Clerical Medical has improved its income drawdown product by introducing a flexible charging structure and adding external fund links.
The retirement options plan provides alternatives to buying an annuity, such as income drawdown, phased annuity purchase and partial self-investment. It offers 21 Clerical Medical funds,14 external funds from Newton, Schroders and UBS plus balanced, cautious and defensive fund collections which contain a mix of internal and external funds. A self-invested option is available which is administered by Sipp provider James Hay.
The plan's charging and commission structure was designed with depolarisation in mind. It enables advisers and clients to agree between themselves whether advice is paid for on a fee or commission basis, how much commission is taken and whether the commission comes from the annual management charge or allocation rate.
In simple terms, IFAs can take initial commission of up to 5 per cent and fund-based renewal commission of up to 1 per cent. If the initial commission is taken from the allocation rate, the allocation rate will range from 95 per cent. Alternatively, the basic annual management charge will be increased by 0.2 per cent for every 1 per cent
commission taken. The fund-based renewal will add 0.1 per cent to the annual management charge for every 0.1 per cent commission taken. However, the annual management charge may be rebated between 0.1 per cent and 0.3 per cent a year, depending on fund size.
Clerical Medical thinks the plan will appeal to a range of investors with different income needs and risk profiles. However, there are risks, for example, withdrawals may reduce the capital value and the growth in the investment funds may not be enough to replace the income taken. Also, an annuity must be bought eventually and there is no guarantee that clients will be better off by delaying annuity purchase through drawdown.