With-Profit Endowments Market Update
Since my last article on on “what to do with your endowment policies” seems to have caused more than a little interest I thought it was a good time to give you a little update. As the markets continue their rocky road, with-profit investors are bound to be concerned. However UK life offices do operate in a heavily regulated environment these days and whilst it’s clear that performance will be affected, the general consensus is that there are no nasty surprises lying in wait.
With-profits performance
Whilst with profit funds are not entirely safe from market fluctuations since their underlying funds do contain exposure to equities and property, the stronger funds have outperformed the market and they are in a good position to continue to do so.
Since with-profit funds use a smoothing process much of the solid investment returns of the previous 5 years have yet to be passed on to investors.
Here is a table that shows some of the recent past returns…
Market Demand
Due to high levels of capital guarantee and smoothed returns provided by with-profits benefits which become even more attractive in the current climate of volatility - demand from Traded Endowments remains strong.
The most attractive are strong life offices such as Prudential, Legal & General, Aviva (CGNU) and Standard Life with smaller offices providing some valuable diversification.
Despite a healthy demand, buyers are seeking value due to uncertainty in the markets so prices paid above the surrender value are lower than in previous years. However if you still need to surrender for whatever reason you can still obtain a higher value through the traded endowment market.
Hope this gives you a timely snapshot of what you can expect regarding your own with-profit policy performance.
Bye for now…
November 10th, 2008 at 9:38 pm
Many people are unaware that this is even an option. Interest