Fall in endowments steepest in decade

Returns on 25-year endowment policies slumped by 9 per cent in the past year, the biggest yearly fall in more than a decade, and are set to continue to decline according to an authoritative survey published today.

Returns on 25-year endowment policies slumped by 9 per cent in the past year, the biggest yearly fall in more than a decade, and are set to continue to decline according to an authoritative survey published today.

The findings, from Money Marketing Online, provide the first comprehensive evidence that endowments are now performing dramatically below historic levels. Last year's substantial cut comes after a 6 per cent fall in 2000.

The survey also indicates the number of red letters sent to customers warning that their endowment will not yield enough to pay off their mortgage will soar this year. While a number of companies refused to participate, others reported that the number of red or amber letters had gone up by as much as 40 per cent.

The worst performing endowments in 2001 for payouts that include final bonus and the yearly accrual include insurance giants Prudential and Legal & General.

For 25-year endowments including the terminal bonus, the smallest payout came from Scottish Equitable, at £24,830, which was nearly half that offered by the best in the market. This was from Liverpool Victoria, which handed out £45,139.

The survey, which was carried out with KPMG, found 10-year endowments also dropped by 7 per cent last year. The difference between the best and the worst polices was dramatic, with the yield varying from 4.9 per cent at the bottom to 11.3 per cent at the top.

As well as being battered by two years of poor stock market returns, endowments are likely to fall further due to current economic conditions, according to John Jenkins, a partner at KPMG.

Money Marketing found 28 companies which were eligible to participate in its survey refused to do so. It also found that an increasing number of companies would not give details of how many red endowment letters they were sending out this year.