Manulife Income Plus: An Insider’s Look at Guaranteed Minimum Withdrawal Plans
July 28th, 2008 | by Editor |Many Canadian financial advisors are being asked about the Manulife Income Plus product, which has received a lot of media attention of late. We asked, and compiled some comments from financial planners in the material below.
Guaranteed minimum withdrawal benefit (GMWB) plans closely resemble the variable annuity contracts available in the U.S., and they also have some features of segregated funds. In general, they are aimed at the conservative investor, those over the age of 55 and nearing retirement. The products combine a guarantee with some growth potential.
Some of the benefits of GMWB plans (in this case the ManuLife Income Plus) include:
Predictable income guaranteed not to decrease no matter how investments perform: You will receive your investment principal back through regular payments over a period of no less than 20 years. In addition, if you delay the commencement of your regular withdrawals you will receive a 5% increase in your guaranteed withdrawal balance each year that you defer withdrawals, to a maximum of 10 years.
Sustainable income that will last for life: your principal is guaranteed.
Potentially increasing guaranteed income to help offset inflation: If your investment portfolio grows, you have the opportunity to reset your guaranteed withdrawal balance every three years.
Benefits that ensure the smooth transition of your estate: Your investment proceeds pass directly to your named beneficiaries without the time delay and expense of probate.
The flexibility to change your investment: You can switch between funds or fund managers at any time. Fund managers include Franklin Templeton, CI Investments, Fidelity Investments, AIM Trimark and Mackenzie Investments.
The Best of Both Worlds?
Can investors really have their cake and eat it too? That is, get a guaranteed investment that will offer strong returns? The short answer is that there are always some trade-offs where investment guarantees are involved.
One drawback that you won’t hear in the marketing pitches for these products is the high management expense ratio (MER). The MER goes toward paying the fund’s operating expenses, including trading fees, salaries and commissions for staff, and promotional costs. The MER is subtracted from the fund’s total return before it is posted.
MERs for Guaranteed minimum withdrawal benefit (GMWB) plans tend to fall in the 3.2% or 3.3% range. Sure, nearly all investment products have some form of MER, but not that high. According to a 2007 article from The Globe & Mail, “The average MER among equity and balanced funds in Canada is estimated at 2.6 per cent.”
This high MER reduces your ability to benefit from strong markets. While it’s always nice to have a guarantee, receiving your principal back after several years is not so comforting when the effects of inflation are taken into account.
14 Responses to “Manulife Income Plus: An Insider’s Look at Guaranteed Minimum Withdrawal Plans”
By Alex on Jul 31, 2008 | Reply
My advisor recommended Manulife Income Plus to me but after looking into it, I think I’d be better off without it and stick with mutual fund investments. Of course, everyone has their own risk tolerance and the guarantee is attractive.
By David Cook on May 1, 2009 | Reply
Manulife sales people forget to tell clients that if they withdraw a penny more than the guaranteed 5% GLWB, they lose the guaraneed amount and annual accumlated bonuses. This isn’t so with Desjardin’s or Sunlife’s product.
By Alison Watts on May 22, 2009 | Reply
A couple of things written here are incorrect. The MER’s for Income Plus are no higher than average. THere is a small fee to pay for the guarantee which, in my opinion, definitely makes the protection worth it. My investment has already grown since December, by just about 5%. It may not sound like much, but it beats the heck out of losing! BTW….Sunlife does lose it’s guarantee if you withdraw over 5%. With Income Plus, you get a warning and then, if necessary, you can recalculate your guarantees. They do not disappear.
Thanks
By Dan Zwicker on Aug 25, 2009 | Reply
14,000,000 boomers are preparing to retire – in distress. The assumption that asset growth is an exponential curve up and to the right was shattered during the 2009 meltdown. IncomePlus covers this market certainty. The insured product (The Third Asset Group) has always covered this risk. This year the public became painfully aware of the reason behind the need for guaranteed lifetime income. Income Plus provides it – notwithstanding its MERS.
By Philip Razon on Aug 25, 2009 | Reply
For anyone with a GIC mindset Income plus is a common sense solution. Taxation wise income plus held in a non-registered account performs much better than GIC’s. Income Plus is a valuable base investment plan for retirement, accent this with a growth portfolio in early years you have a formidable sustainable and predictable asset.
By dj on Oct 27, 2009 | Reply
Just a few things your adviser will not tell you, mers have have gone up as of Oct 2nd. , you will be paying 375bp plus if your in V 1. more if your in V2 to V5 plan. All new plans will only pay out 4 and half % and if you want to get out of this plan, it will cost you 6% of your total
By Asset Protection Plan on Nov 12, 2009 | Reply
Great post. I’ll put you on my bookmark. And also, I’ll let my friends read this. This is an interesting fact that we all should know. Thanks.
By Estate Taxes on Nov 12, 2009 | Reply
Great. It’s a great thing that you’re sharing this to evryone. Cheers!
By Bob Hlina on Jan 21, 2010 | Reply
Just a comment to or two to dj. If your advisor doesn’t disclose important things he should be fired. I am an advisor/broker and I am telling you & my clients that the new series does not charge you 375 basis points. The mximum all in cost for ip including fee is 3.55%. Cheaper if you take less risky product. Most expensive mer is 2.70%. The fee went up .10% not the mer. Mer’s stayed the same.
There are only V1 and V2. Single life payout 5%. Joint is 4.5 (and has to be chosen by client when contract is opened). If sold Dsc penalty to get out of contract is 5% declining to 0 over 6 years. There is front-end and low load options available as well.
In reference to by “taking out a penny more than 5%”… you simply have less guaranteed principle amount by that amount.
You also have a choice of 38 portfolio’s from simple money market to 70% equities managed by some of the best names in the industry from AGF to Mawer and of course Manulife and you can switch around.
This is an excellent product put out by one of the largest Insurance Companies in the world. Not to say this is the only company I deal with, just wanted to clarify some of the misconceptions stated on this product.
By Tsunami on Jul 10, 2010 | Reply
I noted on the web that most of the negative postings were made when the markets were in booming mode prior to 2008.
I sure do wonder if these same folks have the same opinion now that things have gone to hell and we are likely to have a double dip.
We are in our third year and have never touched a nickle and while the funds are up and down like a toilet seat no more than most of the other products out there. The bonuses have covered the MERs and a bit.
Capital preservation is the name of the game now. Yes, I would prefer to be making bit coin but this has kept most of my capital.
By Elfin on Oct 1, 2010 | Reply
So Tsunami…
I am faced with the opportunity of taking my pension monies of 20 years out and reinvesting in something…like Income Plus. 400K worth.
Still working another 10 years I would suspect…so the possible growth and the guaranteed payout are something I am considering…
Are you happy with this product?
By Morecash on Oct 18, 2010 | Reply
Hi Elfin
I have been in this poduct for almost 4 years now and have my (very) small fortune split between Manulife Income Plus and Sunlife Elite. There is some truth to the point that the cost of these products can be a consideration, however I know that my retirement funds are going to be there when I need them, provided these companies don’t go out of business. I also have an additional $200K in a Fixed Income and Equities portfolio that I manage myself. I have it balanced out at 70% Fixed and 30% Equities. I have a mix of ETF’s covering the TSX, the S&P 500 and some blue chip Canadian stocks paying nice dividends. Having my hand in this little pocket of cash allows me to experience the ups and downs of the market knowing that the main part of my retirement funding is secure.
You need to make your decision based on your assessments and needs, just thought my experience might add to your assessment process.
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