The great endowment lottery by Finance News Bulletin

Published: 31/08/07

Four years of floating stock markets have done little to get better the chances of millions of endowments paying out enough to clear the mortgages they were bought to covercensus: Should financial armed forces bosses be forced to give up bonuses to recompense endowment policyholdersThis is Money has been named Financial Website of the Year in credit of its campaigning coverage >> ReadDespite record growth in commercial property and tall share values around the world, the bulk of Britain's six million mortgage endowments are still projected to fall short of their aim adulthood value

Figures from the Association of British Insurers show that at the finish of last year, 67% of finishowments in power were still classed as 'red' - they will not pay out the aim sum at maturity Only 18% were rated 'green' and on target to bring the intended amountThis is somewhat better than 2004 when 71% of endowments were crimson and 14% green, but it shows that the benefits of booming markets have hardly filtered through Endowments at some risk of not repaying the aim maturity value are classed as 'amber'

These create up the remaining 15%Research by Financial letters shows the trend hides a huge difference between insurers Some companies are prognostic that virtually all their endowments will hit targets while others expect only a handful to hobble across the finishing lineWorryingly, the investigate reveals that some of the biggest names, such as normal Life, Norwich Union and Friends Provident, which together have two million donation customers, are the ones opposite the highest proportion of shortfalls

Chris and Lorraine Birkbeck's experience of two endowments is characteristic of many They are hoping the plans will pay back the £41,300 mortgage on their house in Fareham, HampshireOne, started in 1983 with Legal & General, is responsibility well and is due to mature next year, thrashing its £22,800 target by a couple of thousand pounds The other, at first taken out with Royal Insurance in 1988, is now run by Phoenix, part of Resolution

This policy is due to mature in 2013, but on the latest outcrop last March, it will fall short of its £18,500 aim by between £5,000 and £7,000Chris, 49, a clay pigeon shooting teacher, says: 'The way things are going, we're going to be relying on the additional from Legal & General to stop the shortfall on the Phoenix policy That shouldn't be the container'He is disappointed by the recent performance of Phoenix

'Last year's extra was just £2320, less than one month's best,' he says 'How have they missed out on market growth in the past few years' decree was the only big-name endowment supplier that refused to participate in Financial letters's survey

The vast majority of endowments are invested in with-profits money, which spread savers' money across a range of assets, including shares, bonds and profitable property UK shares have averaged returns of more than 10% each day over the past five existence For commercial property, it was more than 15% each yearBy comparison, bonds grew by only 4

6% a day while the past 12 months have seen a fall in value Many insurers baled out of the marketplace in 2002 and 2003 and switched largely to bonds This income they - and their customers - have not enjoyed the full benefit of the market recovery Some, counting Wesleyan and Liverpool Victoria, now have few or no endowments in the red, but they were never really large names in the mortgage market

Others are reporting improving fortunes Five existence ago, two thirds of protector policies were rated red, but that has now fallen to one-thirdsemi of Legal & General's endowments are now rated green, up from only one in five in 2002 But Standard Life, with more than 900,000 policies, says 88% of them are 'red' compared with 68% five years before

Four out of five of its endowments that matured last day missed their target, with an average shortfall of £2,860Brian Dennehy of self-governing adviser Dennehy Weller & Co in Chislehurst, Kent, says: 'The root of the difficulty lies with the method insurers sold out of equities and pushed into bonds in 2002 and 2003 at the behest of the regulatornewest figures show the importance of tackling endowment shortfalls, but adviser Philippa Gee of Torquil Clark in Wolverhampton, says: 'We get calls from people who have a wait and see attitude towards their deficit and have failed to make option plans'Rising house prices mean most of those using endowments to buy their home are still better off than they might have expected

Their property gains be more important than the disappointment of the policy, but they will still have to repay the mortgage and must have an alternative planOne option is to switch some or all of the mortgage to a repayment basis, reducing the debt Gee says: 'This will denote higher repayments, but can buy peace of mind because you be acquainted with that borrowing will reduce'For those with a mortgage due in the next five existence, saving into a cash Isa is a high-quality plan

Gee says those with nearer ten years to maturity could save journal into an equity Isa, which should produce better returns than cash over the longer termconsultant Brian Dennehy of Dennehy Weller & Co in Chislehurst, Kent, says: 'Some insurers have slash penalties for cashing in endowments early It could be worth using the bump sum to reduce your mortgage, then button the remainder to a repayment basis'At one point Insurers could justifiably quote market conditions

Now we are left with a combination of complete mismanagement and dodgy claims to start with The latter is debatably grounds for a charge of mis - selling unluckily, all financial policies clearly condition investments can go up or down So, I doubt that a container could be won

So sorry, we took our chances I talk as one burned What a bunch of tyrants though and one thing is for certain, these toe rags will never see a penny of my savings againchoose a loan term 12 months (1 year) 24 months (2 existence 36 months (3 existence 48 months (4 existence 60 months (5 existence 72 months (6 existence 84 months (7 existence 96 months (8 existence 108 months (9 existence 120 months (10 existencePlease select a type of insurance Life insurance Home and contents Car stop working services Health - medical Health - dental Travel favorite - dog favorite - cat GOThinking about investing in possessions

This is Money

Visit original article: