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Product Matters: Take Five

Drawing on its successful experiences of variable annuities in the US, where it is a $130bn market, Aegon has just introduced its Five For Life plan, which I feel is an interesting product with some valuable guarantees attached.

The plan is halfway between an insurance bond, offering 5 per cent annual withdrawals, and a purchased life annuity with a guaranteed income for life.

The client has the flexibility to access their investment and there are potential death benefits, unlike a regular purchased life annuity. The premium is invested in a choice of three funds, which are varying mixtures of equities and bonds. There is the potential for any growth that outstrips the not inconsiderable charges and 5 per cent withdrawals to lead to higher income payments in the future.

In reality, this product is not about capital growth, it is about securing a regular income for life and removing the client’s fear of outliving their assets while retaining access to their capital.

As the fund is based offshore, it benefits from gross roll-up. There is no initial charge but it has various annual and establishment charges according to the fund and commission structure chosen.

Five For Life is not a total answer to the problem of funding in retirement but it does offer something different and for that reason it is worth a closer look.

Matthew Woodbridge is bond manager at Chelsea Financial Services


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