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LV= goes for halfway house Usp

LV= Protected Retirement Plan

Type: Unsecured personal pension

Aim: Income at a fixed level for a fixed term, plus a guaranteed maturity

Minimum investment: Lump sum  £10,000

Minimum-maximum ages: 50 to 71, 55 from April 6, 2010

Minimum term: Three years

Income frequency: monthly, quarterly, yearly or half yearly

Options: Joint life, dependents¹ income, guarantee period allowing income to
be paid for minimum period even if client dies within this time, value
protection enabling 100 per cent of capital to be protected if client dies
before maturity date

Charges: Implicit

Commission: Initial up to 6% negotiable through customer agreed remuneration


The LV= protected retirement plan combines the features of an annuity and an
unsecured personal pension. It provides a fixed income for a fixed period
and a guaranteed maturity value, without locking clients in to a lifetime
deal. A trustee investment plan version is also available to allow IFAs to
combine the plan with the full investment options available under a
self-invested personal pension.

The plan offers a range of death benefit options including joint life,
dependants¹ income and income guarantee, which ensures income is paid for a
minimum period. Under the value protection option 100 per cent of capital
less any income paid, is returned if the customer dies before the end of the

Putting the plan in to its market context, IPFM director Luke Gibbon says:
“The new protected retirement plan from LV= offers a halfway house between
an annuity and a drawdown plan in that it offers guarantees, but retains a
degree of flexibility.”

Gibbon explains that the product is like an annuity in that clients can take
the tax-free cash and a guaranteed income from a minimum three-year period
until they reach age 75.

“Once the plan has been set up it cannot be changed during the selected
period, unless a Government Actuary¹s Department limitation applies,” says
He adds that the product is like a drawdown plan in that the income can be
anywhere from nil up to the maximum GAD limit. “If the selected term is for
more than five years, there will be a review and the income may be
restricted if it exceeds the maximum GAD limit.
“Any restriction in income is added, together with interest, to the capital
return. At the end of the selected term the maturity proceeds can be used to
provide a conventional annuity or an alternatively secured pension.”

If clients are below age 75 when the plan matures, they can take out a new
protected retirement plan or another drawdown plan.

“I think the plan has many attractions in the right circumstances and could
be a valuable tool for clients.  In particular, unlike a conventional
annuity, a client is not making a lifelong commitment and should the maximum
age for crystallising pensions be removed, the flexibility to take advantage
is not lost,” says Gibbon.

Examples of where this type of plan may be useful in Gibbon¹s view include
situations where clients want to access their tax-free cash but do not
require an income, while their fund is not big enough and/or the risks of
drawdown are unacceptable.

“Also, a client retiring at age 60 may want to maximise income until they
get their state pension at 65 and accept that maturity value is likely to
purchase a lower annuity at that time. Again, they may want the risks
associated with drawdown plans.”

Turning to the potential drawbacks of the product Gibbon says: “Conventional
annuities could provide a higher income. Also, the income that can be
achieved from the maturity sum could be significantly less than the income
initially paid by the plan. I think this product definitely has a place, but
care needs to be taken.”

Considering which products will provide then main competition for LV=,
Gibbon says: “The only direct competition I am aware of is offered by Living
Time, which arranges the annuities via Alico.”

Gibbon has looked at quotations from Living Time to see which company is
offering the most favourable terms, and concludes that it varies depending
on individual circumstances.

“Conventional annuities and drawdown plans could also be considered as
competition,” he says.

Suitability to market: Good
Investment strategy: Average
Charges: Average
Remuneration: Average
Overall 7/10


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