Today the traded endowment policy Tep market is only worth between £450m and £470m which is a drop in the ocean considering that

Today the traded endowment policy (Tep) market is only worth between £450m and £470m, which is a drop in the ocean considering that some £1.25bn-worth of endowment policies were surrendered last year.
An estimated 750,000 endowments are sold each year, generally alongside interest-only mortgages. They are investment vehicles issued by life assurance companies, which agree to pay a fixed sum plus accumulated profits on an agreed date. This is usually between 10 and 25 years, provided all premiums are paid.Sometimes, though, policy-holders may wish to cash in their endowment early. Most people tend to surrender their policies to the life insurer, and are penalised for breaking the terms of their initial contract. They receive a sum back but it is generally considerably less than the policy is really worth.By selling through the Tep market, policyholders get a better price because the endowment is taken over, rather than surrendered, so they are not severely penalised.

Rather than surrendering your policy to the insurer you bought it from, you can get returns that are typically 15 per cent higher.So why doesn’t every endow- ment holder consider the second-hand market? “Sometimes it is ignorance that stops policyholders using the Tep market,” says Brian Goldstein, managing director of Policy Portfolio, founder of the Tep market “Many people just don’t know that they have another option. Some of the life companies don’t advise customers that we even exist.”Policy Portfolio, like other market makers, will come back with an offer for your endowment. “We say we will give [policy holders] more than their insurer offers them if we can; if not, they should go back to the insurer,” says Mr Goldstein.In the Tep market, buyers pay a purchase price for the policy, plus legal fees, and the premiums until the policy expires. When the endowment matures, they receive the full surrender value.It is an attractive investment for buyers because they acquire a mid-term policy with attaching bonuses, which may give a good return with limited risk. They also don’t have to pay hefty commission and admin-istration costs, which come with setting up an endowment policy from scratch.Market makers provide estimates based on previous history, prevailing market conditions and expectations of future conditions. It can be difficult to know whether estimated maturity proceeds are realistic, as was shown recently when many policy holders received letters suggesting their endowments might fall short of projected value.Not all endowments are attractive to buyers, either. Only those policies that are “with-profits” – meaning they generate annual bonuses – and have several years left to run are sought by brokers.Teps can be bought from a broker or through internet auctions.

There are several funds available: two from Barclays Global Investors, two from Kleinwort Benson and one from Scottish Value Management.* Contacts: for a free factsheet, ‘Teps and Tax’, call Policy Portfolio on 020 8343 4567; www.policyportfolio.co.uk. Offshore investing tends to conjure up images of anonymous Swiss bank accounts or sun-soaked tax havens offering a range of funds suitable only for very wealthy expatriates. Offshore investing tends to conjure up images of anonymous Swiss bank accounts or sun-soaked tax havens offering a range of funds suitable only for very wealthy expatriates.
Offshore funds, generally in the form of unit trusts or investment companies, are resident outside the UK, so profits and gains are not subject to UK tax or controls. This means offshore funds are ideal for those living outside the UK, whether permanently or temporarily, because they are not subject to UK income tax.Offshore funds are also being increasingly used by UK residents who want to minimise their tax by sheltering income offshore until their tax rate drops, either on retirement or if they plan to move abroad.After all, tax-free investment opportunities in the UK are limited. If you have cash to invest and have already used up your £7,000 annual tax-free individual savings account (ISA) allowance, there aren’t many other options open to you, apart from National Savings Certificates, which don’t offer exciting rates of growth.With this in mind, offshore funds are beginning to target UK residents. As we accumulate more wealth than ever before, the need to invest it tax-efficiently is paramount. With some 6.5 million people in the UK with assets of between £100,000 and £200,000 (excluding property) and a further 3 million with over £200,000, it is no wonder offshore fund managers are eyeing the UK market.Scottish Life International (SLI) has just launched a new Isle of Man-registered Protected Investment Management Service (PIMS), designed to shelter investors from tax and stock market volatility.

PIMS is a portfolio service that allows UK residents to invest in a full range of funds from leading investment houses, within a tax-efficient wrapper.”PIMS offers a good creative approach with tax efficiency, investment choice and flexibility, capital protection and administrative streamlining,” says Brian Aitchison, managing director of independent financial adviser (IFA) Aitchison & Colegrave Group, which is exclusively selling PIMS, before it is rolled out to IFAs across the country.PIMS acts as an umbrella for investment in unit trusts, investment trusts, open-ended investment companies (OEICS), long-term cash deposits and offshore funds. Investors are not liable for capital gains tax and can withdraw 5 per cent of their original investment as income. PIMS also offers protection for your capital against stock market volatility should you die.”You’ve been able to insure your life, car, home and holidays for years, so why not your capital?” asks John Allison, marketing director at SLI. “PIMS offers this cover for the first time, and it’s not expensive.”When choosing an offshore fund, be sure you are happy with the regulatory regime. Some offshore centres do not carry out such rigorous checks as the FSA does in the UK, which is why the Channel Islands and Luxembourg, which have investor compensation schemes, are so popular with UK investors.The good news is that offshore funds have to be authorised by the FSA before they can be marketed in the UK and have to be registered in an area with “designated territory status”, i.e.