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Julian Gibbs

The ingenuity of financial institutions to produce products which offer a high income, and yet are very safe, knows no bounds. The latest example is the income option plan from GE Life.

The 10 per cent annual income option (or 33 per cent growth) over three years and two months preserves capital provided the EuroStoxx 50 index does not fall from its initial level by over 20 per cent in the second and third years only and, if it does, fails to recover to or above its initial level. This innovation makes the plan much safer.

The second option offers 8 per cent income (or 27 per cent growth) but the index can fall by up to 30 per cent before there is any loss of capital. The likelihood of the EuroStoxx 50 index falling by more than 20 per cent (let alone 30 per cent) in the second or third year is, in my opinion, highly remote because the index has already dropped by around 33 per cent from its peak and in the whole history of the index there has never been a time when it has fallen by a further 20 per cent after such a large fall.

The last of these award-winning plans from GE Life attracted around £90m, much more than most Isa providers achieved during the whole of the Isa season.

An analysis of recent launches of this type showed that, out of £200m invested, direct business accounted for £128m, Isas for £52m and Pep transfers for another £20m. About 71 per cent of investors chose income while 29 per cent chose the growth alternative.

These plans are outselling almost every other financial product and those IFAs who are not recommending them to their clients should seriously reconsider them, especially taking into account such low levels of world stockmarkets at present.


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