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LV= walks tightrope between annuity and USP

LV=s protected retirement plan is established under unsecured personal pension rules, but income is not affected by stockmarket fluctuations because it is not investment linked. Neither does the plan tie policyholders to a set income for life as a lifetime annuity would.

The plan gives policyholders a choice of term, income and death benefit, plus a guaranteed maturity value. They can choose a term of between three and 25 years at the time of the plan’s launch, but the maximum term will change to 20 years from April 6, 2010 in line with changes to the normal minimum pension age. The minimum age to access the plan will increase from 50 to 55 at the same time.

Policyholders can choose no income, a level or increasing income up to 8.5 per cent a year. This is paid on a monthly, quarterly, half-yearly or yearly basis, but must not exceed the maximum allowed under Government Actuary Department limits.
 
There are three types of death benefit. Dependant’s income provides a spouse, civil partner or financial dependant with an income if the policyholder dies before the plan matures. Guarantee period allows income to be paid for a minimum period, even if the policyholder dies during this time; while value protection returns 100 per cent of capital, less any income paid, if the policyholder dies before the maturity date.
 
If the policyholder lives until the plan ends, they receive a guaranteed maturity value that can be used to buy an annuity, another protected retirement plan or invested in an unsecured pension.

However, the higher the level of income chosen during the term, the lower the guaranteed maturity value. This means advisers need to strike a balance between clients’ present and future income to avoid the guaranteed maturity value being too small buy the same level of income from an annuity or alternative product.

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