[Estimated time to read: 7 minutes]
The difference between your investment value and your surrender value
Have you ever wondered how much you can withdraw from your offshore product today?
Would you be surprised if it was far smaller than the amount you had put in?
Offshore investment management plans, by their very nature, can be difficult to understand.
And with over 40,000 of international investments sold to expats every year there is a lot of confusion out there.
For instance, if you have an unwanted plan and want to weed it out from your portfolio, it's not easy to calculate how much money you will get.
You need to bear in mind that you may never get back all the money you have paid (because it has already been paid out in commission).
In short, a surrender value tells you how much money you can withdraw from your plan…TODAY.
I am investing offshore, which plans are we talking about?
Lump sum, regular savings plans or QROPS/pension plans sold by companies such as:
- AXA International
- Canada Life International
- Custodian Life
- Friends Provident International
- Generali Worldwide
- Investors Trust
- Quilter International (formerly known as Old Mutual International)
- Premier Trust
- Prudential International
- SEB Life
- Standard Life International
- Zurich International (including HSBC International Wealth Builder Accounts)
So if you are an expatriate investing in these plans, let's understand how to calculate your surrender value…
In the bottom right hand corner of your valuation is an investment value, or what can also be called a nominal value.
This is the existing fund value of your plan.
It comprises the money you have put in, and any growth (or drop) in value.
However, this is VERY different from your surrender value. A surrender value is the total amount you get back if you actually withdraw the investment value from your account today.
A surrender value is normally much less because:
- Exit penalties or Early Encashment charges may well apply;
- The total charges for any agreed contractual term are levied in full against your investment value; and/or
- Back-end charges from commission paying broker funds may apply.
While the investment value is easy to see, the surrender value is calculated only after the policyholder puts in the surrender request.
It is almost always VERY different from the investment value which sits in the bottom right of your valuation.
Our experience tells us that most expats who are international investors will have plans like these and will have a niggling feeling that things aren't right. But the longer people wait before addressing this uncomfortable situation with their pension pot, savings plan or bond, the worse things are.
To surrender or not to surrender?
Surrendering makes sense only if the amount (surrender value) received on doing so can be better invested and generate a better return than the policy would have.
However, this calculation can be extremely difficult to figure out as the ongoing charges on an investment plan (and the extortionate reduction in your returns which they cause) are often hard to see.
"In nearly all cases where we see an insurance company wrapper filled with broker funds – it is better for the client never to pay another penny into the plan and in many cases also best just to cash out." says Stuart Ritchie a Chartered Financial Planner and Chartered Wealth Manager at AES.
"The longer people put off finding out what they know in their heart of hearts may have been a mistake, the worse the outcome they can expect. The best advice is to regain control and find out exactly how much money is really in your plan (not how much the provider of vendor may like you to believe is there." says David Norton, Head of Investment Services at AES International.
So why not stop sleepwalking into losses and get a X-Ray Review to find out your surrender value today?