Posts Tagged ‘money’

Extending a leasehold, Section 42 and the LVT

Tuesday, October 4th, 2011

I recently completed a leasehold extension which involved issuing a Section 42 notice and applying to the Leasehold Valuation Tribunal. It was a long process but now that it is over I can share an account of what happened.

leasehold extension

If you have bought a property in the UK there is a high chance that you have bought a leasehold. A leasehold is like a very long term rental. Instead of renting for 6 months you are renting for 10s or hundreds of years. The ultimate owner of the land or property is the freeholder. If you own the freehold, or a share of the freehold you will never have to worry about extending the lease (because you own the land/property, and are not leasing it).

In this post I’m going to give real figures for the surveyor and solicitor costs for both sides, but I don’t want to reveal the actual property value or premium amount. I will however give re-scaled figures. I am going to use the diamond symbol ⋄ as my unit, and have re-scaled all the premium costs based on the property being worth 100,000 of this units at the time the process was started– so ⋄100,000.

You can quickly turn the premium estimates and valuations into percentages of the property price by dividing by 1000.

The rough lease extension process

In order to extend a lease you will have to pay your own surveyor and solicitor costs, as well as your freeholder’s costs.

If the lease is less than 80 years in length you will have to pay the freeholder 50% of the marriage value. The marriage value is the increase in property value as a result of extending the lease.

You can come to an agreement without invoking the Section 42 process if both sides are happy with this. But in many cases both sides don’t agree, so the statuary Section 42 process will need to be invoked.

Issuing a Section 42 notice to the freeholder will force him to give you valuation, and it mandates that the process and outcome follow a standardised set of rules. These include fixing the time scales by when each side has to respond, the terms of the new lease, and the right for the leaseholder to take the case to the Leaseholder Valuation Tribunal if no agreement can be reached.

If the LVT stage is necessary then each side will be responsible for their own costs for this stage.

Initial enquiries – July 2009

I’d owned my property for about 8 years and had been aware of the lease length slowly ticking down. It had got down to about 67 years before I first did something about it.

I sent an initial letter to the freeholder asking him for a rough figure as to what it might cost. He replied a week later saying that I would have to pay for his surveyor costs (£850+VAT) to get a proper valuation, but he guessed it might be around ⋄8600. This would not be for a 90 year statutary lease extension, this would be for a negotiated extension whereby the existing lease would be surrendered and a new 125 year would be granted.

There are several problems with going down the negotiated route.

  1. The freeholder can give you any valuation he likes. Even though he guessed ⋄8600 in his letter he could well come back with a figure of ⋄15000 later on. By which time the £850+VAT valuation fee has been paid. And this valuation is not necessarily valid for the S42 process – you may have to pay the freeholder’s valuation costs again if you then decided to abandon the negotiated route and go down the S42 route.
  2. The negotiated lease could contain clauses that are unreasonable.
  3. It is likely you would have to agree to a rise in the ground rent.

Forming a group – February 2010

I did nothing more until the next year when one of the other residents in my building sent round a letter asking if anyone was interested in joining him in extending their leases in a group to save on surveyor / solicitor costs.

This seemed like a good idea so I sent him my name. He had already contacted a surveyor and solicitor that he recommended we use. There were 4 people with 5 flats originally in the group, but one dropped out later. The core group was 3 people, with 4 flats between us.

Surveyor valuation – May 2010

The first step would be the surveyor’s valuation which would cost £587.50 each. I had to give him a £100 deposit to commit. By the end of March we had all committed and his visit was scheduled for May.

When he visited he looked at the existing lease and made some notes about it. Then he looked around the flat and took some measurements. After he’d been to all our flats we all had a drink together and he told us about the process and answered our questions.

Two weeks later we received his valuation. He estimated the cost of a statutary lease extension at ⋄7500. He recommended we put in an offer at ⋄5800. And he predicted that the freeholder might try to seek a figure of around ⋄9300.

Issuing the Section 42 notice – July 2010

Around the time the surveyor’s valuation was carried out I arranged for the solicitor to make an ordinary power of attorney (PoA) so a relative could act on my behalf whilst I was away in Japan.

In June the solicitor was given the go-ahead to issue the Section 42, and in July the notice was served – it was signed by a relative using the PoA.

Once the Section 42 is served the freeholder has two months to respond. And once the Section 42 has been served the freeholder can insist on 10% of your offer price being put on deposit with your own solicitor. As my offer was for ⋄5800 this meant I had to send a ⋄580 deposit.

A month later in August the freeholder responded disputing the validity of the Section 42 notice as it had not been signed by me personally. I had to send over a new signed Section 42 notice from Japan which had to be re-served on the freeholder. This unfortunately resets the two month period.

Valuation received from freeholder – October 2010

In October 2010 the counter notice was received from the freeholder. His valuation was ⋄11100, much higher that even the surveyor’s expectation of what the freeholder might ask for.

Negotiation

Now that the counter notice had been received there were three options.

  • Give up!
  • Come to a agreed price by negotiation.
  • Take the matter to the leasehold valuation tribunal. They can made the decision on the fair price for you.

An application to the leasehold valuation tribunal (LVT) has to be made within 6 month of receiving the counter notice from the freeholder.

That meant there was about 5 month of negotiating time left before we felt we needed to get the LVT application ready (best not to leave it to the very last minute!).

Over a month later my surveyor managed to get a copy of the freeholder’s surveyor’s calculations. But the freeholder’s surveyor remained fairly elusive and non-responsive for the next 4 months. Although both surveyors occasionally communicated little common ground was found. Much of the disagreement seemed to centre on what percentage to use for the ‘relativity’ in their calculation.

No offers or counter offers were made during this time. Occasionally I would email the surveyor for news, and after waiting 2-4 days he’d reply saying there wasn’t much to report.

The surveyor estimated that if this went to tribunal his costs would be around £1500. And we would have to pay for our solicitor to attend the tribunal as well – the solicitor never gave an estimate of his costs for attending the LVT.

Application to the LVT – March 2011

It reached March 2011 and the 6 month deadline was looming so we asked the solicitor to make the LVT application. 10 days later the LVT acknowledged that the application was in their system.

In April the LVT issued some written directions stating when the freeholder must send the draft lease for us to look at, and a suggestion that the hearing take place between June and August 2011.

Lease terms agreed – May 2011

In May the solicitor contacted us to say that the terms of the draft lease had been agreed. This is referring to the wording of the lease, not the premium. That was still very much unresolved!

An offer from the freeholder – May 2011

At the end of May, to our surprise, we received an offer from the freeholder. He would agree to settle for ⋄9300. This was much lower than his original offer of ⋄11100, but still a lot higher than my surveyor’s estimate of the fair value being ⋄7500.

Agreement – June 2011

In June the final premium of ⋄9300 was agreed. The agreement was signed by a relative using the PoA which had earlier on invalidated the initial S42. The money was transferred in July, and the final lease, and Land Registry documents were received at the end of August.

Leasehold extension timeline

Here is the timeline of events.

leasehold extension timeline

Here is the same timeline shown as a list.

  • 01/03/2010 Surveyor contacted
  • 31/03/2010 Surveyor given go ahead for valuation
  • 27/04/2010 Solicitor asked to prepare Power of Attorney
  • 04/05/2010 PoA ready
  • 11/05/2010 Surveyor valuation visit
  • 24/05/2010 Surveyor valuation received
  • 24/06/2010 Gave go ahead for solicitor to issue S42
  • 20/07/2010 S42 served on freeholder
  • 02/08/2010 10% deposit transferred
  • 18/08/2010 Freeholder disputes validity of S42
  • 23/08/2010 New S42 served on freeholder
  • 13/10/2010 Freeholder’s valuation received
  • 19/11/2010 Surveyor receives freeholder’s calculations
  • 07/03/2011 Asked solicitor to make LVT application
  • 17/03/2011 LVT acknowledges application
  • 15/04/2011 LVT issues written directions
  • 17/05/2011 Terms of draft lease agreed
  • 27/05/2011 Surveyor mentions possible offer to settle
  • 15/06/2011 Premium is agreed
  • 07/07/2011 Lease extension completion
  • 19/08/2011 New lease and Land Registry docs received

Lease extension cost breakdown

These prices include VAT. I haven’t included the £111.63 power of attorney, as this isn’t required in normal circumstances. I only had one arranged as I was going to be out of the country for a long time.

My surveyor

£587.50 – Valuation (based on 5 flats)
£600.00 – Negotiation (based on 4 flats)

My solicitor

£44.00 – Land Registry search for issuing Section 42
£60.00 – Issue the Section 42 notice (based on 4 flats)
£50.00 – Fee to ‘protect our position at the Land Registry’ for S42
£300.00 – Submit LVT application (based on 4 flats)
£300.00 – Dealing with new lease after issued by freeholder (based on 4 flats)
£50.00 – Land Registry fee for registering the title
£4.00 – Miscelaneous Land Registry search fee

Freeholder’s costs that I had to pay

£1057.50 – Surveyor
£1085.00 – Solicitor
£1.55 – Special delivery fee

Estimates vs valuation vs final price

This graph shows how the estimate, valuation and final price varied.

leasehold extension estimate vs final premium

Conclusions

The whole process took about a year and a half to complete and used £4139.55 in costs (surveyor/solicitor). The premium was another ⋄9300 on top of this (or 9.3% of the current estimated value of the property).

A lease extension is certainly an expensive and time consuming process.

It isn’t too complicated if you leave everything up to your surveyor / solicitor, but it may be best avoiding it in the first place by not buying a property with a short lease.

Thomas Exchange Global Victoria Street

Monday, April 18th, 2011

I needed another load of Yen so I decided to go to the bestforeignexchange.com currency shop which is located on Victoria Street. I found it listed as one of the best foreign exchange places on the Martin Lewis travelmoneymax.com website.

thomas exchange global victoria street

Looking more closely at the bestforeignexchange.com website it turns out that this is another Thomas Exchange Global like the one I visited and reviewed on The Strand the last time I needed Yen. I’m guessing they are using different names and websites for each branch to get more coverage on the search engines and travel money comparison sites. That doesn’t matter to me though – I just want a good rate.

To get the best rates they recommend you order your money in advance with their fast track service. I did this on the same day via their website. You just enter how much of each currency you want and then submit the order. You can specify that you will pay in cash so that you don’t have to pay any money until you get to the branch.

best foreign exchange fast track order

The branch is at 141 Victoria Street, a short walk from Victoria station. As Victoria Street is a busy area I’d recommend you bring your cash in a hidden money belt. The main branding on the outside lists the shop is Thomas Exchange Global.

When I arrived I told the man behind the counter that I wanted to collect an order – and gave my name which was the order reference. As my order was worth less than £2000 they didn’t ask for any ID. He retrieved the Yen very quickly and then put my pile of £20 notes through a bank note counting machine. He then counted out my Yen by hand twice, and gave it to me with my receipt, and a small amount of British change.

In my case I didn’t request any particular bank note denominations so I can’t say what they are like for special requests – but there is a box on the order form for messages, so if you do have requests you could try putting them in the form.

From arriving at the Victoria Thomas Exchange Global branch to receiving my Yen must have taken less than three minutes. They are very quick and seem to keep any verbal communication to the bare minimum.

Both this and the Strand Branch of Thomas Exchange Global are very similar. They are very fast, and consistently appear near the top of the travelmoneymax.com list for Yen, so I’d happily use either of them again for cash orders.

I’ll have another currency exchange review coming up soon. I split my Yen order into two batches so that 1) I wouldn’t be carrying/exchanging too much money at once and 2) so that I could try out two different travel money branches.

Graphing the Post Office Over 50’s Life Cover plan

Saturday, October 16th, 2010

Two years ago I produced some graphs showing how much you might pay vs how much you’d get back with two over 50 plans from AXA Sun Life. Today (Saturday 16th October 2010) The Times has included one of these graphs in its paper, so I thought I’d produce another set of graphs for a different company. This time it is The Post Office.

As before I’ll mention that I’m not a financial advisor, I have no personal connection to these kinds of plans, and I’m not making any kind of recommendation. All I am doing is turning the numbers for the Post Office Over 50’s Life Cover plan into some graphs. I’ve done my best to make these graphs accurate, but if you spot any problems leave me a comment.

I got a quote for a 65 year male using their website based on paying in £7 per month. Using these figures will get you a fixed £892 lump sum (or rather your family will), payable on death. You get this lump sum if you die after the first 12 months. If you die in the first year you get your premiums back. Your payments stop after 20 years when you are 85, and there is no cash in value. So if you stop making payments you get nothing back.

There are some other terms which affect the plan: if you die in an accident within the first 12 months you get your full premium back, and if you die of an accident after the first 12 months you get double your premiums back. I am not taking these additional terms into account for my graphs, but of course you might take them into account if considering a policy like this.

That is a rough summary in words – but what does it look like when turned into a graph?

post office over 50s life cover 1

The pink line is the lump sum payable which remains fixed, and the blue line is what you pay in. This remains fixed until you have paid in for 20 years. This person starts paying more in than they’d get out of the plan once they reach 76 years old.

It can be useful to compare the figures against what you’d get if you put the money into a bank account. This graph has two additional lines. One for saving this amount monthly at 2%, and the other at 4%.

post office over 50s life cover 2

These plans are all to do with when you die. Obviously the companies selling these plans have to make a profit (you don’t think anyone would give you free money do you?), so they use the average life expectance to work out how much life cover to give you.

Some people will get more than they paid in, but as with all other kinds of insurance the company has to make more money back. If the companies who make these policies paid out more than you gave them (on average) then they’d go out of business.

The National Statistics Office produce tables of life expectancy information. By looking at the ‘Great Britain, Interim Life Tables, 1980-82 to 2007-09’ I can see that a 65 year old male has a life expectancy of another 17.61 years. This means a man who is now 65 years old will die when he is 82.61 years old (on average of course).

Here are the above two graphs again, but this time with a smaller scale. Instead of being from 65 to 100 years, they are from 65 to 85 years.

post office over 50s life cover 3

post office over 50s life cover 4

Again as I mentioned above these kind of plans do offer other benefits such as accident insurance, so you have to make up your mind using all the available information.

But I hope you can see that a little bit of work in Excel can make the numbers a lot easier to understand.

The Post Office Over 50 Life Cover page is here, and on this site you can find similar but old graphing information for the AXA Sun Life Guaranteed Over 50 plan.

What does one million pounds look like?

Sunday, May 9th, 2010

If you’ve ever wondered what a million pounds (£1,000,000) looks like this post may help. Unfortunately I don’t have a million pounds, but I do have one single twenty pound note. Here it is:

twenty pounds

I also have a ruler, a calculator, and a copy of Paint Shop Pro. I’m therefore going to create a million pounds out of £20 notes. To do this I need to know the dimensions of the £20 bank note. Each one is 149x80mm with a thickness of 0.113mm. A stack of 100 notes with a value of £2000 will therefore be just 11.3mm high. Or 1.13cm if you prefer.

Here is £2000 with some mystery legs to give you a sense of scale.

two thousand pounds

Of course your £2000 stack will only look like this if you use fresh new banknotes straight off the printing press. If you build the stack out of used banknotes it won’t look so neat because of all the crinkles and folds.

What does one hundred thousand pounds look like?

Next what might one hundred thousand pounds (£100,000) look like? A bit like this photo, 9 stacks, each with a bit over eleven thousand pounds in it. A nice block of money I’m sure you’ll agree.

one hundred thousand pounds

What does one million pounds look like?

So what does a million pounds look like? I’ve built my million pounds out of 25 blocks of £40,000. Each of these blocks is 22.6cm high. So my million is about 45.2cm high with a single block of £40,000 at the front. One million is made of 50,000 £20 notes.

one million pounds

What if instead of being in a big block, all the notes were in a single pile? If that were done we’d have a stack of notes 5.65m high. To put that in perspective I put the stack next to a London double-decker bus. You can see that one million is a bit higher than a bus.

million pound stack and bus

There are a few more all important questions to answer.

Would one million pounds fit in a brief case?

If we imagine a film or crime drama where the villain brings a brief case full of bank notes to a meeting how much would fit in there? If it is filled with £20 notes then we could fit about £100,000 in a brief case.

If we are dealing with £50 notes then we could fit about £250,000 in a slightly bigger brief case.

As for bringing a million pounds in a brief case – it isn’t going to work.

Would one million pounds fit in a suit case?

With a suitcase you can transport much more serious money. You can definitely fit a million in a suitcase using £20 notes. And using £50 notes you can easily lug two million pounds around.

What would one million pounds weigh?

One million pounds using £20 notes would weigh about 50kg! You’d have to be pretty strong to be able to carry it. If you put it in a suitcase and tried to check it on to an aircraft you’d be racking up some serious excess baggage charges. Luckily you’d have to cash on hand to pay for it!

Using £50 notes your million would weigh about 22kg. This would almost fit into your usual 20kg airline allowance. And if you put some of the notes in your hand luggage you’d completely escape any excess baggage charge.

If we go back to the suitcase example £100,000 of £20 bank notes in a briefcase would weigh about 5kg. If you add in the weight of the briefcase you still have a fairly portable brief case of cash.

What are the bank note dimensions?

For reference:

£20 – A twenty pound note is about 149x80mm, 0.113mm thick. About 1g in weight.

£50 – A fifty pound note is about 156x85mm, 0.113mm thick. And about 1.1g in weight.

Filling in the Inland Revenue self assessment online tax form

Thursday, April 22nd, 2010

If you need to file a self assessment tax form in the UK to work out your income tax you have a number of options. You can fill in a paper tax return, do the online return, use some 3rd party tax software, or pay someone else to do it for you.

I’m going to show you what the HMRC online self assessment forms are like, from the beginning to the end.

To start off you log into the system and choose the option to ‘File a return’.

01 self assessment overview

You’ll get an explanation of who can use the online self assessment, and who can’t. As long as your financial isn’t too exotic you should be able to use the online tax forms.

02 self assessment welcome page

To get started you’ll need to confirm some personal details about your name, national insurance number, etc. Most of these should have been filled in for you already, so you only need to update them if necessary.

03 self assessment tell us about you

In the ‘Tailor your return’ section you need to enter some high level details about your financial situation, such as whether you are employed, self-employed, have received bank interest, have other income, and more. The answers to these questions will set up which parts of the form you’ll see later on. Don’t worry too much about getting your answers correct first time. Up until the point that you make the final submission, you can go back and change any parts of the self assessment form later.

04 tailor your return

06 3 tailor your return

If you are stuck on any section you can click on the green question marks next to the boxes, and you’ll get a pop-up with help messages in it.

05 help screen

Got to the next page (1 | 2 | 3)


Thomas Exchange Global in London

Monday, April 19th, 2010

Where do you go when you need foreign currency for your holiday? Do you go to your bank, post office, a high street currency dealer, or order online?

Before deciding where to get your holiday money I highly recommend you check out Martin Lewis’s TravelMoneyMax.com. He’s the guy who runs the Money Saving Expert website, and is regularly on UK TV giving advice on saving money.

On the TravelMoneyMax website you enter how much of what currency you want, and the site will tell you the best place to get it. One of the places that is always near the top of the list is the Thomas Exchange Global currency dealer at 402 Strand, WC2R 0NE in London.


View Larger Map

I’ve been to the Thomas Exchange Global quite a number of times to get various currencies. Here is my review of what their service is like when you visit the exchange in person to buy currency. I’m not reviewing any of their other services.

The shop itself is on the North side of the road on the Strand. It is a very small premises so you’ll have to be careful not to walk past it.

Thomas Exchange Global foreign currency exchange London

There are about three counters in the shop, but this seems to be enough as they are very quick. Ask them what price they will give you, and if you are happy with the rate, give them your money.

Once you tell them how much foreign currency you need, the person serving you passes this information onto a backroom member of staff. The backroom staff get the foreign currency ready while the counter staff member counts up your own money.

When I’ve requested smaller denomination notes they often haven’t been able to get them for me. But as long as you are happy with whatever denomination bank notes they give you Thomas Exchange Global do a good job.

They always count your original money out in front of you. If you give them a reasonable wad of notes they’ll then put it through a note counting machine to count it again.

They’ll then bring your foreign currency over, and count it out in front of you. They’ll do this at least twice. They don’t accidental want to give you too much!

To finish up they’ll give you a receipt, and give you your foreign money in an envelope.

If you are exchanging a large amount of money then I’d recommend you carry your money in a money belt to make sure you don’t lose it. And to make it less likely that it will get stolen. This is a very busy area of London and you could easily get mugged if an opportunist thief saw you walking out with a big bundle of bank notes.

Links:
Thomas Exchange Global official website.
TravelMoneyMax.com

Managing holiday money with an Excel burn down chart

Tuesday, March 2nd, 2010

If you go on a short holiday then it should be pretty easy to manage your holiday money. It isn’t too hard to track how quickly your foreign currency is running out when you are only abroad for a week or two.

If you are going on holiday for a number of months then it becomes a bit harder. When I recently went on holiday for three months I thought being able to record my available currency in the form of a burn down chart would be a useful thing to do.

I ended up creating an excel spreadsheet which when filled in gave me three lines on a graph.

holiday money burndown chart

  1. The first straight line (pink) goes down from the total amount of foreign currency on the first day of my holiday to 0 on the last day of my currency. This line shows where my currency reserves should be on average each day in order to spend all the money I took with me.
  2. The second line (blue) is the actual amount of foreign currency that I have left. A few times a week I would count up how much money I had left, and enter the data into the Excel spreadsheet. This would then update the second line. If this line is above the straight line then I’m under spending (on average), if the line is above the straight line then I’m over spending. The concept of under or over spending is of course ‘on average’. There may be good reasons why your spending during your holiday might be unevenly spread.
  3. The third line (yellow) is plotted against the axis on the right of the chart. This shows how much currency I have left per day on average.

Using the holiday currency burn down spread sheet

To make it easier to see how to use the spread sheet I have put a load of example data in the yellow cells. When you understand it you will have to remove the example data and enter your real data. Don’t delete anything in the red cells as these cells contain the formulas which will make it all work.

holiday money burn down spreadsheet

I have put comments in cells A2, B2, H2, I2 and I3 explaining what you need to put into these cells to get the spread sheet setup for your own holiday.

Then all you need to do is update it every few days and you’ll be able to see how fast your holiday money is burning down.

Download the holiday money spreadsheet from here (12kb).

Incomplete banknote from cash machine

Monday, February 15th, 2010

What would you do if you went to a cash machine to get £20 and got the below two bank notes?

NatWest cash machine banknotes

This is what I got when I used a cash machines in London recently. One of the £10 notes is fine, the other is only about 3/4 complete.

This obviously isn’t good as no shop will accept a note like this (unless they don’t spot it). You won’t be able to use it in a machine – they check that you feed them a complete note.

The easiest option is to take the note to the bank whose cash machine it is and ask for a replacement. As it is their fault you have a dud note they should give you a replacement – unless they feel like being awkward. If is very hard to prove that this bank note came from their machine so if they feel like being awkward there’s not much you can do.

Failing that you could take the bank note into another bank and ask for a replacement. Just be polite and hopefully you’ll get what you want.

Your chance of success probably depends on how complete the note is. If the note has both serial numbers, the silver thread, and is over half complete then you’ll probably be ok.

If you have less than half a note then you won’t get anything – if it was possible to get a full £10 from just half a £10 then everyone would be ripping their banknotes in half to double their money!

If you really can’t get any luck from your bank or another bank then you can send your note to the Bank of England. You can fill in a Mutilated Notes claim form and post your note to them. Of course there is a risk that it will get lost / stolen in the post, and it will cost you an envelope, a stamp and some time, but if you have exhausted all other options then give this a go. The currently replace about £40 million worth of bank notes each year.

Update

I had to wait until the weekend before I was able to visit my local NatWest branch but when I did they exchanged the incomplete banknote for a complete one with no fuss. I just told them that one of their cash machine had given me a £10 note with a bit missing from the end, and asked them to swap it for a complete one.

Find out the cost of calling any telephone number

Tuesday, October 7th, 2008

Often you will see UK telephone numbers with codes such as 087xx, and a price for calling that number will be listed. How do you know that the price is actually correct?

I would have thought the BT would have a simple page where you can enter a telephone number into a box and be told instantly the correct cost of calling it. I’ve been unable to find such a page but I have (after a fair bit of searching) managed to find out how to get this information from BT’s web site. I wanted the information from BT’s website as it is more likely to be accurate and up to date than from any other site.

I was prompted to find out how to do this as I wanted to be sure of the cost of an access number for calling a Japanese mobile phone. The web page of the dialing company told me it would cost 7p / minute.

0871 call cost

Looking up the price seems to be a two stage process. You need to find the Tariff Guide on their Products and Services page in the Personal section of their site.

You need to click on the Residential and Business special number call prices PDF link under the Pricing information heading.

This document has a large list of the starting codes of all phone numbers. You need to search through this list until you find the one that matches the number you have. You then need to make a note of the ‘Type of call’ code. In my case it is ‘g13’.

telephone number lookup

Further down the document you will find another table that tells you the cost of calling each ‘Type of call’ number. By cross-referencing these two pieces of information I’ve confirmed that the number is correctly advertised as costing 7p / minute.

call cost table

Graphing the AXA Sun Life 50 Plus Protector

Wednesday, August 27th, 2008

Following on from my post where I graphed the AXA Sun Life Guaranteed Over 50 plan I thought I’d look at a more complex product to see what kind of graphs I could get out of it. Unlike the Over 50 plan, the AXA Sun Life 50 Plus Protector features a lump sum and premium that increases over time. There is also a maximum number of years that the premiums are payable for. As there are a number of extra rules it should produce some interesting graphs!

As before I’ll mention that I’m not writing this to offer an opinion on this particular product. I’m not a financial advisor. My interest is to show how you can convert the information about financial product into graphs. These graphs can be of great help in deciding whether a financial product is suitable for you.

I got a quote from their website for a 60 year old male paying in a premium of £7 per month. These figures are what I was quoted on the day I did the quote (late August 2008).

The premium of £7 will rise by £0.35 per year for a maximum of 20 years when it will be double the initial premium. It will then remain level until it stops altogether at the age of 90. The cash lump sum is payable on death after two years. It is £1095 and will rise by £50 per year. If you were to die within two years the lump sum would be 1.5x the amount paid into the plan. There is no cash in value – if you stop paying money into the plan you get nothing.

The first graph I’ll make is to show how your premiums vary over the years. You can see them increasing every year, until the age of 80 when they level off. After the age of 90 you don’t pay any more premiums.

axa sun life 50 plus protector cost of premium

The next graph shows the cumulative cost of all the premiums paid into the plan, against the value of the lump sum. You can see (if you look carefully) that the premiums paid line increases in angle for the first 20 years. It is then a straight line for the next 10 years. The line then goes flat from age 90 as no more premiums are payable. The lump sum payment starts off at 1.5x the amount of premiums paid in, after two years it goes to the full lump sum value which increases by £50 each year.

axa sun life 50 plus protector plan cost vs lump sum

You can see that there is a crossover point at which you pay more in premiums than the lump sum you get back. You can also see that as you don’t pay any more premiums after age 90 the lines start coming together again. I continued the age range to 120 to see at what point they diverge for the second time.

I then produced a graph to show by what percentage the lump sum and the premiums go up. The text on their website says that both go up by 5% of the original lump sum / premium each year. An increase of £0.35 is indeed 5% of the £7 premium. However £50 of £1095 is actually 4.6%. I’m not sure whether they are rounding the lump sum increase down, or whether there is some error in their calculation.

axa sun life 50 plus protector lump sum increase

Despite the slight discrepancy in percentages both premium and lump sum follow an almost identical curve of decreasing percentage increases each year. The premium increases drop to 0% after the age of 80 as per the plan description. The lump sum increases by £50 each year so the percentage increase keeps dropping. It is therefore important to understand the effect that inflation will have on this plan.

I hope you found this interesting. These three graphs took me about 15 minutes to do and provide details of this product in a much easier to analyse format than the pure text description of the product as given on the AXA page.

As I started before I’m not offering you an opinion of their plan, more a reason why getting to grips with a spreadsheet package like Microsoft Excel will help you with making financial decision.