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Low Cost Endowment FAQs

These FAQs should answer any questions you may have about your plan – if not, please call our Customer Relationship Centre on 0345 88 22 999. Our opening hours are Monday to Friday, 8.30am to 5.30pm.

You can make up a shortfall in a number of different ways. You'll find these explained in detail in the online Money Advice Service guide.

If you’re using an endowment plan to pay off your mortgage, we provide you with regular statements and accompanying letters which are colour-coded to help you review whether your plan is on track to repay your mortgage. These colour-coded ratings are linked to the projected growth rates we use to estimate what your plan could be worth when it matures:

  • Red means there’s a high risk that your plan won't pay out enough to cover your target amount, and that it needs to grow by more than 7.5% (after tax) each year to meet your target.
  • Amber means there’s a significant risk that your plan won't pay enough to cover your target amount, and that it needs to grow by more than 4.5% (after tax) each year to meet your target.
  • Green means it’s currently on track to repay your target amount as long as it grows by at least 4.5% (after tax) each year.

Low Cost Endowment mortgage plans invest in the Police Mutual Life Fund. This fund is invested in a mix of equities, bonds, property, commodities and cash, and these can vary in value. So it’s a good idea to check your statement carefully each year, even if your plan has been on track so far. Please bear in mind that the projections we send you are no guarantee of what you’ll receive when your plan matures – you may get back more or less than the amounts estimated in your statement.

If you’ve told us that you’re no longer using your plan to pay off your mortgage, we won’t send you a colour-coded rating letter – just a yearly statement.

Green means that your target amount will be achieved if our investments grow by at least 4.5% (after tax) a year. It means that your plan is currently on track to pay off your mortgage, but this may change in the future. A green letter is no guarantee that your plan will pay off your mortgage when it matures at the end of the term.

Yes. Standard maximum growth rates are set by our regulator, the FCA, to use in these instances. We are required to review these, taking into account where the Life Fund (the fund in which your money is invested) invests, to ensure that our members are provided with a realistic estimate of what their plans could be worth when they mature at the end of the term.  We regularly review the rates we apply to make sure they remain relevant to the likely performance of the Life Fund.

The projected values we send you are made up of your plan’s Guaranteed Value (the minimum you are guaranteed to receive at the end of its term) and a projected final bonus.  

We work out the projected final bonuses by comparing the Guaranteed Value at the end of the term to what the underlying value of a plan may be worth when it matures – this underlying value is calculated by assuming that our Life Fund grows at the three projections rates (1.5%, 4.5% and 7.5%) a year for the rest of the term of the plan.

So, if the plan’s underlying value is greater than the Guaranteed Value, we aim to pay out the extra amount in the form of a final bonus, the amount of which will vary.

If the underlying value of a plan is less than its Guaranteed Value we can’t pay out a final bonus, but you will always be paid the Guaranteed Value as a  minimum.

If your statement shows the same values for some or all of the projection rates, this is because the underlying value has been calculated as being lower than your Guaranteed Value, therefore we have shown your Guaranteed Value instead of the underlying plan value, because in reality, this is what would be paid.

We’ve set out an example below:

If our investments grow at:

1.5% a year

4.5% a year

7.5% a year

Guaranteed Value

£10,000

£10,000

£10,000

Underlying value

£8,500

£9,000

£12,000

Outcome of comparing the Guaranteed Value to the underlying value

Guaranteed Value is higher than the underlying value. The Guaranteed value is shown as this is the amount you would receive in this scenario.

Guaranteed Value is higher than the underlying value. The Guaranteed value is shown as this is the amount you would receive in this scenario.

Guaranteed Value is lower than the underlying value (by 20%), so the projected final bonus is 20%

Projected final bonus

0%

0%

20%

Projected value

£10,000

£10,000

£12,000


Please bear in mind that the projected amounts aren’t guaranteed – they’re just intended to give you an idea of what your plan might be worth assuming these different rates of growth. We won’t know what your plan’s final value will be until the end of its term, because we don’t know what investment returns will actually be in the meantime, however, we do regularly review the rates we use to make sure they are as realistic as possible.

With-profits plans, like your Police Mutual Low Cost Endowment mortgage plan, are long-term contracts. This means they’re designed to give the best returns when they mature, not if they’re cashed in early. Cashing in before the end of the term may not be in your best interest and remember you will also lose the life cover included in your plan, which may be more expensive to replace as you get older.

If you do choose to surrender your plan early, we’ll calculate its cash-in value at the time. The amount you receive will depend on the investment return and the amount you’ve paid in, taking into account our charges, expenses, tax, our smoothing policy and the cost of life cover. A 5% deduction will apply if you cash in your plan early.

We know that in certain situations it may be tempting to cash your plan in early, or stop making payments – particularly if money is tight. We strongly recommend that you call us on our helpline on 0345 88 22 999 or talk to your financial adviser before you decide to surrender, as you may end up losing out financially. If you don’t have a financial adviser, you can find details of advisers in your area at www.unbiased.co.uk

Yes. Police Mutual is not immune to market conditions, but we are well positioned to safeguard your interests. Our diversified investment strategy aims to control risks by avoiding overexposure to specific markets. We’ve carefully considered the proportion of our Life Fund's assets invested in more volatile markets such as equities so as to balance higher expected long-term returns against the risk of a setback in the market and we’re always alert to the possibility of another downturn in the markets.

It’s true that the aim of a with-profits fund is to smooth out some of the short-term highs and lows over the period of time that you hold the plan. This means maturity payouts will be steadier year on year because we're able to use some of the investment growth made in years when the fund performs well to top up bonuses in years when economic conditions aren’t so good. However, there may be times when smoothing can't fully protect your investment. This can happen following a significant or sustained fall in the stock market or when investment returns are below the level we normally expect. In these circumstances, your plan’s value may suffer.

The investment return on our Life Fund is the single biggest thing that affects the returns you get on your savings. Our investment return before tax on the Life Fund over the last 5 years can be found in our quarterly performance update. You can read this online here.

Yes - if the purpose of your plan has changed, please let us know. This will allow us to tailor the information we send to you. We’ll continue to send you a yearly statement, but stop sending you a colour-coded risk warning or Money Advice Service mortgage endowment leaflets.

Yes. Please let us know any assignment changes by phoning our Customer Relationship Centre on 0345 88 22 999. Assignment means that when your plan becomes payable, we’ll pay the plan proceeds direct to the assigned third party, typically this is the lender who has provided you with your mortgage. So we need to make sure our records are up to date. On your yearly statement you’ll see the assignment details we currently have for you - if these have changed, please get a notice of reassignment from the new third party and send a copy to us so that we can update our records.

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