# Canada Life ARF with lifelong income benefit



## pierboy (24 Jan 2013)

I've been asked by a cousin if this is a good product.  He doesn't want to buy an annuity at retirment because he doesn't like the idea of having their fund disappear on death and because the value looks terrible.  His broker suggested this product which is an ARF with a guaranteed income.  the guaranteed income is less than an annuity but according to the broker it could increase and of course the fund is available on death to my cousin's estate.  I think the charges are very high though 2% per annum so I am wondering if its expensive for what it is.


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## leroy67 (24 Jan 2013)

I quite like the idea of this product as it prevents the ARF ''bombing''  out due to poor investment decisions/market performance. I am not  connected to Canada Life in anyway and in my opinion I feel it's a  clever product however I'm sure you will have some actuarial or  investment professional whose opinion may differ.

Anyway this is my 10 cents worth

There  are three investment strategies ranging from conservative to advanced  (low to high) and if these perform well the lifelong income can increase  due to the lock in feature,so say you take 4% in income but the fund  grows by 8% after charges the additional 4% return is added to your  capital amount and then this is locked in meaning you would receive 4%  of 104% of your capital amount the following years even if the fund was  to continually fall in value in subsequent years.

You have the additional peace of mind knowing that the value of the fund will be paid to the estate in the event of death also.

Approximately  what is the size of your cousins fund and has he guaranteed pension  income in excess of 18k per year to negate having to place monies in an  AMRF?

Assuming he has guaranteed pension income in excess of 18k  per year and say a fund value of 250k he could invest in two ARF's. 175k  into the lifelong income version and 75k into a normal ARF.  

This would mean that he gets the guaranteed income monthly and  if he needed to access monies above the guaranteed income he could  withdraw from the standard ARF. 

By doing something like this he  would not affect his lifelong income by having to take a discretionary  withdrawal from the Lifelong Income ARF.

2% annual management  charge is on the high side however Canada Life are guaranteeing the  income for life and they have a good credit rating AA. Should there be complete stock/bond market Armageddon  they will continue to pay the agreed income like an annuity.


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## Marc (24 Jan 2013)

The question I always ask in situations like this; is it possible to achieve the desired result in some other way?

For example could you purchase a conventional annuity with a 10 year guarantee  for part of the fund and put the rest in an AMRF/ARF.

Or you might be able to purchase an annuity and a whole of life policy to provide some death benefit.

Or you could invest in a globally diversified balanced porfolio and manage your cash withdrawals, risk and costs.

These are just some of the options you should always consider before taking a packaged solution from a life assurance company.

Retirement can be a relatively complex decision process for many people and I can't stress enough the importance of obtaining competent advice that is focused on the needs of your cousin rather than a product producer.

In my view this is a planning decision rather than a product broking decision.


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## pierboy (28 Jan 2013)

Thanks to both of you for giving your views. The fund is about 150K and he will have over 18K from social welfare and his other occupational scheme. He is a bit of a gambler and likes the idea of continuing to invest in the stockmarket.  I am wondering though if he shouldnt just get a straightforward investment type product.  To me this product seems to fall between two stools... 

Either you really need a guaranteed income then the best option is an annuity  (though outrageously expensive). ]

Or if you have alternative income so you can afford to take a gamble then why don't you just get the best value investment product with most fund options out there?


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## leroy67 (28 Jan 2013)

I would argue that investing in a range of top quality assets to  generate a return over the longer term can't be classed as gambling.  Putting 150k on the 3.30 at Haydock Park is gambling. 

Your  cousin can take the higher risk strategy within the CL ARF if he wishes,  any gains he makes over initial investment amount will be locked in and  increase his annual income.

As Marc has said above he can sit  down with a fee based advisor and devise his own portfolio be that  shares, etf's, property, commodities or typical manged funds and he may  lower his annual management charges this way however will have to pay a  fee plus ongoing advisory costs.

Either way he needs to sit down with someone to discuss his options


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## Marc (28 Jan 2013)

Just to be clear, either way there is a cost. The cost of advice is either paid by the client in product charges or through fees paid by the client. It is important not to present the commission option as either "free" or less expensive than paying for advice by a fee.

A typical broker in Ireland today will receive 3% commission for setting up an ARF plus another 0.25% to 0.5%pa ongoing trail commission. For a €150,000 fund that  is €4,500 upfront plus up to €700pa ongoing.

The real cost of these commissions are disguised through allocation rates, bid offer spreads, early surrender penalties, and annual management charges which do not fully reflect the real cost of investment. But, these costs are built into the product charges and the client pays - however it is presented.


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## leroy67 (28 Jan 2013)

Not arguing that fact Marc, 

would hope that the broker is upfront with what commissions he earns and I know there are sharks out there who don't and not debating this issue with you


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## Dave Vanian (29 Jan 2013)

Marc said:


> These commissions are disguised...


 
That's simply not true.  Before any broker can set up an ARF for a customer, the Disclosure of Information regulations require that they issue the customer a table showing the commission *in euros and cents* in years 1 to 5 and a representative table of future years.  Any attempt to disguise the commission is illegal.  

QFMs and life companies can disguise _*their*_ charges in all sorts of jargon but commission to the broker must be set out in euros and cents.


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## leroy67 (30 Jan 2013)

Dave Vanian

going ever so slightly off topic can I have your autograph please, I'm a huge fan of The Damned


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## Dave Vanian (30 Jan 2013)

leroy67 said:


> Dave Vanian
> 
> going ever so slightly off topic can I have your autograph please, I'm a huge fan of The Damned


 


Nice to have a kindred spirit here.  Chose the username as I'm also fan of the other Mr V.  I think I tried to register Eldritch, which would have been my first choice but it was taken.

There's a secondary reason - having worked with filthy lucre since the 1980s, I presume my immortal soul is well and truly Damned...


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