Question
AXA has apparently launched Lifetime Income and Capital products, which they say "allow customers to get a guaranteed income while preserving control of the assets and the potential for upside growth in those income payments over the life of the contract."
I couldn't find any details on AXA's website (perhaps because I wasn't sure what I was looking for), but I suspect that, as with most 'guaranteed' products, I would want to avoid them, either because they cost more or they limit in some way the level of growth you get.
What exactly are these products and how do they differ from guaranteed annuities or income drawdown?Answer
I think what you're referring to are the two recently launched AXA 'Secure Advantage' products.
The first aims to protect your capital over 10 years, so might be used in the run up to retirement or during retirement if you don't need to convert your entire fund to income straight away.
The second offers a lifetime of income, like a conventional annuity, but leaves your money invested so you could benefit from any future growth - a so-called 'variable annuity'. Unlike a conventional annuity, it's not a one-off decision. If you change your mind in future you should be able to get a cash transfer value that you can take elsewhere (because your money is still invested).
I can't get any information either via AXA at present, but the main issue with these types of policy tends to be charges. You'll face charges for the underlying investments (typically 1% - 1.5% a year) plus the cost of protection and other pension charges, which could be another 2% or more. My concern is that if costs run at between 3% - 4% a year the chances of making any worthwhile headway are slim.
The underlying investments usually have a cap on how much can be invested in stockmarkets (I've read that AXA is limiting the capital protected plan at 50% and the lifetime income plan at 60%) which, coupled with high charges doesn't bode well for longer term returns.
Conventional annuities might be getting bad press at present due to the low rates on offer, but they do benefit from being simple and you'll know exactly how much income you'll receive for the rest of your life.
Drawdown means leaving your pension invested and instead drawing an income, within certain limits, as required. If performance is good then you might do better versus buying an annuity, but of course the reverse might be true. Basically, it means taking a risk.
Variable annuities use drawdown, but various investment techniques (in some cases the purchase of a short term annuity) are used alongside conventional investments to provide a minimum income guarantee while leaving your money invested (as described above). While this sounds like an ideal compromise, if performance is poor and/or charges are high you could still end up worse off versus buying an annuity, so there's still some risk.
I've yet to be convinced by variable annuities. Insurers and advisers might like them as they're generally more profitable than conventional annuities (for them, not necessarily you!), but I think there's still too much potential uncertainty (after charges) over future returns and income levels for them to be a worthwhile mainstream alternative to conventional annuities or drawdown.
AXA has apparently launched Lifetime Income and Capital products, which they say "allow customers to get a guaranteed income while preserving control of the assets and the potential for upside growth in those income payments over the life of the contract."
I couldn't find any details on AXA's website (perhaps because I wasn't sure what I was looking for), but I suspect that, as with most 'guaranteed' products, I would want to avoid them, either because they cost more or they limit in some way the level of growth you get.
What exactly are these products and how do they differ from guaranteed annuities or income drawdown?Answer
I think what you're referring to are the two recently launched AXA 'Secure Advantage' products.
The first aims to protect your capital over 10 years, so might be used in the run up to retirement or during retirement if you don't need to convert your entire fund to income straight away.
The second offers a lifetime of income, like a conventional annuity, but leaves your money invested so you could benefit from any future growth - a so-called 'variable annuity'. Unlike a conventional annuity, it's not a one-off decision. If you change your mind in future you should be able to get a cash transfer value that you can take elsewhere (because your money is still invested).
I can't get any information either via AXA at present, but the main issue with these types of policy tends to be charges. You'll face charges for the underlying investments (typically 1% - 1.5% a year) plus the cost of protection and other pension charges, which could be another 2% or more. My concern is that if costs run at between 3% - 4% a year the chances of making any worthwhile headway are slim.
The underlying investments usually have a cap on how much can be invested in stockmarkets (I've read that AXA is limiting the capital protected plan at 50% and the lifetime income plan at 60%) which, coupled with high charges doesn't bode well for longer term returns.
Conventional annuities might be getting bad press at present due to the low rates on offer, but they do benefit from being simple and you'll know exactly how much income you'll receive for the rest of your life.
Drawdown means leaving your pension invested and instead drawing an income, within certain limits, as required. If performance is good then you might do better versus buying an annuity, but of course the reverse might be true. Basically, it means taking a risk.
Variable annuities use drawdown, but various investment techniques (in some cases the purchase of a short term annuity) are used alongside conventional investments to provide a minimum income guarantee while leaving your money invested (as described above). While this sounds like an ideal compromise, if performance is poor and/or charges are high you could still end up worse off versus buying an annuity, so there's still some risk.
I've yet to be convinced by variable annuities. Insurers and advisers might like them as they're generally more profitable than conventional annuities (for them, not necessarily you!), but I think there's still too much potential uncertainty (after charges) over future returns and income levels for them to be a worthwhile mainstream alternative to conventional annuities or drawdown.
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income while preserving control of the assets and the potential for upside growth in those income payments over the life of the contract." selling annuity payments
ReplyDeleteSure conventional annuities are getting bad at present due to the low rates on offer when Selling Annuity Payments.
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