UK Traded Endowment

[Dennis Ng]

I Agree with Dennis that investment comes with risk, 6/10 can be wrong, and that's is more why we should know about the risks involved in TEP to avoid making wrong investment decision. TEP can be used as diversification of portfolio, but remember the return are not guarantee so don't blindly trust the ROI they tell you on the policy when anybody try to sell to you. The information of the TEP I invested which I share here with all of you are true. And I already accepted the fact there is high chances I will lose money on this product. My intentions to share all this with all of you here are, I hope to find the answer of the questions I have on TEP and I wanted anybody who consider to invest in TEP don't make the same mistake I have make. I think you guys are much wiser than me when come to investing your money .

James Tai

Hi James,

it is just your opinion, it is NOT a fact that high chance you're going to lose money on your Traded Endowment Policy. Again, on this aspect, I have already answered you earlier but it seems again that you didn't bother to read my reply or choose NOT to see my reply, not sure why though).

P.S. please check dictionary on the definition of Opinion and Fact if you're unsure about the difference.

Cheers!

Dennis Ng

Hi Jamestai,

Please take note that up till now Prudential has also NOT stated in any way that they are NOT in a position to deliver the maturity value, but if you want them to guarantee the numbers, they will not and cannot do so as explained why already.

Cheers!

Dennis Ng

[Dennis Ng]

Just for sharing purpose ... my forecasted ROI (based on current bonus rates declared by the insurance company) is 74% or 9% annual rate of return over average term of 8.23 years.

We are aware that actual maturity value may not be the same as the forecast is based on current bonus rate declared by the insurance company. However, with upsides more than double of downside, and we want to have investment diversification, we are comfortable to put less than 3% of our investment fund for longer term policies.

Do note that different timing, different requirement will have different policy proposals as these are buying over policies from the secondary market when their UK properties were sold. I'm just sharing what I have invested, for more details, pls contact TEP. Thank you.

Hi Ms Tan,
just to clarify that the right term is called Formula Maturity Value, not Forecasted Maturity Value as I explained in my reply to JamesTai's questions in this forum.

But it appears that you do understand the rate is based on current bonus rates declared by the UK Insurer, actually, this is a standard information we provide to all people enquiring about UK Traded Endowment.

TEP Pte Ltd even come up with a Special Investor Declaration Form and this information is also stated in this form, this is to ensure that NONE of my staff can due to forgetfulness or whatever reasons, fail to inform people of certain pertinent information before they invest into UK Traded Endowment Policies. Of course, any existing TEP clients can just refer to your Investor's Declaration Form to verify that I'm telling the Truth.

Below are the Exact wordings in the Investors' Declaration Form:

The Formula Maturity Value (FMV) is NOT guaranteed and is a CALCULATED VALUE of the policy at the maturity date using the current bonus rates declared by the life company. The actual TEP maturity value will depend on future bonus rates declared by the life company and it maybe higher or lower than the FMV calculated at point of investment;

Cheers!

Dennis Ng

2. it's called Formula Maturity Value (FMV) which is based on the latest bonus rates declared by UK insurer in the year the Traded Endowment policy was purchased. The actual maturity value may be higher or lower than this FMV, actual Maturity Value depends on future performance and declaration of bonus by the UK Insurer (which can be min 5 years to maturity, or ahead into the future).

[Dennis Ng]

As explained, we obtain information on UK Endowment policies from UK Insurers (Note: TEP Pte Ltd does NOT generate any numbers at all), many of the information are openly disclosed by UK Insurers on their websites and can be verified by anyone.

For instance, below is one of the UK Insurers, Royal London, announcing with profits bonus rates on 22 March 2012:

http://www.royallondongroup.co.uk/media ... 0322a.html

Royal London, the UK’s largest mutual life and pensions company, has today announced bonuses for 2011 for with profits policies in the Royal London Long Term Fund and in the closed Scottish Life Fund1.

With effect from 1 January 2012:
• Regular bonus rates are maintained for Royal London policies
• Regular bonus rates are maintained or increased for Scottish Life policies
• Most final bonus rates have been increased for both Royal London and Scottish Life compared with January 2011
• The benchmark 25-year payout on a Royal London £50 per month 25-year with profits endowment maturing on 1 January 2012 is £33,7082 , representing an annualised return of 5.9% and a real3 return of 2.8% p.a.
• The payout on maturity of a Scottish Life1 £50 per month 25-year with profits endowment is £30,8312 , representing an annualised return of 5.3%, and a real3 return of 2.1% p.a.
• The payout on vesting of a Royal London 20-year £200 per month with profits personal
pension is £89,3734, representing an annualised return of 5.8%.
• The payout on vesting of a Scottish Life1 20-year £200 per month with profits personal
pension is £79,5404, representing an annualised return of 4.8%.

Commenting on today’s announcement, Royal London Group Finance Director Stephen
Shone said:

“Our policyholders have once again enjoyed good returns from their with profits policies over the medium to long term.

“We believe that for such investors the fundamental argument for investing in real assets remains strong. Over the longer term, real assets - such as equities and commercial property - have delivered above inflation returns for investors. Today’s announcement shows that the annualised return on a Royal London 25-year with profits endowment is 5.9%. This represents an annualised real rate of return (over and above inflation) of 2.8%. And for a similar Scottish Life policy the annualised return was 5.3%, with a real rate of return of 2.1%.

“In the Royal London Long Term Fund, the asset shares for relevant policyholders will be enhanced as a result of a mutual dividend being allocated for 2011.

“In the Scottish Life Fund, we have enhanced asset shares by 6% this year as part of our
program to distribute the Estate. Payouts for maturing policies are also being targeted at
more than these enhanced asset shares.”

Details of the bonus rates and payouts are given in the attached sheets.

1 The Scottish Life figures within this announcement relates to with profits business written prior to 1 July 2001 (the date that Scottish Life was acquired by Royal London) in the ring fenced Scottish Life Fund.
2 Based on a male aged 30 next birthday at outset.
3 In excess of inflation over the period
4 Based on a male retiring at 65

Royal London
Alasdair Buchanan, Group Head of Communications
0131 456 7133

Redleaf Polhill
Marlene Scott 020 7566 6750
Sally Walton

Editor’s Notes:
1. Bonus Terms Explained

Conventional with profits
Premiums secure a guaranteed benefit (for example a guaranteed cash sum called the “sum assured” or a guaranteed pension). A regular bonus is added, normally each year, to the guaranteed benefit and regular bonus already added. A final bonus may also be added at the date of a claim on the policy.

The guaranteed benefits including regular bonus already added are not payable at face value when a policy is cashed in early. Final bonus is not normally payable on cashing in although the amount paid may make some allowance for final bonus.

Final bonus is an additional bonus which represents the returns payable on a policy which have not already been provided by the addition of regular bonus.

Asset share is the actuarial term that describes the share of the overall with profit fund
attributed to a specimen policy. The asset share is calculated by accumulating the premiums paid less all applicable expenses and charges with the investment return credited to the with profits policies over the lifetime of the policy and allowing for any “miscellaneous” sources of profit or loss.

The Estate of the Scottish Life Fund is the excess of the investments attributable to the fund over the liabilities of the fund.

2. Additional information
Past performance is not a guide to the future. Investment returns may fluctuate and are not guaranteed. Future payouts can go down as well as UP.

The figures quoted are only illustrative. If a recommendation is made, an assessment of an individual’s needs must be confirmed and Key Features provided, together with a projection which is personal to an individual’s circumstances.

Since 1 July 2001, with profits policies for the Scottish Life brand have been written in the
Royal London Long Term fund. However, the bonus rates which apply for these policies are not the Royal London bonus rates shown in this announcement.

3 Royal London Group is a specialist financial service provider. Its businesses focus on
those sectors of the market which value quality propositions, operating through a number of brands:
• Scottish Life – UK pensions market
• Bright Grey – UK protection market
• Scottish Provident – UK protection market
• Caledonian Life – ROI protection market
• Royal London 360° – offshore investment markets
• RLAM – fund management
• Royal London Plus – life and pensions administration
• Ascentric/IFDL – Wrap Platform
• MoneyVista – online financial planning service for consumers

Royal London is the largest mutual life and pensions company in the UK with Group funds under management of £46.2 billion. Group businesses serve around 4 million customers and employ 2,940 people. Figures quoted are as at 31 December 2011.

[kelly wee]

Hi all,

From what I see at the UK Traded Endownment if it just look quite similar to local endownment plan but it is in sterling pound and base from past experience that they have been given out average 4-8% returns. Where as compare to local average return is 3-3.75% and you do not have the foreign currency risk. I am not here to penalise UK Traded Endownment Plan or local plan. I buy endownment plan is just for the sake of saving be it 5yrs or 10yrs and even just mthly of $50 i still buy becos i want to save and 10ys fm now i know I will have this money though it is very little, but I save and I dont look at the return or bonuses even the agent will still tell me the projected returns. I will not lose money at the end even though the return is not much but i still have my capital back in full until maturity.

Endownment Plan is just like saving, it force people to save mthly until maturity. If you are looking for higher return than endownment is not a good investment as the return is not attractive to me personally (if you have to consider all the risk like foreign currency exchange or local returns of measly of 3.5% aeverage). Compare to invest in stock and property the return is much higher. Of course, no risk no gain.

Kelly

[Dennis Ng]

Hi Kelly,

thanks for sharing.

My comment:
1. if you get 2 to 3% from Singapore endowment, you're losing money if inflation rate is more than 3%. You are not getting Richer at all, no matter how many years you save. Not sure how you get the average 3.75% annual return on S$ endowment plan. I have plans that matured in these 2 years (2011 and 2012) and actual returns I get is only 2.75%, less than 3%).
2. Thus, if you can get say 4% to 5%, and with inflation rate at 3%, you're getting Richer.
3. Of course, everything has Risk. So for UK Traded Endowment, foreign exchange rate is a risk. However, you need to understand, a risk means one might lose, one might make. To analyse whether the risk is high or low, we need to do homework. A person can do their own checking and realised that throughout the last 41 years (yes, so long), whenever sterling pounds vs S$ goes down to about S$1.96, it typically rebound to S$2....thus around this level is considered the low level of exchange rate. Does it mean that sterling pound will NOT drop below S$1.96? No, but as I said, when we invest, we do homework and analyse the possibility. Does it mean that sterling pound impossible to go up? The answer is also no. Is it possible to rebound back to S$2.2 to S$2.5 level? Yes, again, this you can do your own homework and look at 41 years of data to find out yourself.

Thus, risk does NOT mean sure lose. This is something the average person does NOT understand, and so they stick to "safe" alternative such as S$ Bank Deposits and S$ Endowment, without realising that the returns can be less than inflation rate, and if this is the case, then it is 100% Guaranteed Lose money (Not a Risk, but a 100% certainty).

Most people share your own misconception which is why they are NOT richer than they currently are. My objective is to enlighten the public so that they will understand their Wrong Concept about what is Risky and what is Safe. The safest - S$ bank deposits is actually worse than High risk, becos risk mean it may happen or not happen, but in this case it is Guaranteed to lose money becos returns is less than inflation rate.

How to reduce and manage risk? Put your eggs into different baskets ie. different assets and investments. Some people have almost 80% to 90% of their money invested into property, without realising that this can be very Risky. Personally, I have about S$250,000 invested into UK Endowment, as part of my Diversification and Asset Allocation strategy.

How much should one put? Depends on one's situation and objectives/preferences.

But before one make a decision, first make sure you have a More Rounded View on what is Risk.

Hi all,

From what I see at the UK Traded Endownment if it just look quite similar to local endownment plan but it is in sterling pound and base from past experience that they have been given out average 4-8% returns. Where as compare to local average return is 3-3.75% and you do not have the foreign currency risk. I am not here to penalise UK Traded Endownment Plan or local plan. I buy endownment plan is just for the sake of saving be it 5yrs or 10yrs and even just mthly of $50 i still buy becos i want to save and 10ys fm now i know I will have this money though it is very little, but I save and I dont look at the return or bonuses even the agent will still tell me the projected returns. I will not lose money at the end even though the return is not much but i still have my capital back in full until maturity.

Endownment Plan is just like saving, it force people to save mthly until maturity. If you are looking for higher return than endownment is not a good investment as the return is not attractive to me personally (if you have to consider all the risk like foreign currency exchange or local returns of measly of 3.5% aeverage). Compare to invest in stock and property the return is much higher. Of course, no risk no gain.

Kelly

[kelly wee]

Hi Dennis,

If you look at at my post I mentioned that endownment plan do not have good returns (for local at average of 3.5%). I am not encouraging people to buy or not to buy or have the same mindset as i do. I am just saying that endownment is more to a saving plan rather than an investment plan. The current return is indeed losing money as the current inflation is much higher. People can choose other investment vehicle like stock or property. As I do too. Everyone put money for something for their own reasons as sometimes when we do things, we dont have to look at the returns, we look at the result. If you are happy for it at the end result, I believe you gain more than you think.

I will not post further on this comments.

Kelly

[Dennis Ng]

Hi Waterman,

we are living in Extraordinary times. Such a thing is almost unthinkable has happened, ie. that someone need to pay me money to lend money to me...(Germany and France currently, becos they can borrow at Negative Interest rates)...

That's why I always say we can throw away most of the economic and finance textbooks we read, becos they cannot explain what is happening now..(which are Unprecedented, ie. never happen before).

What does this mean? My opinion is that there is NOW a Clear 2 Extremes happening in the 17 Nation Euro Zone...on the one extreme, you have Germany and France deemed financially strong, and the rest (15) are all considered weak, just a matter degree of weakness...eg. Spain is weaker than Italy, Greece is weaker than Spain etc, etc...

So imagine you're an European, would you do some "reshuffling of your wealth portfolio?" Yes, you're likely to buy Germany and France bonds and sell the rest, when that happens, the exacerbates the increase in Yield of the weaker nations' bonds (Spain 10 year Bond yield was 4% 2 years ago, went up to 7%, recently went down to about 6% (just after the announcement of rescuing Spain banks), but now 1 week later, is close to 7% again...and the decrease in yield of the 2 Strong nations (Germany and France)...to this Extreme scenario of Negative Interest Rates...

Are Germany and France really that strong? Just comparatively stronger. Same as U.S. U.S dollar went up and U.S. 10 year bond yield went down becos, comparatively, U.S. is stronger than 15 of the 17 Euro nations, so again people sell the 15 nations bonds and buy U.S. governent bonds...

Look at the yield of 10 year government bond and you can see which are the Nations (countries) that the world now deemed "safer" (comparatively)...most of these countries their 10 year government bonds are about 1.6% or +/-....they are :

As at 9 Jul 2012, the countries having the Lowest yield on 10 year government bonds in the world now:
1. Swiss 0.49%
2. Japan 0.8% (but mostly bought by Japanese themselves, very little available for sale outside Japan).
3. Sweden 1.3%
4. Singapore 1.42% (relatively small size of total bonds if compared with the Big boys).
5. U.S. 1.52%
6. UK 1.58% (its status as global financial centre, which actually depends on US$ continues to be main currency. That's why it is NOT in UK's interest to see that Euro replace/over US dollar as main currency...with this understanding, perhaps you have a clearer idea why UK did some of the things (eg. oppose to Euro in Nov 2011).
7. Canada 1.66%
8. Dutch 1.74%
9. France 2.41%

People need to understand that Money flows globally. If you're a very rich person, the top 4 currencies being traded in the world are US dollar, Euros, Japanese Yen and Sterling Pounds (yes, ranked 1 to 4 in that order)....so when you sell Euros, you are likely to buy some US dollars, Japanese Yen and Sterling Pounds. This probably explain why Sterling Pounds remains quite stable and supported despite the turmoil going on in the Euro region...instead of heading to new lows following the Euros.

As I said, when we increase our financial knowledge, we can see the World clearer, and can make sense of things/events ourselves instead of just blindly reading newspapers, listening to "Experts" on CNBC, Bloomberg etc.

Imagine I am France; I borrow 100 Euro from my friends. Three months later, I only need to return 99.95 Euro. Wow… This is so wrong. I am very disturbed by this.

Dennis, would you share your view with us on this?


Updated: Mon, 09 Jul 2012 14:51:46 GMT | By Agence France-Presse

EUROZONE BOND MARKET TENSION RISES

Spanish and Italian interest rates jumped on Monday, but Germany and for the first time France borrowed at negative rates, marking new tension on sovereign debt markets before eurozone ministers meet.

The Spanish 10-year rate surged again above the danger level of 7.0 percent to 7.033 percent from 6.912 percent late on Friday.

A rate above 7.0 percent is believed to put a eurozone country at risk of needing a debt rescue.

The Italian 10-year rate rose to 6.118 percent from 6.016 percent.

Rates of more than 6.0 percent are considered unsustainable over the long term.

With the equivalent rate for benchmark German Bunds at 1.32 percent, the difference, or spread, with Spanish bonds climbed to 5.713 percentage points, a sign of rising tension on sovereign bond markets.

[Dennis Ng]

Hi kelly wee,

please read and re-read my posting. I don't think you get my message.

Firstly, I only get 2.75% returns on my S$ endowment, not sure how you get average of 3.5%. What is the difference between 2.75% and 3.5%? BiG diference!!!

If you get 2.75%, and inflation is 3%, you're NOT getting any return, in fact you're losing money as time goes by. You are getting poorer and poorer, not sure why anyone wants to achieve that? Not sure why would anyone be happy with this result?

If want to save money on regular basis, now can do eg. POEMS Share Builder plan, or every month buy some STI ETF through CFD (zero leverage)..over sufficient long time of 10 to 20 years, I think one can easily get higher returns than 3%.

If you get 3.5%, then if inflation is 3%, then at least you get 0.5% returns. So every small difference in returns makes a big difference over time.

Why are most people stuck as middle class? Becos I was like one of them, mainly putting my savings into Insurance and S$ endowment plans...luckily I started waking up in 1998...and stopped putting NEW money into S$ endowment. Otherwise, today I might only have less than S$400,000 and not S$3 million, right now.

By applying the 2 Most Important investment rule I have:
1. ask: what if i'm wrong, will I be ok? (therefore, we diversify, instead of put all the eggs into one basket)
2 only investing when upside is at least double downside, then one can be wrong 6 out of 10 investments and still get richer.

It's almost guaranteed one would become richer and richer, you can go through the numbers yourself to verify this.

Most people are NOT rich becos they have wrong concept about Risk (I explained in last posting, please re-read until you understand it). Once I started to learn from the Rich and now teaching what I tried out and worked (I became a multi-millionaire), I become Richer and Richer. Emotions and Psychological barriers are the main stumbling blocks to Wealth. If you continue with a close mind and a Middle Class mindset and thinking, then you will be less Rich than you could if you learn and apply what I teach. (Even if you're multi-millionaire, this still applies, becos you would be Richer if you apply what I teach.

Maybe I should NOT bother to try to teach since so many people doubt the things I teach. But deep inside my heart, I know what I teach works and I can just keep quiet and live my life happily and see my millions growing and growing (min S$48 million by age 62)...but I stepped out to teach becos I see most people (75%) in Singapore do not even have S$300,000 by age 62 (info I read somewhere).

Hi Dennis,

If you look at at my post I mentioned that endownment plan do not have good returns (for local at average of 3.5%). I am not encouraging people to buy or not to buy or have the same mindset as i do. I am just saying that endownment is more to a saving plan rather than an investment plan. The current return is indeed losing money as the current inflation is much higher. People can choose other investment vehicle like stock or property. As I do too. Everyone put money for something for their own reasons as sometimes when we do things, we dont have to look at the returns, we look at the result. If you are happy for it at the end result, I believe you gain more than you think.

I will not post further on this comments.

Kelly

[ngtfook]

Alternate view of traded endowment ...


What happened to Traded Endowment Policies?
13, AUGUST 2014 BY WILFRED LING
http://www.ifa.sg/happened-traded-endowment-policies/

Never heard of Traded Endowment Policies anymore.

Around 2007, Traded Endowment Policies were aggressively marketed to many investors. Today, we seldom hear of anyone marketing such products anymore. No prize for guessing why.

Traded Endowment Policies are just regular premium insurance endowment policies. These endowments have cash values and maturity values. All Traded Endowment Policies are “participating” meaning that there will be future bonuses – only the question is what will to be bonus amount.

There was a market for the Traded Endowment Policies because original owners of such policies would like to sell it away. Instead of surrendering these policies to the insurer, these owners sells it in the open market because the selling prices were better. The buyer hopes that the initial investment plus the regular commitment for its premium will yield good returns.

In Singapore, the most common Traded Endowment Policies were from United Kingdom. It was aggressively marketed as something “safe.” Most firms did not permit financial advisers to market the Traded Endowment Policies due to the conflict of interest – the seller of the policy is effectively “surrendering” his own life policy. Hence, the Traded Endowment Policies were marketed by non-financial advisory companies. In fact, I remember a particular person aggressively soliciting individuals in an internet forum to buy the Traded Endowment Policies from him. One of the selling points which he often mentioned was that if the insurer goes belly up, 90% of the cash value is protected by the British government. Personally, I have always disliked this form of marketing because of lack of full disclosure.

Here were some risks that were not properly disclosed:

These Traded Endowment Policies are denominated in British pound (a foreign currency). The foreign currency risk of the British pound is not insignificant. The product was marketed as something “safe” which is not correct.

The market values of these Traded Endowment Policies were actually correlated with the equity and bond markets. What do I mean? The correlation of these Traded Endowment Policies with the market’s performance is due to the fact that the underlying investments were merely a balanced fund investing in fixed income and equities.

So how have these Traded Endowment Policies performed since 2007? There is one particular fund which invests in UK’s Traded Endowment Policies. Because it is a fund, there is a historical published values. Below is the chart showing the performance of the fund.

The blue line shows the performance of the fund in Singapore dollar. It appears it never even recovered from the financial crisis! But if you look at the red line – which is the value of the pound measured in Singapore dollar, you will find that the massive loss of the fund is due to foreign currency lost. Is the Traded Endowment Policies a “safe” product? Of course not. This being said, there is nothing wrong with this product per se. But the manner it was marketed as something ‘safe’ was wrong.

The lesson is this: it is important to be careful whom you buy products from.