period than the endowment if markets don’t pick up – or indeed a good variable rate if you think interest rates will rise over the period.
Good luck whatever you decide.
I currently have an existing with profits endowment policy running with the Police Mutual Assurance Society.The policy is a 20 year policy which has approximately seven and a half years to run.The monthly premiums are £200.
As it stands the policy has a guaranteed payout (if premiums continued to the end) of about £53K which is only about 5K more than i would of paid in. I have contacted them and they stated that they are currently paying a terminal bonus of 5.5% (this can obviously go up/down in 7 years). If the policy was maturing now that would mean that the policy would still only payout about 56K .The policy has been adding yearly bonuses of about £150. This seems extremely poor performance over a 20year period.Its my belief that i could of done better by saving my money in a building society account.
I'm also concerned by the fact that they never appear to feature in any performance league tables either on the internet newspapers etc.There has been a lot of negative feedback over other companies endowment's performance, such as standard life but even their policies with the same premiums and time period has paid out approx £82K. I would welcome your views on the above.
I guess my main question is would it be better for me to cash in the policy (current surrender value £31,724) and reinvest in the stock market?Answer
I’m sorry to hear you were sold such a hopeless savings plan. Based on the surrender value offered your annual return to date is equivalent to just 0.88% - so yes, you would have almost certainly done better using a savings account instead (although the endowment does provide some life insurance cover, for what it’s worth).
Getting hold of information regarding the Police Mutual Assurance Society (PMAS) with-profits fund is not easy, which is probably why they rarely feature in with-profits performance tables. There’s no straightforward information on its website concerning how much is invested in different asset types – I had to turn to its annual accounts (covering 2008) to glean some information. Based on that (out of date) information, it seems around 40% of the fund is invested in equities and the rest in fixed interest and cash (but even this isn’t very clear). PMAS cut its equity exposure by £100 million in 2008, a shame given strong stockmarket returns in 2009 – although in fairness difficult to predict at the time.
Incidentally, the same accounts show that Graham Berville, the chief executive who resigned that year, received total remuneration of £475,614 over the year and had a pension pot worth £650,000. It’s sad to see that even mutual societies reward failing executives handsomely.
If you hold the policy until maturity and receive just the guaranteed minimum payout, the annual return between now and then would equal 1.04% (using the surrender value as the current value). PMAS’s small print says it pays surrender values equal to 95% of your entitlement to the underlying fund.
The low potential return suggests you should almost certainly get out. However, it’s not that simple as it’s nigh on impossible to predict the terminal bonus. Also, double check whether a market value adjustment (MVA) is being applied to the surrender value – if so you’ll have to decide whether it’s worth waiting for that to potentially fall away.
I’d take the view that in order to get a worthwhile terminal bonus performance will have to pick up over the next seven and a half years – and if that does happen you might do better in conventional investments anyway. You’d at least know exactly where your money is invested and be able to get daily valuations, escaping the ambiguity of the PMAS with-profits fund. But, of course, there’s no guarantee you’d do better by surrendering and reinvesting the proceeds elsewhere.
Given the policy has run for more than 10 years there should be no tax implications of surrendering. The policy has ‘qualified’ meaning no further tax to pay, although underlying returns will have been taxed at basic rate.
If you decide to surrender it’d be worth checking whether a second hand endowment trader will pay you more than PMAS. You can find out more on the Association of Policy Market Makers website.
When it comes to re-investing be very careful you don’t jump out the frying pan and into the fire. Ensure a good spread of investment across a range of asset types, such as cash, fixed interest, stockmarkets, commodities and property – the split will depend upon how much risk you’re comfortable taking.
Alternatively, putting the money in a cash savings account at a fixed rate of around 5% (before tax) for five years might still earn you more over the period than the endowment if markets don’t pick up – or indeed a good variable rate if you think interest rates will rise over the period.
Good luck whatever you decide.
Read this Q and A at http://www.candidmoney.com/questions/question166.aspx
No comments:
Post a Comment