Income for Life brings together the guaranteed income of an annuity with the death benefits and opportunity for investment growth of an unsecured pension.
What is Income for Life?
Income for Life is a three-part plan that will last your clients’ lifetime. Until they reach age 75, it’s an unsecured pension (USP) plan with a guaranteed income. When they reach 75, they can choose to still receive the guaranteed income and move to either an Income for Life Annuity or Income for Life ASP or they can give up the guaranteed income and move into a conventional annuity or ASP. Your clients can also decide to take their guaranteed income from an Income for Life Annuity at any time.
The diagram below shows the choices.
What Income for Life gives your clients
It brings together the best aspects of all these products and more besides:
- the certainty of a guaranteed income for life
- the potential to ‘lock-in’ increases to their guaranteed income if investment returns are good
- the knowledge that any increases in their fund won’t be capped and if their fund value falls, their guaranteed income level won’t
- the safety net of knowing that their guaranteed income level will never fall (though there are certain events that could mean their income could fall)
- the potential to leave an inheritance from their pension fund to their dependants
- a choice of investment funds to suit most risk profiles
- the ability to carry on their guaranteed income after age 75 through an Income for Life Annuity or Income for Life ASP
How does Income for Life work?
When the plan starts, we’ll record the value (this is the amount of the transfer payment less any tax-free cash taken). This amount is the first highest-recorded cash-in value (HRCV). Every year, on the plan’s review date, we’ll work out the cash-in value of the plan at that time. If the cash-in value has increased from the last-recorded HRCV, we’ll reset the HRCV using the higher amount. If its value has fallen, we continue to use the previous HRCV. In other words, we always use the latest HRCV (as long as none of the events that could affect the guaranteed income level have happened – see below for details).
When your client first starts to take income under the plan, we work out the guaranteed income percentage. You can find details of the percentages in the product details section. That percentage is applied to the HRCV at that time to give the guaranteed income for that pension year. We carry on reviewing the HRCV at each plan review date, so if the cash-in value increases because of good investment performance, your client’s HRCV could increase, and the guaranteed income level would rise.
Below you’ll see two different hypothetical investment scenarios. We’ve used these for illustrative purposes only to show you how Income for Life works. We can’t guarantee them. They aren’t a recommendation or personal advice.
Graph A shows how the guaranteed income level could rise when the fund has good investment growth. As you can see, the level of guaranteed income has risen over the years. And even when the cash-in value has dropped, the guaranteed income level hasn’t.
Graph B shows how your clients could benefit from the certainty of a guaranteed income if the value of their pension fund fell. The guaranteed income level hasn’t fallen although the cash-in value has.
Your clients’ income is guaranteed with Income for Life but their fund value isn’t. There are also certain events which could cause their guaranteed income to fall:
- the client takes out extra income above the guaranteed level
- a pension sharing order is made against the plan and part of the fund under the plan is to be paid to a former spouse
- the client buys an annuity (conventional or Income for Life annuity) at or before age 75 or moves to Income for Life ASP at age 75, and in any of these circumstances their fund is more than the available lifetime allowance
- some of the 1,000 policies that exist under the plan are cashed in to buy a conventional annuity or transfer to another plan
If the guaranteed income exceeds the maximum GAD limit we’ll contact you and your client to let you know what action we’ve taken and what options are available. For more information on the options available please see your Income for Life financial adviser guide.
