Thrifty Loans

Despite adding regular bonuses to 239,000 policies this year, Scottish Widows’ endowment policies will pay out less than they did in 2007.

A mortgage endowment policy for 25-years at £50 a month that matured in January typically paid out £38,136. In 2007 the pay-out was £38,758.

Only 7% of customers can feel confident that their mortgage will be repaid by their endowment policy; 88% of policies will come up short, and 5% are in the middle ground of being unlikely to cover the mortgage.

Scottish Widows did claims that all of the 2,411 policies due to mature in the first half of 2008 will reach the required amount.

With-profits pension savers will fare slightly better. The value at maturity of a £200-a-month policy over 15 years was up from £54,072 last year to £55,518 this year.

At least the news on bonuses is good for policy holders. Kevin Doerr, with-profits actuary at Scottish Widows, said: “With-profits policies have performed well in a year of volatile investment markets. This reflects the diversified underlying asset mix and smoothing, which is an important feature of with-profits policies.”

Conventional with-profits policies have final bonuses ranging from 236% to 11%, depending on the type of policy and when it was taken out. Final bonuses on unitised pension policies range from 34% to 3%.

Final bonuses are paid at policy maturity. All of them for 2008 are bigger than those announced in July last year, with the exception of life assurance policies taken out in 1958, where the final award has fallen from 238% to 236%.

Regular bonuses are added each year and these are being held at the same level as 2007. However, certain policies, including conventional with-profits pensions taken out before February 15, 1999, unitised life policies and Jersey Bonds are not receiving a regular bonus.