Investing in TEPs
TEPs are in demand from investors looking
for capital growth with potentially excellent returns and
limited risk. In today’s climate of low Bank/Building
Society rates and volatile equity markets, more and more investors
are appreciating the attractions of TEPs.
Basics of TEPs
A TEP is made up of three elements:
Sum Assured - at inception
this is the minimum amount payable at maturity
Terminal Bonus - offered
by most providers as an incentive to hold the policy until
maturity and to top up the annual bonuses to reflect the policyholder's
fair share of Life Office profits over the term of the policy
Reversionary Bonuses -
added to the policy on an annual basis. Once added they cannot
be taken away, so increasing the guaranteed amount payable
at maturity.
Capital Guarantees
These days, many investors are looking for
the security of a capital guarantee. TEPs can fulfil this
need. Much of the value of the TEP is locked-in at the time
of purchase – the sum assured and attaching bonuses
cannot be taken away. It is often possible to purchase a TEP
where the locked-in value is greater than the purchase price
and premiums remaining to maturity. For an illustration of
what this means, see our 'Policy In Focus' click
here.
Competitive Returns
The underlying assets of most with-profits
funds include equities and property, giving the potential
for excellent returns and real capital growth.
Who should invest?
TEPs are particularly suitable for investors
who have a cash requirement at a known date in the future,
eg at retirement, to meet school or university fees, or for
a significant birthday or anniversary. Their profile makes
TEPs ideal for those seeking the security of capital guarantees
and the possibility of increased yields through equity exposure.
Some examples...
Retirement Income can be enhanced by buying
a selection of TEPs with maturity dates in consecutive years,
starting with the first year of retirement. Unlike income
from a traditional pension scheme, it may be possible to receive
payment in the form of a non-taxable return of capital and
any gains are also potentially exempt from personal taxation
(click here for our 'Taxation
of TEPs' guide)
TEPs are also approved investments for SIPPs
and SSASs.
School Fees Planning is an ideal application
for TEPs – using the capital guarantees offered by TEPs,
it is possible to ensure school fees are covered by purchasing
policies which mature at known future dates with minimum returns.
Neville James has an experienced team who
can help you structure a bespoke portfolio of policies to
meet your clients’ needs for future known expenditure.
Further information on the benefits of TEPs
can be found in our brochure, click
here to visit our literature area.
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