Ask Sindie: Endowments: the glass is half empty

Another sufferer asks if it's time to go as the returns haven't come true
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Q: I took out a 25-year with-profits endowment policy in March 1988.

Originally held with a firm called General Portfolio, it is now run by Windsor Life.

It was what the industry calls a "low-start" policy: in year one, premiums cost £28 a month. But they rose incrementally to £53.23 from years six to 25 inclusive.

I'm unhappy with the policy's performance and have become extremely frustrated by the low returns being forecast against the £33,000 [payout on maturity] originally promised.

I wrote to Windsor Life and asked for projections. It told me that if I were to surrender the endowment, I would get £13,013.68 today. That's more than £1,500 less than the fund's value in January this year.

It also said that, assuming an annual growth rate of 6 per cent between today and maturity, I would get £17,300 if I stopped the premiums now - or £21,600 if I were to keep up the monthly payments.

I have failed to convince the Financial Ombudsman that I was mis-sold the endowment in the first place.

I would prefer to stop contributing, and if I can invest my cash elsewhere and still achieve, or beat, the above projection then so much the better.

Would I be better off cashing in the policy and taking the £13,013?

I wonder if this could then be put in a bond, or similar option, that generates at least 6 per cent annually, and just reinvest the total sum at the end of each year.

An alternative is to switch the monthly £53.23 premiums from the endowment into a high-paying interest account for the next three years.

Am I approaching the issue in the right way and is Windsor Life acting in my best interests? Please advise. If I have to continue the contributions for a further six years then so be it.

DJC, Bedfordshire

A: Regular readers will be familiar with your with-profits woe. Many endowments have proved woeful investments, falling far short of projected estimates. As well as high commission and other charges that ate up the early premiums and hit the investment returns, a less-than-robust stock market performance over the past 15 to 20 years hasn't helped.

Weaker returns than anticipated have dented the original "smoothing" benefit of with-profits policies - when successful investment years support bad spells on the stock market.

Growth estimates as high as 10 per cent a year were projected in the heyday of endowment sales in the 1980s and 1990s. These haven't materialised and so millions of homeowners who paid into the policies to clear their mortgage at the end of the term now face a shortfall.

Unfortunately for you, Windsor Life does not have to act in your best interests other than to comply with the regulatory regime and treat you fairly.

You have made the assumption in your letter that the policy promised a big payout. However, this figure was not a promise - whatever the conclusion you drew after speaking to the salesman - but simply a projection of the potential return assuming growth at a particular rate.

Justin Modray of independent financial adviser Bestinvest says: "The key issue now is whether to stay put or get out. And if do you decide to surrender then Windsor Life will rub salt into your wounds by levying a penalty of around £1,500.

"So, to compensate for this exit charge, the important figure is how much additional annual return you would need to earn elsewhere over the next six years [to maturity]."

Mr Modray's calculations suggest this would entail an extra 2 per cent a year on top of other annual growth. "This is certainly not out of the question as the prospects of staying put are hardly very enticing."

More than half of the underlying with-profits fund is invested in corporate bonds, adds Mr Modray, which does not bode especially well for shorter-term performance. Meanwhile, the annual bonuses that are locked into your policy are low at the moment.

"If you decide to sell, it will be worth approaching several traded-endowment brokers to see whether they'll give you a better offer than Windsor Life."

Contact the Association of Policy Market Makers on 0845 833 0086 or see www.apmm.co.uk for a list of member brokers.

If you go down this route, you'll need to consider how to reinvest the cashed-in policy. Do so very carefully or you might find yourself in another high-risk area.

"You might consider a sensible unit trust such as Midas Balanced Income, which invests in a wide range of assets and benefits," says Mr Modray. "It has an experienced manager and reasonable charges."

If, however, you decide to stay put in the Windsor Life endowments fund, then continuing to contribute may well mean throwing more good money after bad.

Making the policy "paid-up" - you stop paying in premiums and let what's already been invested grow until maturity - would seem a sensible choice here.

Seek specialist advice if you are still unsure what to do. Since everyone's policy, and everyone's circumstances, are different, it's not possible to give specific advice without carrying out a far more detailed study of your situation.

If you need help from our consumer champion, write to Annie Shaw at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS or email sindie@independent.co.uk. We cannot return documents, give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given

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