Endowment policies continue to disappoint

by Gill Montia

Story link: Endowment policies continue to disappoint

According to the Association of British Insurers, there are approximately 32 million with-profits endowment policies in force with approximately £423 billion of assets invested, but many companies pay little or no annual bonus and some policy values are continuing to fall, despite the rise in share prices over the past four years.

Experts in the field attribute the disappointing results to the fact that many of the funds backing with-profits endowment policies include substantial holdings in fixed interest securities, such as corporate bonds and gilts, and as such are excluded from the benefits from a more buoyant stock market.

The popularity of endowments policies as a means of repaying mortgage debt has declined for a number of reasons.

These include high costs and low returns, unreasonable penalties for those wishing to encash policies and the scandal attached to dubious selling practices which included over-optimistic illustrations of what savers might expect to gain.

As a result, insurance companies ceased to sell many endowment products and some take the view that generally, insurers no longer care how the policies perform.

Research carried out by Cru Investment Management has revealed that the average with-profits fund has between 30% and 40% of its assets invested in fixed interest securities, with up to a further 10% in cash.

Cru Investment is one of a number of critics now putting the case that all with-profits funds should be closed and insurance companies obliged to return the money held to investors.