Type: Investment-linked five-year annuity
Minimum investment: £35,000
Minimum age: 50
Income frequency: Choice of monthly, quarterly, half-annually or annually.
Investment choice: Up to 10 funds from a range of 19 Canada Life funds and 60 externally managed funds from 16 fund management groups
Allocation rates: 97-101% depending on level of IFA commission taken
Charges: Annual 1% plus fund charges of 0.15-2.55% a year depending on funds chosen
Options: Choice of another five-year annuity or lifetime annuity including transfer to another provider, at the end of the term
Fund switches: Up to 12 free fund switches a year
Commission: Initial up to 4%, renewal up to 1%
Tel: 08457 226232
Canada Life has revamped its annuity growth account to take advantage of the post-A Day changes. It has introduced a transfer option allowing annuitants to transfer to another provider at any five-year review point, which was not allowed under the old regime. Bonuses may now be added to the investment element upon survival at each five-year review date and the company is able to offer benefits beyond age 75 as an alternative to alternatively secured pensions.
Alexander Forbes Annuity Bureau associate regional director Peter Magliocco notes that the annuity growth account has been available from Canada Life for seven years, so for many advisers this will not be a new concept.
“For those unfamiliar with the plan it is basically a five-year temporary annuity which is cheaper to provide than a lifetime income, so it leaves part of the fund available for on-going investment.”
Magliocco points out that the product allows the temporary annuity exercise and investment element to be run every 5 years, with the final opportunity at aged 80. “A conventional annuity must be purchased at the latest at age 85,” he says.
“Canada Life has tweaked the contract and provided some very welcome additional features. The ability to now use the open market option at the five- yearly reviews to secure a conventional rate driven annuity makes the contract more appealing and falls in line with treating customers fairly. The ability to flex income between a lower and upper limit allows clients to tailor retirement income to their circumstances,” says Magliocco.
He adds that changes to both the guarantee period and the ability to add or remove joint life benefits in certain circumstances, make the contract more flexible.
Considering the potential drawbacks of the AGA Magliocco says: “It was perhaps a little before its time in terms of product innovation. However, with the growing interest in the last few years in the retirement market, it is a straightforward concept for both the adviser and the client to understand.
Magliocco adds that the need for on-going advice allows the adviser to form an on-going relationship with the client, which is not always present with a conventional rate driven annuity purchase.
In Magliocco’s view, the main competition will come from the conventional annuity market at one end of the scale and unsecured pensions at the other. “In between, the AGA will potentially be competing with the so called third way products which are now appearing on the retirement market, along with the more established investment linked annuity choices. It is a busy space with lots of choice.”
Summing up, Magliocco says: “The AGA addresses the mortality loss issue that clients encounter when going into unsecured pension arrangements through its survival bonus which is added at the end of the temporary annuity exercise. It also becomes an option that warrants closer inspection for clients in unsecured personal pension approaching the age 75 dilemma of an alternatively secured pension or annuity purchase.”
“I would draw advisers’ attention that this is an annuity contract and so death benefits are those associated with an annuity rather than unsecured pension arrangements.”
Suitability to market: Good
Adviser remuneration: Good