Selling an endowment policy could help cover diminished retirement income

Publication date | 13/07/2010

Retirees may be adversely affected by changes to the pensions system being implemented by the new government, an expert has said.

Those who find themselves in this position may benefit from surrendering endowment policies, as the extra cash this provides could help them maintain their lifestyles.

According to director of Churchouse Financial Planning Keith Churchouse, the coalition's plans to shift the measure of inflation used to calculate private sector pension payments from the retail prices index to the consumer prices index will reduce the amount people receive.

Chris Radford, chief executive officer of aap, the UK's biggest buyer of endowment policies, said some of its customers who thought their retirement finances may suffer had decided to sell their underperforming endowment policies.

Is your retirement income set to fall?

Mr Churchouse suggested that while the alteration may not appear that dramatic, in fact it will make a "huge difference" to those in their post-work years.

He remarked: "It is something that individual people will really need to start paying attention to early, because the reality is that they're going to see the purchasing benefits of their pensions going down over time."

The expert went on to point out that that differences of one per cent or half a per cent start to add up, especially given the fact that individuals are living longer these days and may have more than 20 years of pension payments.

Pensions minister Steve Webb announced the alterations to the system last week as part of the new administration's efforts to transform the pensions sector.

Those who fear they will lose out financially under the proposals may benefit from surrendering endowment policies to provide them with more cash.

Selling endowments could improve the health of retirees' finances

Mr Radford, from aap, said some of its customers who thought their retirement incomes would fall had decided to sell an endowment policy to provide them with a greater financial cushion.

He added that should aap make an offer to purchase an endowment policy, it will always pay more than the surrender value offered by the insurance company.

Reasons to sell your endowment policy