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Cracking product from Aegon SEI

Aegon Scottish Equitable International – Secure Lifetime Income

Type: Unit-linked investment plan

Aim:Guaranteed minimum income of 3.5-5% a year for life, with the potential to increase depending on investment performance, from age 60

Minimum investment: Lump sum £15,000

Minimum-maximum ages: 45-79

Income frequency:  Monthly, quarterly, twice a year or once a year

Investment choice: Four core portfolios comprising Aegon UK Fixed Interest and BlackRock UK Index Tracker funds, four multi-manager portfolios, Create range of 67 externally managed funds

Allocation rate: 100%, extra allocation available for commission sacrifice on a one-for-one basis

Charges: Establishment charge option A –none, option B – annual 1.25% for first five years, option C – annual 0.75% for first five years, guarantee option fee 0.4-1.3%, fund charges annual 0.75%-3.2% depending on funds chosen

Fund switches: First 12 switches a year free, thereafter £25 or 0.25% of the value switched

Commission: option A – none, Option B initial 7%, initial 5.5% plus 0.25% renewal, or initial 4% plus 0.5% renewal, option C – initial 4.5%, initial 3% plus 0.25% renewal or 1.5% initial plus 0.5% renewal

Tel: 08456 000173

Aegon Scottish Equitable International has replaced its five for life product with secure lifetime income, a unit-linked investment plan that provides the guaranteed income for life provided by purchased life annuities, with the investment flexibility, growth potential and inheritance benefits of investment bonds.

IPFM director Luke Gibbon says: “This plan is a unit-linked life assurance plan that can be taken out from age 45 to 79. It replaces the company’s five for life plan.”

Gibbon observes that the secure lifetime income plan will provide a guaranteed income of 3.5 per cent a year if it taken out at age 60. The income increases to 5 per cent a year if the income is started at age 75 or older.

 Gibbon says: “Unlike the previous five for life product, this plan’s value is reviewed every year. If the cash-in value is higher than the original contribution or a subsequent higher cash-in value, the income will be increased proportionately.  Once increased it is guaranteed and, at least initially, will be free of tax but could become taxable dependent upon future increases.”

Discussing the investment options of the plan, Gibbon says: “Investment can be made in to Aegon’s core portfolios, multi-manager portfolios or its create range of funds.  In all cases, at least 50 per cent of the fund must be invested into fixed interest or cash instruments.”

Gibbon adds that in the event of the policyholder’s death, the greater of the initial contribution less income paid or 100.1 per cent of the cash-in value will be paid.  

 He says: “At first glance the product looks attractive in that it provides a guaranteed income that can increase but not fall, the income is paid in a tax efficient means and on death the residual fund is available to beneficiaries.

 “However looking at it more closely, I think cracks start to appear. While the income is guaranteed if growth is not achieved the income is simply coming out of the investor’s capital.”

He says that ignoring charges, at age 60 the fund could pay the income for 28 years before the fund ran out, assuming no investment growth or losses. “If income is not started until age 75, the fund will last until age 95 on the same basis. It is very unlikely to not achieve any growth over a 20-year period and the guarantees offer comfort rather than real value in my view,” he says.

Gibbon also takes issue with the requirement that at least 50 per cent of the fund must be invested into fixed interest or cash assets. “This, I suspect, is imposed to reduce the risks of losses, particularly in the short term, which could incur if an investor died when the fund price was lower than the original investment price. Of course, this also restricts the growth prospects of the fund and limits the potential for increases in income.”

Gibbon is unimpressed by the charging and commission structure. “The charges are complicated and depend on commission taken by the IFA, the portfolio range, and the split between fixed interest and equities.”

As an example, he says that if initial commission of 3 per cent and 0.25 per cent fund-based commission is taken, assuming investment is into the core range with a 50 per cent equity content, the charges are 2.8 per cent of the fund value a year in the first five years and 2.05 per cent a year thereafter. “There is also an early encashment penalty in the first five years. Bearing in mind a typical investment fund has an initial charge of 5 per cent and a 1.5 per cent annual management charge, the Aegon product looks expensive.”

Gibbon concludes: “I think the Aegon product could face competition from investment funds, single premium bonds and annuities.”

BROKER RATINGS

Suitability to Market: Average

Investment: Poor

Charges: Poor

Advisor remuneration: Poor

Overall 3/10

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Brilliant. Just what we need, another complex, opaque product to hide (charges or commissions?) behind.

    Whatever next? I know lets push the boat out and ask NU (sorry AVIVA) to come up with a guaranteed with profits fund.

  2. Anon – As far as I can see it’s actually quite a simple product with transparant charges.
    As Mr Gibbons says “the guarantees offer comfort rather”, but how do we as advisers measure “real value” of that comfort, onyl a client can measure that.

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