Wednesday 21 July 2004 10.37am
Radiowave - converting an endowment policy into a pension? This is a bit of a tricky one and you will need to speak to someone in detail about this - I'll try and find a contact who can help you.
I think it best to treat this as two seperate issues. In essence, you can't 'convert' an endowment into a pension. However, you can look at cashing in your endowment (not always the best thing) and using the money to put into a pension. The key question here is to ascertain what you're trying to achieve - an endowment would normally be a savings vehicle set up to pay off a mortgage, where a pension is a savings vehicle to give you an income in retirement.
The first thing you need to do is have your endowment valued. The way that endowments are structured (they are awful products that, in my opinion, should never have been allowed to have been sold) is that the majority of charges are 'front-end loaded' which means that cashing in a policy after several years may be counter-productive as charges in the latter years (5 years plus) can be seen as quite reasonable. However, you also need to understand what the endowment is actually investing in eventually - is this in With Profits funds or is it in to Unit Trusts? An expert needs to value the endowment and then see if it's best to just leave it (what is called Paid Up) and leave the investment fund to grow, or just cash it in.
If you do cash the endowment in then you can, if you wish, decide to use this to fund a pension. However, you are limited to how much you can place into a pension fund in any given tax year so if your endowment is for a large amount, you may not be able to put it all into a pension.
I'm not sure if this is any use to you. This is a very complex area so my advice would be to speak to an endowment expert in the first instance. I'll see if I can find one.