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From here to maturity

There is a distinct possibility that this year will see the third annual decline in a row in the UK stockmarket. Escape from this gloom has not been available by diversifying into overseas equity markets as most are also suffering.

However, despite the negative publicity surrounding the performance of endowments, Teps continue to buck the trend.

We are confident that the Tep market is here to stay. There are fewer new policies being issued but there are millions of policies that have been issued which run well beyond 2015.

There are three main factors that demonstrate that the Tep market remains in a healthy position.

Availability of suitable policies

The Tep market has experienced a period of change over the last few months. For example, new rules from the FSA (PS106) that came into effect in September have had a marked impact upon Tep enquiry levels.

This increased awareness is good news for investors. The more policies that come on to the market, the greater the investment opportunities.

Performance of Teps

Despite major life companies cutting bonus rates and imposing MVRs, the Tep market is still a good place to invest. The majority of Tep investors hold their policies to maturity and are not affected by MVRs.

The returns available are still strong as they continue significantly to outperform other equity investments – the average annualised return since launch across funds advised by Surrenda-link remains a healthy 8.6 per cent. This includes Dresdner 2003, Dresdner 2006, Dresdner 2009, Dresdner 2010, secured profits fund and Surrenda Link investment fund.

Tep investors benefit from the underlying assets which are well diversified between UK and overseas equities, property and fixed income stock.

Versatility of the investment

Teps can be used in a variety of different guises from investment trusts, to Oeics to individual portfolios for private investors. They offer a relatively safe investment with capital growth and can be bought individually, as a portfolio or by investing in collective investment funds made up of a large number and range of Teps.

Teps have also been combined with other asset classes such as property. The combination of Teps and property create unique and attractive investment characteristics. First, they have both produced similar returns over the last five years and second, they follow different market cycles creating a low volatility investment.

Naturally, Teps have not been immune to the volatility of the equity market but their smoothed structure and diversified asset base have cushioned the falls.

British clearing banks still recognise Teps as a secure investment. Many offer loans that match the original investment, providing the potential for gearing. Their willingness to lend highlights the security they perceive in Teps issued by the major life companies.

It should be stressed that whatever form they take, whether as funds or private portfolio investments, Teps sho- uld be viewed as a medium to long-term investment. Indiv-iduals should be prepared to invest for at least five years in order to see a reasonable return on their investment.

The Tep market has developed from its earliest form of trading individual policies into what is potentially a £1bn a year market.

The sector has evolved to complement the versatility of the Tep and, as with any market, it has to develop to keep alive.

Investment banks have been using Teps as an investment vehicle for 10 years and the market has now created something that has previously been missing – history.

Strong performance figures are consistently being returned and, with that, the market gains credibility. It is now up to the members of the Tep market to ensure that respectability is continued and strengthened further.

We are confident that the Tep market will continue to grow as the flexibility of the Tep enables its development away from the traditional trading of “the odd policy”.

Providing the market continues to develop Tep-related products to suit the needs of the investor and the IFA, it will be around for some time yet.


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