Frequently asked questions about endowments.

What is an endowment?

An endowment is an investment product, which will pay out a cash lump sum on a fixed date in the future. The product also provides life cover and will pay out if you die* before your policy matures. Your endowment policy may also be known as an endowment assurance policy, low cost endowment or full endowment. Endowments can be savings endowments for example Prospects, Cashbuilder, Savings Plan, taken out to provide a lump sum to fund a specific event in the future, or mortgage endowments for example Build Up, Flexible Mortgage Plan. For mortgage endowments the aim of the policy is for enough money to be built up to pay off the original mortgage amount when the mortgage term ends. However, as investments can vary in value, the policy may not pay out enough to repay the mortgage at the end of the term.

*For contracts with critical illness or terminal illness benefit, the sum will be paid out in the event of sickness or disability, instead of on death, as defined in your policy.

How do endowments work?

Customers generally make monthly payments into their endowment policy until a specified end date. When you invest in a with profits endowment, we combine your money with that from other investors into the With Profits Fund. This allows you to enjoy the benefits of a potentially wider range of investments than if you invested on your own. The With Profits Fund is primarily invested in a mix of UK and overseas shares, fixed interest securities and commercial property, typically referred to as assets.

Whilst everyone is invested together in the With Profits Fund, the investment approach may vary by type of policy. This may be for a number of reasons, one of which is to reflect the varying features and benefits of different with profits products.

The value of a with profits investment normally grows when we add bonuses. For most policies there are three types of bonus.The amount of bonus we add to your plan will depend on the investment performance of the assets your plan is invested in.

Whilst investment returns are the most important factor in deciding how much bonus we add, bonus rates also depend on things such as:

  • When you started your with profits investment;
  • When you paid in your contributions;
  • The historic performance of the assets your plan is invested in;
  • Past bonus rates and our view of future market conditions.
  • The expenses of running your with profits investment.

When setting bonus rates, we also aim to ‘smooth’ returns. For more information on smoothing, please see the ‘What is smoothing’ question below. Bonus rates are not fixed; they will vary each year as actual returns and our view of the future changes.        

Annual Bonus

An annual bonus may be added to a with profits plan at the end of each year. Each annual bonus added increases the basic guaranteed amount we’ll pay out at certain contractual points, that will vary depending on the type of plan you have. Once we’ve added an annual bonus, we cannot withdraw it for payments made to you at your contractual points, for example at the maturity date or if earlier the date of death.

Interim Bonus

An interim bonus may be added to cover any period of time for which an annual bonus has not yet been declared. We will normally use the interim bonus rate to calculate the value of your plan in between annual bonus declarations. The interim bonus is set at the level we anticipate the annual bonus to be set for that calendar year but it may change without notice.

Final Bonus

A final bonus is a final addition to a plan and only applies when a claim is paid (or on a switch to another fund). It’s paid to make up any difference between the amount we have guaranteed to pay and the overall amount we decide is fair to pay planholders. Final bonus rates can be increased, reduced and withdrawn without notice. Not all products are eligible for a final bonus.

How can I find out how much my plan is worth?
As you are a with profits endowment customer, we will send you a plan update or re-projection letter approximately every two years giving you an update on the performance of your policy. The letter tells you whether your endowment is on track to meet its target amount, or whether it is heading for a shortfall. A shortfall is when the value of the fund is less than the sum required to meet and repay the target amount. In these circumstances you may need to make up the difference from other sources.

If you are a savings endowment customer you may not receive a re-projection letter. However, you'll receive an annual bonus statement showing the performance of your investment for the previous year as all with profits endowment customers do.

If you haven't received a recent update from us, you can call 0370 333 3683, selecting option five, to request one. Call charges will vary. We may record and monitor calls.
My re-projection letter is classed as red, amber or green. What does this mean?

Our regulator requires that plan update letters are colour-coded red, amber or green to indicate whether policies are likely to meet their target amount. For investments into the With Profits Fund, these projections currently use growth rates based on our current assumptions of future investment returns. The rates applicable at the time will be confirmed on your projection letter. If annual investment returns are less than our assumed growth rates there is a risk that your endowment policy may pay out less than the potential return shown in the plan update.

If we send you a 'green' letter this means that your policy is currently on track to meet its target amount at the end of the endowment term.

If we send you an 'amber' letter this means that your policy is at significant risk of not meeting its target amount at the end of the endowment term.

If we send you a 'red' letter this means there is a high risk that your policy will not reach its target amount at the end of the endowment term.

The projections in your plan update are based on our current charges and on your endowment growing in value at our current assumption of the mid growth rate. Our view is that this percentage, which is confirmed in your projection, is currently a reasonable assumption for future long-term growth for the With Profits Fund. You should note that this rate is a long-term assumption; the returns on a year by year basis may be lower or higher than this.

If your plan matures in the short term, that is in the next few years, the current economic and financial conditions may have an impact on your investment returns. It is impossible to be certain about future investment growth. The final value of your endowment policy could be lower or higher than shown in your plan update letter and you should be prepared for this even if your letter is 'green'.

It is important that you check each re-projection letter, even if the policy has so far been on track. This is especially important if your policy is close to maturity. You will need to continue checking the projected value until the end of your policy term.

For advice based on your particular circumstances and particularly if your policy is linked to a mortgage and is currently at risk of shortfall, please contact your adviser.

How can I deal with a shortfall on my policy?

The Money Advice Service has produced a guide to help people who may be facing a shortfall on their endowment policy. It includes:

  • Ways of making up a shortfall.
  • A jargon buster to help you understand your policy.
  • A list of useful contacts.

You can request a copy of this guide by calling the Money Advice Service helpline on 0300 500 5000 or by visiting the Money Advice Service Free printed guides page.

Can I increase the amount I pay into my endowment?

No, but one of our other products may be suitable for you. You can call us on 
0800 072 7893 for more information. Lines are open Monday to Friday 9am to 6pm. We may record and monitor calls. Alternatively, you may wish to speak to your financial adviser who will help you explore the options available to you.

How do I find out the current value of my policy?

The current value is the amount of money we pay out if you cancel or cash in a policy before the date(s) set out in the terms of your policy.

Please read the ' An introduction to conventional With Profits (W11928)  PDF: 151KB ' booklet for more information.

You can find out the current value of your policy by calling 0370 333 3683, selecting option five. Call charges will vary. We may record and monitor calls.

If you are considering surrendering or selling your policy it is important that you take financial advice.

Can I sell my endowment policy?

Yes, the Money Advice Service has put together some useful information to help people who are thinking about selling their endowment.

It is important that you read this information if you are considering surrendering or selling your endowment as you could lose out financially.

For more detailed information relating to your particular circumstances, please talk to your financial adviser. You can also talk to us on 0800 072 7893 to discuss the options open to you and we’ll explain how the endowment sales process works. Lines are open Monday to Friday 9am to 6pm. We may record and monitor calls. 

How can I complain?
If you have a complaint about the advice you received when you took out your policy or a complaint about the ongoing servicing of your policy, please contact our complaints department.
My circumstances have changed. What do I need to do?
If your personal or contact details have changed please contact us. If your financial situation has changed please speak to your adviser.

Our customer focus

Customers are at the heart of our business, and we continually strive to meet your demands and challenges of delivering the products you want, and need. We are committed to working with our regulator on their Treating Customers Fairly work and the Association of British Insurers (ABI).

The information on this website and in the associated documents is a summary. Full details are set out in our 'Principles and Practices of Financial Management' booklet.  But don’t forget to have a look at our customer friendly versions of this document:

' An introduction to unitised With Profits (Q24542)  PDF: 294KB ' – for all plan numbers starting with a UK, US, U, UP, 2, 3, 4 or 5.

' An introduction to conventional With Profits (W11928)  PDF: 151KB ' – for all plan numbers starting with a 0, 0T0, G or P.

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