5 For Life - This Should Be A Good One!

whiteflag_3

This new product is an offshore investment plan aimed at peolpe over 60 looking for income.

It guarantees income of at least 5% of the initial investment for life

Gives access to capital if required.

If markets do well income can be increased

Being offshore there is no internal taxation like on UK investment bonds

The way income is paid is more tax effiecient than say taking money from a savings account

There is potential for return of capital on death.

Mainy of my clients are more concerned about maintaining income and are less concerned about capital retention, therefore this might be of interest.

I guess if your not looking for an income for life or concerned at losing capital this will not be of interest.

DH you are correct in that on a nil commission basis there is 100% allocation and no establishment charges.

Im was very sceptical about this but having considered it for last 24 hours I cant really see many downsides, but I await responses.


Before shooting from the hip consider what other products guarantee an income for life (HYP has no guarantees) and gives access to capital in the future if circumstances change.

(whiteflag runs for cover :rotfl: )

EdInvestor

Can you use a pension fund to invest in one of these or is it just for ordinary cash (whether tax free or otherwise) - ie an investment bond with guarantee attached ( more or less) ?


WF

On the other thread you say the income will be treated the same as a PLA.This is certainly different from the "income" on an IB, which is wholly tax free as it's actually a return of capital.

With a PLA the part of the payment that is a return of your capital is tax free, and the part that is earnings on the capital is taxed.[With an ordinary pension annuity it is treated as earned income and taxed at your marginal rate]

PLA example

A male basic rate taxpayer aged 65 buys a purchased life annuity with £100,000 as a level annuity, no guarantee, without proportion and paid monthly in arrears. The income he receives is £6,870 gross of which £5,715 is capital and paid tax free.

From the balance of £1,155 the insurance company must deduct 20% from the income element or £231 and pay this to the Inland Revenue. This means the annuitant is left with £6,639, with no further tax to pay resulting in an effective tax rate of 3.4%. This compares very favourably with the 22% tax rate payable on a pension annuity.

whiteflag_3

EdInvestor wrote:

Can you use a pension fund to invest in one of these or is it just for ordinary cash (whether tax free or otherwise) - ie an investment bond with guarantee attached ( more or less) ?

No pension funds , just cash in the same way as an investment bond.

Scot Eq will provide paperwork in the same form as a PLA . Client specific quote showing how much will be interest and capital. their bumph shows on £5000 income at age 60 £460 will be treated as interest. Therefore tax would be £92 for a basic rate taxpayer.

EdInvestor

Hard to see it will attract that much interest then as the 'income' from the IB will be higher, albeit no guarantee.

IMH0 people like guarantees, but they prefer them to be free, at least apparently so

I suppose it might attract some of the people who buy PLAs but there aren't very many of those, are there?

It might do quite well as a replacement for an immediate needs annuity, given the general furore about long term care at present, did you see the alarmist story in the Mail from Help the Aged? Wot a disgrace.

The guarantee might be quite helpful, in that most of the minuscule number of people (4% of those over 65) who actually go into care die within 3 years. So the money-back option would help the family a lot.:)

whiteflag_3

EdInvestor wrote:

Hard to see it will attract that much interest then as the 'income' from the IB will be higher, albeit no guarantee.

IB has fixed income, the 5 for life could increase

IMH0 people like guarantees, but they prefer them to be free, at least apparently so

Agreed especially retired clients of mine. Unlike GEBs that cost of the guarantees on the 5 4 life are fully diclosed.

I suppose it might attract some of the people who buy PLAs but there aren't very many of those, are there?

no because they are worried about dying prematurely- not an issue with 5 4 life.

It might do quite well as a replacement for an immediate needs annuity, given the general furore about long term care at present, did you see the alarmist story in the Mail from Help the Aged? Wot a disgrace.

no i missed that

The guarantee might be quite helpful, in that most of the minuscule number of people (4% of those over 65) who actually go into care die within 3 years. So the money-back option would help the family a lot.:)

I think it might be more attractive to those 65 who fear they might live to a 100!

dunstonh

Still havent read the blurb fully yet. Had it been made available as a pension product then I would thought it was perfect for the middle ground between annuity and drawdown. However, need to read it in more detail to give my opinion.

EdInvestor

I think it might be more attractive to those 65 who fear they might live to a 100!

If these people have their main fund in a low cost and low risk drawdown ( perhaps with a biggish gilt/ property component) then a product like this with a guarantee for the TFC might be worthwhile, the charges are more acceptable when you consider a guarantee is being funded.

So you could just reverse the traditional arrangment: TFC into IB and main fund into plain vanilla annuity could become TFC into guaranteed 5 for life and main fund into drawdown.

To my mind this is the kind of arrangment that will be needed going forward to cope with the longevity/inflation problem.

Paul_Herring

whiteflag wrote:

EdInvestor wrote:

It might do quite well as a replacement for an immediate needs annuity, given the general furore about long term care at present, did you see the alarmist story in the Mail from Help the Aged? Wot a disgrace.

no i missed that

Would that be this one Ed?:

Half of us will sell homes to fund retirement

Daily_Mail wrote:

About 70,000 older people sell their homes every year to pay for nursing or residential care home which costs an average of £21,000-a-year.

But the charity Help the Aged will warn today that numbers are set to soar due to Britain's escalating care home funding crisis.

The study involved interviews with nearly 950 people aged 45 to 65, and asked how they plan to foot the bill if they need care in the future.

In a disturbing finding, 46 per cent said they would be forced to sell their home if they needed to find the money for care fees.
[...]
The study found that nearly half of the 'baby-boom' generation are 'resigned' to the fact that they might have to sell their home.
[...]
Many resent having to sell their hard-won homes to pay for a service which is free to people who have not been burdened by a mortgage throughout their working lives.

The "Half" in the title appears to refer to the 46% who think they might have to sell. This ignores the fact that if their spouse is in the property when they are taken into a home, the property is not included in calculations.

Typical Mail story really.

Now back to your regularly scheduled thread....

whiteflag_3

EdInvestor wrote:

IfSo you could just reverse the traditional arrangment: TFC into IB and main fund into plain vanilla annuity could become TFC into guaranteed 5 for life and main fund into drawdown.

You must be reading my mind!

dunstonh

I saw the Mail article being referred to on the news last night and the paper reviewers were basically saying that it was a typical Mail article that was targetting the average Mail reader rather than focusing on facts.

claretmatt

dunstonh wrote:

Still havent read the blurb fully yet. Had it been made available as a pension product then I would thought it was perfect for the middle ground between annuity and drawdown. However, need to read it in more detail to give my opinion.

I believe that talks are in place with HMRC to make this product available within a pension. Judging by the speed of HMRC this could be 12 months plus