Tuesday, November 27, 2007

Bleak News

Bleak News

Money Management's upcoming December issue survey shows a bleak outlook for those who hold endowment policies.

On average, a 25 year policy 10 years into its term needs to grow 6.9% per annum until the end of its term in order to meet its £50K sum assured.

The average 25 year policy 15 years into its term needs to grow 8.6%, while policies 20 years into their term need to grow an average of 8.2%.

Given the lousy levels of returns on most endowment policies, these required returns are very unlikely to be achieved and endowment holders can expect serious shortfalls when their policies mature.

Congratulations to the fund managers for doing such an "excellent" job of "managing" these policies, yet still being able to pay themselves a very nice management fee each year despite "managing" loss making policies.

Tuesday, November 06, 2007

L&G Increase Their Charges

L&G Increase Their Charges

Recently Legal and General, my endowment provider, wrote to me to inform me that my two endowment policies that I hold with them will most likely make a loss.

Using three projected returns, the 1987 policy (target £35000) will produce the following results:

-4% shortfall £5400
-6% shortfall £2700
-8% surplus £ 300

The 1991 policy (target £39700) will produce the following shortfalls:

-4% shortfall £10200
-6% shortfall £ 7500
-8% surplus £ 4600

I received another letter from them today, informing me of the following:

1 That they have changed the rules to give them the right to use fund managers other than Legal & General Investment Management Ltd, if they believe that it is necessary.

Don't they have confidence in their own management skills?

2 They are increasing the management fees for managing my policies. Seemingly they have compared their fees to other endowment providers, and feel that an increase is necessary!

The good news is that the new fees (after a search on the back of their letter, it seems that the fees are going up by 0.06% of the value of the investment per year) are, in the opinion of L&G, "highly competitive with typical market rates".

So that's alright then!

A couple of questions that have crossed my mind:

1 Why the hell are they raising the fees, when their "management" of my policies has produced losses?

2 Why are they charging more for their "management" services, when they have said that they may in fact use other fund managers?

Given the losses that my funds are projected to "yield", an increase in charges will simply make matters worse.

These endowment providers are very relaxed about changing the rules, when it suits them. Now is the time for them to change the rules to suit the hapless millions who own these useless, badly managed, costly and underperforming products.

Underwrite them!