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MGM annuity goes for flexible income

Retirement income specialist MGM Advantage has designed its flexible income annuity to provide a greater income than policyholders would receive from a fixed-level conventional annuity.

The product provides access to seven funds from Newton, JP Morgan Asset Management and Jupiter, including Jupiter’s Merlin growth fund of funds. A cash fund from Insight investment and three risk-graded portfolios comprising a mix of passive funds from Vanguard are also available. MGM says it is the first in the UK to offer access to Vanguard funds within an annuity wrapper.

Income is fixed for five years and enhanced terms are available to people with impaired health and smokers. There are automatic five-year income reviews, but clients can change their income levels as they move through different stages of retirement. They can also change their investment choices as their needs change, with the option to move to a fixed income basis or to another provider at any time.

A minimum income guarantee will equal the lowest income option available at the start of the plan. Death benefits are similar to conventional annuities, including joint life, where up to 100 per cent of the fund is payable to a spouse or civil partner;  a guaranteed period option where income is guaranteed for up to 10 years, and value protection where the initial investment less income goes to the policyholder’s estate.

Lifetime bonuses could be added because annuities work on the basis of mortality cross subsidy. When policyholders die, the remainder of their fund after any benefits are paid is pooled and shared by surviving policyholders. However, the cost of the death benefits that policyholders select is met by a reduction in the  level of lifetime bonus. Member bonuses are paid because MGM Advantage is a mutual society, with no shareholders. This enables policyholders to share the firm’s profits.

Choice and flexibility are this product’s strength and its investment link to the Vanguard funds could be attractive. However, if policyholders move to a fixed-income basis, they cannot switch back to an investment-linked annuity.

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