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8 ways to use Flexible Guarantee Funds

    The LV= Flexible Guarantee Funds (FGF) have a structure and unique features to provide an important element of protection and investment security for clients retirement funds – both during the accumulation process before retirement and, more importantly, when clients start drawing down income.

Pension consolidation

For clients consolidating disparate pension assets into one plan with competitive charging and a range of product features.

Flexible Guarantee Funds provide a risk rated solution with protection against market volatility and downside risk. The three funds are risk rated – 3, 4 & 5 by Distribution Technology, so it’s easy to select the appropriate fund to match a client’s attitude to risk. DT have also stated that the smoothing mechanism effectively reduces the risk rating to 2 on all three funds – so clients can get potential equity growth with the security equivalent of gilt based investment.

Blended investment solution

For clients looking for the benefit of the Flexible Guarantee Fund investment features alongside other investment solutions with different features and benefits.

LV= have a range of investment options within the SIPP wrapper including –

  • A mix of passive funds, from pure market trackers to multi asset funds with an element of passive investment, such as the range of Vanguard Life Strategy Funds
  • Discretionary Fund Management options for a more bespoke investment solution
  • A range of insured funds across all market sectors

The averaging mechanism and optional guarantee make the FGF an ideal secure vehicle to sit alongside other investments in a retirement portfolio to provide the necessary mix of potential growth and investment security to match individual client’s needs.

Drawdown in later life

For clients moving through retirement.

It’s likely their attitude to investment risk will become more conservative as they start considering issues such as long term care funding, and inheritance. In these circumstances, Flexible Guarantee Funds can be the ideal investment to provide protection against sudden market volatility and protect the accumulated value of assets – whilst still providing |the opportunity for investment growth.

10yrs before retirement

For clients who are starting to seriously look at retirement scenarios.

They are likely to have built up a decent sized fund, and are researching income options as they approach retirement. They could well be looking for an investment solution that can protect the value of their fund whilst still maintaining the opportunity for investment growth.

With the desire to protect the fund they have accumulated, there is the potential to use the 10 year guarantee option at this stage ensuring that their fund value will be the same at the end of the guarantee term as it was when the guarantee started, but with the opportunity to benefit from fund growth. There is also the opportunity to renew the guarantee at any time to lock in any increase in fund value.

5yrs before retirement

Clients getting closer to retirement for whom the need to protect against downside risk is greater.

With only five years to retirement, there’s less time to recoup any serious investment losses prior to retirement.

The averaging mechanism will protect against any sudden volatility, and a guarantee term more than 5 years. LV= currently offer 8, 9 and 10 year terms, depending on the fund selected (LV= commit to always offering the 10 year option on each fund) meaning that clients can protect their accrued fund value during the crucial period leading up to retirement, and then in the early stage of decumulation when sequencing risk can quickly eat away at the value of a pension fund.

Guaranteed income drawdown

For risk averse clients who want a guaranteed income stream over a fixed period in retirement.

Clients can use the Flexible Guarantee Funds alongside other LV= retirement options within the LV= Retirement Account to provide a guaranteed annual income over a fixed term with a further guaranteed sum at the end of the term so that a consistent and guaranteed income stream can be provided.

Final salary client

For clients transferring a Cash Equivalent Transfer Value into Personal Pension and looking to protect the value of their transferred fund, especially if close to retirement.

Smoothing can guard against market fluctuation through averaging fund prices over a 26 week period, and the Guarantee option can provide ultimate peace of mind by locking in fund value at a set point in the future, whilst retaining the ability to benefit from investment growth.

The transfer of benefits from a Final Salary scheme is liable to be an emotive decision – involving potentially large sums, and one of the biggest financial decisions an individual will take. The client is giving up access to a guaranteed level of income in retirement – risk is being transferred from the scheme to the individual. Flexible Guarantee Funds, with the protection available, can therefore be an attractive option.

At age 55

For clients looking to make use of the opportunity created by Pension Freedom to access tax free cash from their pension through a Drawdown arrangement.

With no plans for any further income withdrawal at this stage, they will be looking for a secure investment vehicle for the remaining fund with opportunity for investment growth but with protection against downside risk.

Flexible Guarantee Funds can provide this with a unique built in smoothing mechanism that averages the fund price over the preceding 26 week period, thus ‘smoothing’ fund performance and helping protect against sudden market fluctuation, and an optional guarantee that allows clients to protect their investment value at the end of a set period.

LV=, County Gates, Bournemouth, BH1 2NF, UK