Ask Money: where do I stand on my endowment after the corona crisis?
Justin Modray of candidmoney.com helps a Money Observer reader with a question about an endowment.
28th May 2020 10:57
Share on
Justin Modray of candidmoney.com helps a Money Observer reader with a question about an endowment.
Like many people I was sold an endowment in the 1990s and it’s due to mature in three years’ time. I’ve had ‘green’ letters for the last decade, having increased contributions early on. But I’m now wondering, if there is a shortfall because of the market crash and upcoming recession, what rights do I have? My bank will want the mortgage to be paid off, but if the endowment isn’t adequate despite all the green letters, I hardly think that’s my fault!Ed Bowden, Herts
Justin Modray of candidmoney.com replies: Endowments are investments, so you are right to be concerned whether recent stock market falls will impact your maturity value in three years. They work by paying out some annual profit in good years as an annual ‘bonus’ and retaining the balance to help ‘smooth’ returns in bad years. If there’s any retained profit in the kitty at maturity, you’ll receive your share as a final or ‘terminal’ bonus. Final bonuses can range from nothing to substantial sums.
Whether your endowment maturity value falls below your mortgage balance owed will depend on several factors, including how much surplus is currently in the retained profit account, how much of the underlying fund is invested in the stock market versus ‘safer’ assets like bonds and gilts, and investment returns between now and then. You could start by asking the insurer for the current value of your endowment both with and without any final bonus. If the value without the final bonus more or less covers your mortgage balance then you should be fine, since your initial investment and annual bonuses already added generally can’t be taken away. If you’re relying heavily on a large final bonus then I’d be concerned, since this is more likely to fall with markets.
Since this is an investment without guarantees I’m afraid you have no rights, unless you believe it was mis-sold to you, for example if the salesperson told you it would definitely pay off your mortgage. If you think you have a case for mis-selling then complain to the firm that sold you the policy in the first instance, and if you’re not satisfied refer it to the Financial Ombudsman.
If you need help with a tax, pension or financial planning problem, please email: moneyobserver.ed@moneyobserver.com
Read more:
-Six ways Covid-19 could change the world forever
- Fund and investment trust tips for the post-pandemic ‘new normal‘
- Explore other Ask Money questions
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.