The new guaranteed income base growth only applies to new customers not yet taking benefits, said Aegon. If growth exceeds 3.25%, savers will receive the higher amount.
Aegon said the chance for a customer to receive an increase to their annual income figure post-retirement has also been raised due to a revised system for reviewing performance.
Investment performance will no longer be reviewed annually, with a new income figure being locked in, and therefore guaranteed only if the capital value is higher than a year previously, but on a monthly basis, with the highest monthly investment value over the past year being locked in instead.
Aegon, which administers the plan through its offshore Irish business, has also added specific income levels based on age, beginning when people reach 60 and rising by 10 basis points in each of the five following years and by 5 basis points each year following.
At 60, 3.60% income will be guaranteed, rising to 4.75% from age 79 onwards. Previously income levels were grouped into brackets of five years.
Aegon originally launched what is now the Secure Lifetime Income as ‘5-for Life’ in 2006, offering a guaranteed annual income of 5% a year until death. However, it renamed the plan last year and introduced a ratchet system for the guaranteed income.
The move was taken because of the increasing cost of buying the market hedging and derivatives to provide the guaranteed income.
Aegon, though, remains a strong believer in the variable annuity concept, stating that market volatility and low interest rates, make income guaranteed retirements products particularly attractive.
Gordon Greig, head of individual marketing for AEGON, said: “A guaranteed income is more important than ever for people as they approach retirement, given current low interest rates and stockmarket volatility.
“But the next generation of retirees are looking for more. AEGON Secure Lifetime Income also offers control over where money is invested, the potential to benefit from stockmarket growth, and access to capital.
“As we refocus our strategy on the ‘at-retirement’ market, unit-linked guarantees will continue to be a key part of our proposition.”
Below is an example, provided by Aegon, of the product’s income growth potential as a result of the new 3.25% capital guaranteed growth. It assumes a £100,000 initial investment at age 55, with no adviser commission paid and income taken from age 60.
|
Best investment performance recorded over previous 12 months (excluding the effect of charges) |
Fund value |
Income base (the figure that income will be based on) |
|
Year 1 minus 10% |
£90,000 (original investment minus 10%) |
£103,250 (initial investment plus 3.25%) |
|
Year 2 growth 10% |
£99,000 (previous fund value plus 10%) |
£106,500 (previous year locked-in income base level plus 3.25% of initial investment) |
|
Year 3 growth 15% |
£113,850 (previous fund value plus 15%) |
£113,850 (fund value has exceeded previous locked in value plus 3.25% of initial investment, so higher amount locked in) |
|
Year 4 minus 5% |
£108,158 (previous fund value minus 5%) |
£117,100 (New fund value lower than previous locked-in value, so additional 3.25% of initial investment added) |
|
Year 5 minus 5% |
£102,750 (previous fund value minus 5%) |
£120,350 (New fund value lower than previous locked-in value, so additional 3.25% of initial investment added) |
|
Starting income at age 60 |
3.6% of £120,350 (figure which income is based on = higher of fund value and income base) |
£4332.60 (this equates to 4.33% of the original £100,000). This income level cannot fall (unless additional withdrawals are made), but can increase, and is guaranteed for life |
