investors respond to 5% of invested capital income for life promise
Aegon Scottish Equitable has quoted more than £200m in business since the launch of its 5 for Life plan, on 18 September.
Steven Whalley, head of marketing for investment products at Aegon Scottish Equitable, said the plan, which offers investors a guaranteed income of 5% of invested capital from the age of 60 for the rest of the policyholder's life, irrespective of financial market conditions, had been met with a strong response.
He said although it is early days, the average premium size was around £60,000, twice the level anticipated and significantly higher than the minimum investment of £15,000. Most participants, however, are opting for policies of around £25,000. Most people taking out the 5 for Life Plan were in the early to mid-60s age group, Whalley added.
In addition to the guaranteed 5% pa income (taken from the capital), the product also provides the potential for investment growth. At certain times, growth can be locked in, which will in turn provide a higher guaranteed income for the customer. It is important to note that any additional withdrawals would reduce future guaranteed income.
The plan offers a death benefit of 100.1% of the cash in value or the original premium, less any withdrawals, whichever is the greater. This depends on the investment performance and withdrawals taken, which means the fund value, and therefore the death benefit, could potentially be zero.
Investors have a choice of three main funds in which to invest. Each fund offers varying degrees of exposure to equities and fixed interest. Aegon Asset Management and Merrill Lynch Investment Management will manage the assets in combination. Equity exposure is given via a UK index tracking fund while corporate bond exposure is via the Aegon Enhanced Corporate Bond fund.
The Prospect fund offers 60% in equities and 40% in bonds, Vista offers 40% in equities and 60% in bonds, while Vantage is an even split between the two of 50% in each asset class.
A fourth option, Horizon, offers a guarantee of 4.5% of invested capital as annual income. Within this fund, 70% exposure is given to equities and 30% to corporate bonds, the idea being that income will escalate over time.
According to Aegon, the guarantee can be provided via a hedging programme that uses sophisticated new techniques to protect itself against market movements.
There are two levels of charging. The AMC on the underlying funds is 1.55% for Vista, 1.9% for Vantage, 2.25% for Prospect and 1.9% for Horizon. Whalley said Vantage was proving the most popular fund choice thus far.
There is also an establishment charge to cover set up costs. This can be taken over five or eight years. The outstanding establishment charge is taken as a surrender charge on early exit. Assuming full commission, the establishment charge is 1.5% pa for five years and 1% pa for eight years.
Peter Dornan, a director at Aegon, said: "The concept behind 5 for Life has been tried and tested in the US, where it is already well established, having been pioneered by Aegon's American business. With the similarities between the UK and US pre-retirement markets and demographics, Aegon feel it is now the right time to bring the concept to the UK market." at a glance
Name: 5 for Life
Description: Whole-of-life, single contribution, unit linked, life assurance plan
Basis of issue: Single life
Age limits: Minimum 18, maximum 80
Contributions: Single contribution only (new plan established for additional payments)
Contribution limits: £15,000 minimum, £1m maximum
Guaranteed income: 5% of the original investment (4.5% escalating option also available)
Frequency: Income can be taken monthly, quarterly, half yearly or yearly
Additional withdrawals: Yes, though will impact on future guaranteed income payments and charges may apply
Death benefit: The higher of the total contributions paid less withdrawals and the 100.1% of the cash in (surrender) value of the plan
Since November 2008
Share issue oversubscribed
PARTNER INSIGHT: For many advisers, outsourcing to a multi-manager or discretionary fund manager makes sense, allowing them to focus on the adviser-client relationship
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An added tier of asset management can of course deliver additional benefits for certain investors, writes Graham Bentley - just be sure you can justify it to the regulator and, especially, the client