Type: Investment-linked annuity
Aim: Income by investing in a range of actively managed funds, passive funds and a cash fund selected by Old Broad Street Research
Minimum investment: Lump sum £10,000
Minimum-maximum ages: 50, or 55 from April 2010, to 85
Minimum term: None
Investment choice: Actively managed funds – JPM Cautious Total Return, Jupiter Merlin Growth Portfolio , Newton balanced, passive funds – MGM Advantage cautious portfolio, MGM Advantage balanced portfolio, MGM Advantage adventurous portfolio, cash fund – Insight liquidity fund
Income frequency: Monthly, quarterly, yearly or half yearly
Options: Joint life, guaranteed period of up to 10 years, value protection option which passes up to 100 per cent of initial investment less income to the policyholder’s estate upon death before age 75, enhanced option for smokers or people with a qualifying health impairment, option to move to a fixed income basis at any time but switch back to investment-linked basis not permitted
Charges: Monthly policy charge dependent on value of investment and adviser remuneration, fund charges annual 0.25 to 1.5% depending on fund but rebates of 0.15 to 0.75 per cent depending on fund will reduce the monthly policy charge
Commission: Agreed between adviser and client under customer agreed remuneration menu, extra 0.25% commission for online applications
Tel: 0845 608 6171
MGM Advantage’s flexible income annuity is an investment-linked annuity that aims to provide a greater income than policyholders would receive from a fixed level conventional annuity. It provides access to seven funds, including the Jupiter Merlin growth fund of funds and three risk-graded portfolios comprising a mix of passive fund from Vanguard and a cash fund.
The annuity allows policyholders to change income levels at different stages of retirement and also provides a minimum income guarantee , which will equal the lowest income option available at the start of the plan. Death benefits are similar to conventional annuities. They include joint life, where up to 100 per cent of the fund is payable to a spouse or civil partner; a guaranteed period option where income is guaranteed for up to 10 years, and value protection where the initial investment less income goes to the policyholder’s estate.
Informed Choice director Martin Bamford says: “This product addresses the fear that sustainable levels of income in retirement are under increasing threat and therefore innovative products are required in the market. It combines some of the more attractive features of annuities with unsecured pension, by offering minimum income guarantees along with death benefits and flexibility of income.”
He regards the literature as incredibly clear and well designed.
Looking at the product’s investment choice, Bamford says: “The fund range is simple yet comprehensive, with fund selection input from OBSR.”
MGM says it is the first in the UK to provide access to Vanguard’s range of passive funds within an annuity wrapper. It does this through the Vanguard cautious portfolio Vanguard balanced portfolio and Vanguard adventurous portfolio funds, which comprise a basket of Vanguard passive funds that track various equity and bond indices, along with cash weightings managed by insight Investment.
Bamford says: “The appearance of Vanguard funds will appeal to advocates of passive investing.”
Turning to the less attractive features of the annuity, Bamford says: “It’s difficult to fairly compare this type of product to other third way retirement income options, as they all come with differing features.
MGM started off as Marine and General Mutual Life Assurance Society in 1852 and in June 2008, MGM Assurance was rebranded as MGM Advantage and repositioned as a retirement income specialist.
Bamford says: “As a relatively new name in the UK retirement income space, it could be challenging to convince clients to trust their pension funds to MGM Advantage.”
Scanning the market for potential competitors Bamford says: “This is the first product of its kind in the UK. The main competition in the retirement income market will continue to come from the mainstream retirement income options, namely annuities and unsecured pension.
“We often hear about the potential for innovative third way products in this space, yet in the main customers want simplicity when it comes to retirement income. They are wary of the costs associated with additional guarantees and options,” he says.
Bamford thinks the £10,000 minimum investment will appeal to customers who are excluded from mainstream retirement income options, but he adds that at that level, they are more likely to need direct access to the product as IFA fees for advice would be uneconomical.
Summing up, Bamford says: “Innovation in the retirement income market should always be welcomed. But providers should continue to focus their energy on the mainstream options which will remain the most popular, even against the backdrop of improving life expectancy and therefore falling income levels.”
Suitability to market: Good
Adviser remuneration: Average