• Retirement income protected from investment volatility
• Certainty of a guaranteed income for life even if markets fall
• Guaranteed income can rise if investment performs well
• Control of investment
• Inheritance benefits available up to age 75

AEGON today announces the launch of its new retirement solution product, ‘Income for Life’, which offers customers a guaranteed income for life and control of their investment up to age 75.

‘Income for Life’ bridges the gap between annuities and income drawdown products. It has been designed to meet the needs of people between the ages of 55 and 70 with pension savings over £50,000 who don’t want to give up investment control and valuable inheritance benefits, but still want the security of a guaranteed income. It provides a guaranteed income for life – regardless of what happens to the underlying investment or how long the customer lives – and allows the customer to keep control of where their money is invested up to age 75. It also provides comparable inheritance benefits to an income drawdown product. This combination of certainty around a guaranteed lifetime income and the flexibility and control of investment that ‘Income for Life’ provides, improves and increases the range of options available to people drawing income in retirement.

There are two guarantees built into ‘Income for Life’. The first is a guaranteed level of income that cannot fall. The second is an income escalator feature that allows income to increase each year if underlying investments perform well. If the income increases as a result of positive market performance, the higher income amount is then locked in and then has the potential to grow further. There is no ‘cap’ to market performance; therefore customers will participate fully in any growth.

The guaranteed income level depends on whether the customer chooses a joint life or a single life plan and when they start taking income. For those customers who choose a single life plan and start taking income at age 60, the guaranteed minimum income level is 5% for life. (Further details of income levels can be found in notes to editors section.)

Unlike an annuity, where income is paid for by pooling mortality risk, ‘Income for Life’ achieves the guaranteed lifetime income by charging a small amount each year. The cost for the guarantee ranges from 0.5% a year to 1.6% a year, depending on the chosen funds’ exposure to equity; the lower the equity exposure, the lower the cost of the guarantee.

Mike Douglas, AEGON UK At Retirement Managing Director said:

“We recognise that people’s lifestyle patterns and retirement needs are changing as people are living longer more active lives. People need certainty of income but also want investment flexibility. Adding ‘Income for Life’ to our range of retirement income solutions underlines AEGON’s position as a leading player in the UK retirement market.

“Watson Wyatt currently estimate the UK retirement market is worth about £14 billion, and this is expected to grow substantially year on year. We believe ‘Income for Life’ and other similar retirement products are likely to suit about 10% of that market and we recognise the growth potential. The concept of guaranteed drawdown products such as ‘Income for Life’ is gaining momentum in the UK. We intend to make sure AEGON stays at the forefront of developments.”

The concept of providing a guaranteed lifetime income whilst retaining investment control was brought to the UK by AEGON in September 2006 with the launch of its award winning investment plan, ‘5 for Life’. ‘Income for Life’ builds on this model and offers customers at retirement something they have not had until very recently: Control, flexibility and certainty in one product, the combination of which previously was not available.

Notes to editors

• Because people are living longer and healthier lives, financial planning for retirement is becoming increasingly difficult and there is a real risk that people may outlive their assets in retirement.
• AEGON’s ‘Income for Life’ addresses this risk as it offers a guaranteed income for life and investment control. It bridges the gap between the guaranteed income of an annuity and the investment flexibility of income drawdown.

Product details:

• Available from age 55 to 70.
• Accepts transfers from existing UK pension plans.
• Choice of 9 funds covering a range of risk profiles.
• Income escalator feature which allows customers to potentially benefit from good investment performance and receive an increase to their guaranteed lifetime income level.
• There is an extra charge for the guarantees, which is dependent on the choice of underlying fund. See later table on charges
• Policyholders have flexibility in choosing when to start taking a regular income; they must however start to receive a regular income by age 75.
• Any tax-free cash required must be taken before policyholder’s money is invested.

Benefit of ‘Income for Life’ versus income drawdown

• Income drawdown investor runs the risk they will have to reduce their future income level (probably when they can least afford to do so).
• Example
  60 year old male
  Income drawdown
  50/50 fund
• Regular income of 5% of original investment each year
  1 in 5 chance of having to reduce their income level before or at 75 (1 in 4 for female). Source: AEGON

Income guarantee has 2 components:

• (1) Basic guaranteed annual income level. There is both a single-life and a joint-life income guarantee option. Under each option the basic income guarantee is based on the original investment (after tax-free cash), and is dependent on the age of the investor when they start taking a regular income.
• (2) Income escalator feature. If the cash-in value at the latest policy review date is above the highest cash-in value recorded at previous review dates, the customer’s guaranteed income level will be based on the new highest cash-in value.

Options before age 75

• Each year, the customer can take a regular income of between zero and their current guaranteed income level.
• Each year, the customer may not withdraw more than the GAD limit applicable to them in that year.
• Customers may switch funds at any time.
• They retain the right to cash-in all or part of their policy and use the money to buy an annuity or income drawdown with AEGON or another UK pension provider. Note that this results in any income guarantees being lost.
• When the customer dies, the plan provides their dependants with a choice of inheritance benefits based on which of the two guarantee options the customer selected at outset, and the value of the plan.

Options at age 75

• Option 1: Transfer to an Income for Life Alternatively Secured Pension (ASP) policy – Same guaranteed income but with restricted inheritance benefits.
• Option 2: Transfer to an Income for Life annuity - Lifetime annuity amount is equal to their current guaranteed income level. The customer loses access to their underlying fund.
• Option 3: Cash in the plan and use the money to buy an annuity or ASP policy with AEGON or another UK pension provider. This results in any guarantees for that money being lost.

Basic guaranteed income levels:

Investment choice:

• The product will offer a choice of four passive equity funds, four active equity funds and a cash fund.
• The passive equity funds will consist of UK equity tracker and fixed interest investments.
• The active equity funds will consist of a Morningstar equity fund of funds (covering a range of equity markets worldwide) and fixed interest investments.

Product charges:

• Guarantee charge – varies according to fund choice.
• Annual fund management charge (dependent on fund(s) selected).
• Any commission charge will be calculated using a menu-based approach consistent with AEGON’s current income drawdown product – A combination of initial and implicit fund-based renewal commission may be selected and financed via a combination of initial charge, annual charge and (4-year) establishment charge.
• Surrender charges apply where commission is paid for by either the annual or establishment charge.

AEGON UK has assets under administration of £52.3 billion and employs around 4,500 staff. AEGON UK is part of the AEGON Group, which is one of the world’s largest listed insurers and has assets under management of £245 billion.

For further information

Mark Locke
Personal Finance PR Manager
AEGON Press Office
T. 0131 5493766 | M. 07740 897986
mark.locke@aegon.co.uk

Margaret Robertson
PR Manager
AEGON Press Office
T. 0131 549 6798 | M. 07740 897527
margaret.robertson @aegon.co.uk