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Product matters

It is a life product, so it does have to cope with cumbersome pension rules. It combines an offshore bond of at least 10 years, with a 20-year purchased life annuity, so it is pretty tax-efficient.

The contract’s real difference is allocation of birthday units, which are paid from the redistribution of investment funds held by fellow policyholders who have died during the previous 12 months. The actual amount allocated depends on the client’s age, sex and plan value.

If the client outlives the mortality assumptions – and the over 85s is the fastest-growing segment of society– then they will reap the benefits of increasingly disproportionate large annual payments in the plan’s latter years.

There are drawbacks though. Once invested, the client cannot surrender the product in any circumstance. If your client dies during the investment phase, their estate only gets the original investment back – nothing else.

The birthday units are dependent on mortality experience and if these are not realised, then the actual payout may be a lot less.

Unless the investor lives to the product’s final few years – which can be 95-plus – they may have done an awful lot better buying something else.

This is a possible long-stop bet for a small proportion of a client’s assets. If they last the course, they may scoop the jackpot but don’t bank on it.

Nigel Callaghan is a pensions analyst at Hargreaves Lansdown

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