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Aegon offers 5 for life

Aegon Scottish Equitable International’s 5 for life is a unit-linked investment plan providing people who are at or near retirement with a guaranteed income from the age of 60.

The company pioneered the guaranteed income for life concept in the US and is now rolling it out the UK investors. The income – a choice of 5 or 4.5 per cent of the invested capital a year – has the potential to grow, depending on the performance of the underlying funds. Investors also have access to their capital at any time, with the ability to make additional withdrawals.

The company observes that the word guaranteed is now rarely used in financial services, but feels guaranteed income is what IFAs and their clients are looking for. People are living longer, so from a financial planning perspective, the worry is that they will outlive their assets in retirement.

The new product was designed to solve this problem by bridging the gap between the guaranteed income of an annuity and the flexibility of an investment bond.

If investors opt for 5 per cent income, they have a choice of three funds in which to invest. Prospect invests 60 per cent in a Merrill Lynch UK index tracker fund and 40 per cent in an Aegon corporate bond fund. The asset split for the vantage fund is 50/50, while the vista fund invests 40% in the tracker fund and 60 per cent in bonds. There is one free switch a year between these funds.

If the 4.5 per cent income option is chosen, there is only one fund choice – horizon. This is the most adventurous of all the funds as it comprises 70 per cent UK equities and 30 per cent bonds.

If markets fall investors get a guaranteed income, but if markets rise the income also rises through the income escalator and future income escalator features, which calculate the cash-in value at regular intervals.

This product is designed to meet a genuine need but the potential drawbacks relate to the ability to make additional withdrawals. While this is needed to ensure flexibility, making use of this can undermine the attractiveness of the other worthy features of the product such as income enhancement and death benefits.


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