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Endowments may still provide high returns

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  • 21/10/2002
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Despite cuts in bonus rates, many endowments could still offer returns of around 7%, making them a w...

Despite cuts in bonus rates, many endowments could still offer returns of around 7%, making them a worthwhile investment.

Analysis from endowment trader, Beale Dobie, found this level of return could be achieved on many policies, even if life offices cut both annual and terminal bonuses by up to 40%.

It highlighted that a Prudential policy worth £12,827 on the market at the moment cannot fall below £10,867 in value as it is guaranteed, and would return 10.57% if current bonus rates were maintained until maturity. If there was a permanent cut in both annual and terminal bonus rates of 40% the annual rate of return would be 6.93%. There would have to be a cut in bonus rates of 80% for the investor to break even.

Charles Ansdell, corporate relations manager at IFA Inter Alliance, said: ‘It can make sense to hang onto endowments as bonuses are geared towards the end, and you will also benefit from included life cover. It depends on the individual and how long to maturity the endowment has to run. A policy should be sold on the secondary market.’

He added: ‘Longer term, I still question whether they are good investments, bearing in mind they are linked into with-profits of the life companies, who have rightly pointed out they are going to cut all bonuses. The other question is will they be able to honour their commitments at all, given the problems the industry is having with capital adequacy.’


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