Questions of Cash: Get quotes before cashing in endowments
Saturday 09 October 2004
Q. I took out a Royal & SunAlliance with-profits endowment policy in 1989, which matures in 2014.
Q. I took out a Royal & SunAlliance with-profits endowment policy in 1989, which matures in 2014. The related mortgage is paid off. I now have a repayment mortgage coming to the end of the tie-in period in November when there will be £25,000 outstanding. I have £20,000 on deposit from a windfall earlier this year; a further £20,000 in cash ISAs; and £20,000 in share PEPs and ISAs.
The surrender value of the endowment in 2001 was £5,500 plus bonus of £1,000. Should I surrender or sell my endowment in November, add the proceeds of my windfall and pay-off the whole mortgage, or make overpayments to pay it off? I have no dependents and don't need the life cover.
MH, by e-mail.
A. The general advice has been to avoid surrendering with-profits policies, because of losses incurred through market value adjustments - penalties for early surrender. But the poor terminal bonuses produced by many policies has cast doubt on this approach and you will probably be best served surrendering your policy to pay-off the repayment mortgage.
You should seek quotes for selling the policy, but in current market conditions you may have difficulty obtaining a better price than the surrender value, especially as RSA's is a poorly performing closed fund.
Ray Boulger of Charcol mortgage brokers adds that you should obtain a formal surrender value before you make a final decision and you might consider keeping a mortgage debt of £1 in order to have somewhere to securely keep the house deeds free of charge.
Q. Fifteen years ago, I took out a life policy with Co-operative Insurance Society (CIS), that matures next year. The with-profits sum assured is £17,000: I paid a monthly £100. My annual bonuses has been £7,839, which gives me £24,839 to be paid to me. But the bonus this year is just £112, which is interest on my investment of half a per cent. Is CIS going out of business? Should I cash it in and risk losing a penalty, in order to protect my investment?
A. With-profits investments produce "smoothed" returns - the highs and lows are evened out. During the years when the stock market was performing badly, the capital value of your investment was protected. In this context, the bonuses produced by your policy were not that bad.
You do not need to be concerned about solvency. CIS is a subsidiary of the Co-operative Group, a large and profitable retailer. If you cash-in your endowment a market-value adjustment would not be imposed because of the type of policy you took out. However, you would lose the terminal bonus.
While there is no guarantee that any terminal bonus will be paid on your policy, the terminal bonus this year was 15 per cent and by surrendering it you risk losing a significant sum and we would advise against this course of action.
Q. I am worried about the long-term viability of my occupational pension, given the publicity about pension shortfalls. Should I switch from my occupational pension to a personal pension to lock-in the current pension value? I have been a member of the pension scheme for 36 years, which offers 40/60ths of final salary and I do not expect to change employer before retirement.
RA, by e-mail.
A. Carl Melvin, a pension adviser at Pension Transfer Solutions, says: "It is generally a bad idea for an active member of a final salary pension to opt out and transfer benefits." You should first contact the trustees of your employer's scheme, obtain the latest pension scheme report and valuation to see if the scheme has a deficit, how much it is and what the company will do to rectify the shortfall.
You should then talk to a union or personnel representative, to seek an assurance that the scheme is financially sound. But as it is a company scheme, the solvency of the employer is actually more significant than that of the scheme. The risk attached to an occupational pension scheme from an employer insolvency will lessen once the personal protection fund is established, and the Pensions Bill that will create this is currently going through Parliament.
Q. Our daughter is going to a boarding school in Denmark and we will pay her fees on a monthly basis. We will also transfer pocket money. What is the best and cheapest way of transferring money abroad?
LG, by e-mail.
A. One option would be to open a bank account in Denmark to pay the fees. Your daughter's school may be willing to pay her the money on your behalf.
Denmark is outside the eurozone, but the euro is widely accepted and independent schools usually accept payment in euro. So an alternative would be to open a euro account. This would enable you to make cash withdrawals anywhere within the eurozone without paying the exchange costs.
Do not open a euro account in the UK as you will still have to pay transaction charges. It may be easiest in the Irish Republic, but you may have to open the account in person to satisfy money laundering regulatory requirements.
* If you have questions, write to Questions of Cash, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail email@example.com. We can reply only to letters published. Please send copies, not originals.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Cyclist who knocked down three-year-old girl says his life has been 'destroyed'
- 2 A politically correct lefty goes to see Top Gear live – you'll probably believe what happened next
- 3 Young Preston fan has play-off hero Jermaine Beckford's shirt stolen from him at Wembley - which then appears for sale on Gumtree
- 4 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
- 5 Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
The day that Britain resigned as a global power
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
EU referendum: David Cameron to deny EU migrants and under-18s the chance to vote
A nation of inequality: How the UK is failing to feed its most vulnerable people
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...
Day In a Page
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof