'Advisers back Life Trust's "breath of fresh air" launch'

Financial Adviser, 24th January 2008, by Anna Lawler.

'The increasing life expectancy of the UK population is causing a headache for those preparing to fund their retirement, with one in three people already outliving their finances, estimates suggest. However, Life Trust is claiming its Longevity Income Plan could be just the medicine and is available solely from IFAs.

For a lump sum investment - from £5000 to £1m - an individual can invest into one or all nine of the well-established growth, balanced or cautious funds available through the plan, depending on the individual's risk profile. This is designed to counter the risk of capital erosion into retirement.

The rate of return is expected to be at least 7 per cent, according to Life Trust. Compared to a bond of the same rate minus the bond charges, this should offer about 2.5 percentage points of extra return, it claims.

Andy Briscoe, chief executive of Life Trust, said "The Longevity Income Plan will address one of the key issues facing everyone today; how to finance a longer life. There are more than 11m retired people in the UK, and estimates are that one in three people are already outliving their finances."

"The plan is a genuinely innovative product that will complement the orthodox methods of saving for one's future and help support our quality of life as we all grow older."

Combined with the long-term investment strategy is the allocation of "birthday units," which are additional investment units that arise from the redistribution of investment funds previously held by planholders who have died during the previous 12 months.

The amounts of units distributed on the surviving planholder's birthday will depend on their age, gender and unit holdings at that time.

It is this combination of long-term investment with the redistribution of "birthday units" that Life Trust believes positions its plan so uniquely in the retirement planning market.

While there is no underwriting required, investors must wait a minimum of 10 years after the lump sum investment into the plan before starting income payments.

Investors can also choose between the 'vesting' ages of 75 and 80, which will trigger the bestowing of "birthday units" annually for 20 years.

The plan offers a capital guarantee and return upon death, although the "birthday units" will be redistributed to surviving policyholders.

This plan is designed as a complementary retirement product specifically targeting longevity risk, and not as a stand-alone pension solution.

Of the funds available through the plan, the growth funds are the M&G Global Leaders, HSBC Investments FTSE 250 Index Tracker, and the Newton Managed funds. The balanced funds are the Jupiter Merlin Balanced Portfolio, New Star Managed Distribution and the Gartmore Cautious Managed funds. Finally the cautious funds are the Henderson Strategic Bond Fund A Class and the Invesco Perpetual Monthly Income Plus funds.

Tim Sutcliffe, chief executive of Shrewsbury-based IFA, Pi Financial Dixon Sutcliffe, is impressed.

Mr Sutcliffe said: "This plan is a breath of fresh air in the market that has seen little by the way of product innovation. It will complement clients' existing portfolios and add financial security in old age when a client's existing retirement income may be eroding in real terms.

"The offshore status of the contract gives some attractive tax breaks with the income being treated as a purchase life annuity. The opportunity to place the original investment in trust keeping it outside the estate leads to a positive IHT solution."

"Life Trust has some powerful financial backers, competitive commission/fee structure and a choice of nine leading fund managers they have created a good foundation for success."