Structured Products as an alternative to Pensions

The use of Structured Investments in portfolios has become more commonplace as these plans offer the potential for better returns than cash deposits, without direct exposure to equity investment.

These are highly customised investments that can be used to compliment conventional assets/investments to diversify existing portfolios by investing in risk adjusted assets that are otherwise difficult to access.

Such plans can be considered for

• Personal investment (possibly via an ISA)
• Pension funds,
• Trust funds,
• Charities,
• Corporate deposits.

The plans clearly define the risk/reward at outset so that an investor can take a reasoned judgement on suitability. Capital protection can be provided on the initial investment.

Structured Investments are established to provide returns for income or capital growth over a fixed period usually 3 – 5 years. The tax treatment of these returns can be on the basis of income tax or capital gains tax. Careful selection of an appropriate plan can minimise tax liability on the investor.

Each plan that comes to market has a limited window of opportunity for investors, although new plans come to the market daily.

An example would be a 5 year capital-protected investment linked to the FTSE-100 index offering a 40% return if the final level of FTSE-100 is at least equal to or above the initial index level.

On this particular example, as capital is protected at maturity, the full amount of capital is returned regardless of the performance of the FTSE-100 index. If the final index level is below the initial index level, the investor would still receive the full return of capital at maturity. At the end of the term, if the final level of the index is the same as or higher than the initial index level, a 40% return is achieved.

This information does not constitute personal or individual investment advice. Please contact us for further information on this or any other aspects of your financial planning, which you may require assistance with.

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