LIVERPOOL VICTORIA FRIENDLY SOCIETY
WITH PROFITS PENSION ANNUITY
Type: With-profits annuity
Minimum investment: Lump sum £7,500
Minimum age: 50
Income frequency: Monthly, quarterly, half-yearly, annually
Options: Can be converted from with-profits to conventional annuity on annuitant's death
Commission: Initial 1 per cent
Tel: 0845 6020690
The panel: John Bumford, Client manager, Gee & Company,
Peter Quinton, Managing director, The Annuity Bureau,
Nigel Hemming, Director, Allen French & Co.
Investment options 6.5
Company's reputation 6.4
Past performance 7.4
Product literature 7.7
Liverpool Victoria Friendly Society's with-profits pension annuity invests in the Liverpool Victoria with-profits fund. Annuitants can choose to take income payments on a monthly, quarterly, half-yearly or annual basis. Investors choose an anticipated bonus rate and this level of income is guaranteed for the first two years.
Looking at how the annuity fits into the market Quinton says: “It is a useful addition for retirees who want equity linking and who are prepared to take on board the associated risks.” Hemming says: “The with-profits annuity is an important consideration in the market. Some of the features are useful to a client, but it is not as flexible as some annuities.”
Bumford says: “Given the increasing trend towards alternative options to the conventional fixed annuity, this product is certain to be accepted into the annuity marketplace. Although the product does not break new ground with regard to product design, Liverpool Victoria's reputation will place this product among some of the main contenders for with-profit annuity business.”
Identifying the types of clients the product could suit Hemming says: “Those that have an understanding of with-profits, those that can afford to take some risk and those that have a good sized pension fund.” Bumford says: ” As with most investment-linked schemes, clients taking up this product will primarily be those who have alternative sources of income in retirement and can accept the risk that future annuity payments may fluctuate, or those who have living expenses that can be covered by the guaranteed income.” Quinton suggests typical clients would be those who are looking for a product that fits between a standard annuity and income drawdown.
Assessing the product's marketing potential Bumford says: “For those who perceive conventional fixed annuities as poor value, this new product will give the opportunity to spread annuity funds between more than one quality provider, and thereby avoid the all eggs in one basket approach. This is likely to be an increasing trend following the bleak future that is now faced by Equitable Life with-profit annuitants.” Quinton says: “Retirees who want their annuity linked to investment performance, without exposure to too much risk or volatility, will be attracted to this product.” But Hemming thinks it offers nothing special.
Highlighting the main useful features of the product Quinton says: “It has reasonable past performance and free asset ration. The second year income is guaranteed not to fall regardless of the investment returns.” Bumford says: “The relatively low minimum purchase price will be helpful, particularly where a with-profits annuity is being arranged as a top-up to other sources of guaranteed income. The option of converting to a conventional annuity after the first death on joint life plans may be particularly relevant if the surviving spouse has a more cautious attitude towards investment risk. And also if there has been a 50 per cent reduction in income on the first death.”
Discussing the investment options, Quinton complains that there is only one choice, but points out the with-profits fund has above average exposure to equities. Bumford says: “The Liverpool Victoria with-profit fund has a good track record and if the society's overall financial strength can be held at current levels, this should allow for the existing equity exposure to be maintained. Over the long term this gives the potential for clients to improve on the returns from a conventional fixed annuity.”
Looking at the product's drawbacks, Hemming points out that it can only be converted to a conventional annuity on a joint life basis. He also mentions that the top-up bonus could be withdrawn. Quinton says: “It has limited income flexibility and limited investment choice.” Bumford says: “When compared with other similar products, the main disadvantage is the absence of a conversion option after the first anniversary. While there may be few occasions when this option will be exercised, an opt-out clause will nevertheless give significant peace of mind to annuitants who might suffer a change of circumstance, or if with-profit returns deteriorate.”
Examining the annuity's flexibility, Hemming feels it is not as flexible as others in the market. Quinton says: “It is more or less in line with the industry for this market, except there is no conversion to standard annuity other than on first death with joint life policies.”
Discussing the company's reputation Bumford says: “Liverpool Victoria has, in recent years, increased its market profile, and the launch of this with-profit annuity will continue this trend. The company's financial strength will stand it in good stead for providing security of payment and the prospect of competitive returns.” Hemming says: “It is growing but is still to be perceived as providing the level of financial strength needed in the market.” Quinton thinks it has reasonable consumer awareness.”
Considering the company's past performance Quinton says: “The with-profit fund performance has been good.” Bumford says: ” Over recent years, the company has consistently provided competitive returns under its with-profit contracts, and demonstrated that mutuals still have the capacity to compete with the larger propriety companies.” Hemming says: “It is historically good, but there is a query over its future following expansion.”
Nominating companies that could provide competition for the annuity, Hemming goes for Standard Life, Scottish Widows, Norwich Union and Prudential. Quinton also cites Prudential and Standard Life. Bumford thinks the main competition will be companies that carry the highest credit ratings, and have the resources to enhance their products to keep pace with developments in the market place.
Quinton and Hemming think the charges are fair and reasonable and Bumford says: “Overall, the effect of charges appears comparable with other major providers.”
Quinton thinks the commission is fair and reasonable. Bumford says: “The total commission payable on this contract, including uplift, is comparable with other major providers and for many cases, will be fair and reasonable. However where the purchase price is at the minimum level of £7,500, many intermediaries may feel that additional fees need to be levied to cover the cost of advice.” Hemming thinks it is in line with the market and that the commission sacrifice option is attractive.
Looking at the product literature Hemming says: “It is good. I would like to see a 'time to think it over' form in a different colour, as it is going to be signed by the client.” He also thinks the definition of financial dependency was useful. Quinton thinks the product literature is okay. Bumford says: “Overall, this provides a clear explanation of the contract details and the intermediary guides are also particularly helpful in summarising the minimum and maximum criteria and contract charges. In view of the inherent investment risks that are associated with this type of plan, it would perhaps have been helpful if the worked examples also illustrate the effect of reducing bonuses.”