Life Trust launches annuity for longevity

by Gill Montia

Story link: Life Trust launches annuity for longevity

Life Trust, a newly formed company that focuses exclusively on meeting the challenge of increasing longevity, is offering savers protection against outliving their retirement savings.

The Dublin-based firm has launched a longevity income plan, which is its first product and distinctly different from a traditional annuity.

Instead of retaining unused capital when an annuity customer dies, Life Trust plans to redistribute investment fund growth accruing to funds previously held by deceased policyholders, to those still alive.

Using this method, investment returns, which are also calculated to increase annually, will provide a rising income as the policyholder ages.

Life Trust’s sales director, Simon Burgess, calculates that this “mortality uplift” could add around 2.5% a year beyond fund returns.

For example, someone investing £50,000 when aged 50 could expect an initial payout of £19,600 by the time they were 80, assuming annual investment returns of around 7%.

The payout would rise to £30,600 by the tenth year and if the policyholder is still alive at 100, the payout would increase to £257,000.

In the case of a policyholder dying before they start drawing from the plan, the original investment is refunded to their estate.

However, if they die before the maximum 20-year payout period ends, their estate receives the original sum, minus any payments they have received.

Life expectancy is continuing to increase and someone aged 55 today has a one in two chance of living to 90, and a one in four chance of living to 95.

According to the Office for National Statistics, by 2031 there will be 40,000 people aged 100 or over, compared to just 300 in 1951.

Life Trust is backed by JP Morgan, RBS and US hedge fund DE Shaw.