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Julian Gibbs

There is still a huge amount of long-term investment money deposited with

building societies – far in excess of what investors need to cover

emergencies. The problem for investors is that interest rates have fallen

dramatically, with most banks and building societies paying less than 5 per

cent gross on most of their accounts and as low as 1.1 per cent on some

accounts, such as Halifax&#39s Liquid Gold.

However, NDF in conjunction with Abbey National Treasury Services has come

up with a rising income plan with 100 per cent capital security. Income

starts at 6 per cent a year and rises by an amount equivalent to twice or

more of the rise in the yield in the FTSE 100, based on the initial level

of the index.

Over any six-year period, dividends would have risen on average by around

8 per cent a year compound, the lowest rise being 4.1 per cent a year and

the highest rise being 12.9 per cent a year.

Taking a slightly below average rate of 7.5 per cent a year – because

dividend rises over the next year they may well be below average – the

income would rise to 7.8 per cent in the sixth year.

It looks likely that interest rates will remain low for the foreseeable

future, with further cuts likely in the UK as well as in the rest of

Europe. This means building society rates are likely to fall further too.

There is an option for investors to accumulate their income. This would

give them a return of 45.5 per cent assuming a 7.5 per cent growth in

dividends. All these returns are tax-free through an Isa or Pep transfer

and the capital is 100 per cent guaranteed by Abbey National. Commission is

3 per cent.

I see this product as an ideal way for IFAs to help elderly and

ultra-cautious clients with big building society investments to increase

their returns rather than risk reducing them still further.

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