Capital access limits - illustration

John, aged 65, buys a new lifetime pension product with $500,000 which commences on 1 July 2018 and is in retirement phase on and from 1 July 2018. His life expectancy is, say, 20 years.

The maximum payout amount is set out in the following table.

Time

Death exit - % of initial investment

Other exit - of initial investment

Comment

1^st anniversary

100%

95%

If exit within first 14 days – 100%

2^nd anniversary

100%

90%

3^rd anniversary

100%

85%

4^th anniversary

100%

80%

5^th anniversary

100%

75%

10^th anniversary

50%

Guarantee period has ended

11^th anniversary

45%

12^th anniversary

40%

15^th anniversary

25%

19^th anniversary

20^th and subsequent anniversaries

Nil

(the maximum cash out figure will be determined in days rather than years – years have been used for ease of illustration)

If the product is cashed out within the 14 day free look period – then the capital payout is 100%

If the investor dies with the first half of the life expectancy period then the payout is 100%. If the investor dies in the second half of the life expectancy period then the payment will be the same as if the investor cashed out the product

If death occurs after the end of the life expectancy period there is no cash out. Similarly if the product is cashed out at or after the end of the life expectancy period – there is no cash out.

The table simply illustrates the maximum payout which is specified by the regulations. It is possible that that a product terms could specify a lower payout amount (though specifying a lower amount may make the product very unappealing to investors and product issuers therefore may not take this approach).