The company believes this flexible annuity was ahead of its time when established in 2000. The AGA uses part of clients’ premiums to provide a five- year fixed income and the remainder is invested in up to 10 fund links, which provides the potential to grow future income. At the end of five years, clients can renew the five-year income or buy a lifetime annuity.
IFAs who reviewed the product for Money Marketing’s broker review feature in August 2000 described it as a halfway house between conventional annuities and income drawdown, but opinions were divided. Canada Life believes the concept did not gel with advisers at the time due to the constraints imposed on it by the old regime.
Post-A Day, Candada Life has made changes to the product. It has introduced transfer option allowing annuitants to transfer to another provider at any five-year review point, which was not allowed under the old regime. Canada Life expects this option to be used mainly where clients would benefit from buying an enhanced or impaired life annuity due to illnesses that were unforeseen when the AGA was taken out. Canada Life does not provide these types of annuities but believes clients should have access to them as an aspect of treating customers fairly.
The company is also able to offer benefits beyond age 75 as an alternative to alternatively secured pensions. Under the new legislation, income is provided up to 120 per cent of the standard Canada Life lifetime annuity rate, which the company says is higher than offered by an Asp.
Another new feature on the AGA is that bonuses may be added to the investment element upon survival at each five-year review date. This could be useful to people who delay buying an annuity, as they do not benefit from the cross-subsidy where annuitants who die earlier than expected subsidise the incomes of those who survive.
Despite its innovations and enhancements, one potential problem with the AGA is that annuity rates may be lower at the end of a five-year review than at the outset. Clients could experience a reduced income if that happens and they are be able to take advantage of potentially higher rates between reviews.