Gary Dale from Investec Structured Products answers some questions on their Income Plan the FTSE 100 and RPI Combination Plan.
Q
Why have you launched an Income Plan at this time?
A
Income plans have been in short supply over the past few years. However, changing market conditions and our commitment to deliver a comprehensive suite of products has led us to deliver an innovative plan offering competitive yearly payments in an efficient way. Investec has launched two versions of the Income Plan, the ISA version and the Non-ISA version. The following commentary relates to the Non-ISA version only.
Q
What rate of income does the Plan deliver?
A
The FTSE 100 and RPI Combination Plan pays yearly payments of 7% fully indexed to UK inflation measured by the Retail Prices Index, (RPI). The yearly payments are guaranteed regardless of the performance of the FTSE 100 throughout the investment term. One of the key benefits of this plan is that the yearly payments of 7% are effectively payments of capital made from the investor’s initial investment, and are therefore not subject to income tax. The only element of the payment that is liable to income tax is the inflation premium, which is paid on top of the yearly payments and measured from the start date of the Plan. The guaranteed payments make this plan extremely versatile in its application, especially coupled with the capital protection element. Many other income plans seek to deliver high levels of yearly payments by using multiple indices or more complicated asset classes. The Investec Plan is linked only to the FTSE 100, making it easier for an investor to followand understand.
The key points are summarised below:
- 5 yearly payments equivalent to 7% of the initial investment, regardless of the FTSE 100 performance.
- Each yearly payment is fully indexed to UK inflation, measured by (RPI)
- Initial investment is fully protected provided the FTSE 100 does not halve during the Investment Term.
- Even where the FTSE 100 does halve, provided the Final Index Level is no less than the Initial Index Level, the initial investment is still protected.
- Where the 50% barrier has been breached and the Final Index Level is lower than the Initial Index Level, capital is eroded on a 1:1 basis.
- Maturity proceeds of the Note element may be subject to capital gains tax.
Q
In what ways can investors access your Income Plan?
A
Investors who are UK residents can access the plan either directly, or within their SIPP or SSAS pension scheme. The plan is also available to trusteesand corporates.
While the direct investment route may appear to be the obvious choice for the investor, the plan has a variety of investment applications. Certainty of income as well as capital preservation are useful in the context of pension planning and income drawdown strategies. Advisers and trustees must re-assess the income every 5 years based uponthe value of the pension fund at this point. The main issue facing trustees and advisers is in developing the appropriate investment strategy to maintain future income payments. More often than not, UK equity investment forms the backbone of any pension fund. However, given the current levels of volatility, advisers have difficult choices to make in terms of asset allocation and fund selection. Our Income Plan offers an alternative option by providing certainty of income as well as an element of capital protection, both of which are welcome additions to any income drawdown strategy.
Trustee investments are another area where the product has useful applications. Certain trustees must consider not only income payments to life tenants, but also capital preservation for the remaining beneficiaries. Once again the Income Plan could be utilised within the trusts investment portfolio providing certainty of yearly payments plus an element of capital protection.
In summary, the plan offers several key benefits:
- Innovative structure with investment allocation between deposits and medium term notes to deliver tax efficient returns
- An element of capital protection and therefore risk management
- Certainty of yearly payments irrespective of the performance of the FTSE 100
Q
What makes this plan different to other income plans currently available?
A
There are two key differentiating factors with our Plan. The first is the innovative structure with its split between fixed term deposits and medium term notes. The series of deposits deliver the yearly payments and the medium term note provides the investment element designed to return the investor’s initial investment. The underlying asset is the FTSE 100 and as already described above, provided the FTSE 100 does not fall by more than 50% at any point during the Investment Term, the investor’s initial investment is fully protected. Even where the FTSE 100 does breach the 50% barrier, provided the Final Index Level is at least equal to the starting level, the initial investment is still protected. Capital is only at risk where the barrier is breached and the Final Index Levelfinishes below its starting level.
By summarising the structure above, I have described the second key benefit,the simple and transparent return profile, one of the key themes across the fullcollection from Investec structured Products.
