View more on these topics

London & Colonial opens up

London & Colonial has introduced open annuity, which allows

annuitants to pass on their pension pot to their heirs when they die.

Conventional annuities pool the resources of annuitants and use the funds of those who die early to subsidise those who live longer than expected, but open annuity does not operate this mortality cross-subsidy. Instead, it separates annuitants&#39 pension pots, allowing their relatives to benefit rather than the insurance company and other annuitants.

Conventional annuities invest in a high proportion of gilts, which are low-risk. However, the yield from gilts is low at present and this has a knock-on effect on annuity rates, so an annuitant&#39s capital buys less income than it could have in previous years.

Open annuity aims to solve this problem by allowing annuitants to choose their investment funds as they would with a self-invested personal pension (Sipp). In this way, investment portfolios can be tailored towards an annuitant&#39s attitude to risk. However, as annuitants&#39 pension pots are separate, they are totally reliant on investment performance.

Income can be paid annually, monthly or on an ad-hoc basis which ensures flexibility. However, annuitants who vary the level of income they take must ensure they do not withdraw too much income as their capital will suffer.

London & Colonial will transfer annuitants to a conventional annuity if the value of the pension pot falls by 35 per cent but then annuitants&#39 relatives would not be able to inherit the remaining money. Any annuitant who passes on their pension pot would also need to be aware of the potential inheritance tax burdens they would also transfer to their relatives.

Recommended

Discount broking thrown into doubt over EU ruling

The future of discount broking could be in doubt if new European Union regulations get the go-ahead. Under the EU proposals, all intermediaries will be required to carry out a full fact-find for all investment transactions. These requirements are contained in the committee of European securities reg-ulators&#39 proposal for the harmonisation of business rules. Trade […]

&#39Chancer&#39 IFAs investing in future

More IFAs are getting into debt to fund expansion according to new research from the Plimsoll consultancy.The Plimsoll Strategic Risk Index revealed 58 per cent of IFAs getting into debt through funding from banks and other institutions are using the money raised to boost their profits.It calls these firms “chancers” and says they make up […]

IF – a loan application oddity

Bungle Busters is brought to you this week courtesy of Intelligent Finance – making a welcome return after first appearing in May – as a result of computer system problems. IFA CDG Financial Services director Chris Green says IF has had to repro-cess his self-employed cli-ent&#39s remortgage application four times because the internet and phone […]

Canadian firm eyes UK market with legal fund offer

Canadian investment house Alpha Toronto is moving into the UK IFA market with an innovative new legal fund investing in “no win no fee” litigation. The fund offers a yield of up to 11.25 per cent a year over three years or 10.75 per cent a year over 18 months. Quarterly and monthly inc-ome options […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment