Aegon, the insurer, is launching a retirement plan that offers pensioners a guaranteed annual income of 5 per cent for life, like an annuity, but with the added benefit of access to capital at any time.

The Five For Life plan, to be launched tomorrow, takes its lead from America, where schemes of this type have attracted a total of $133 billion (£70 billion).

Peter Dornan of Aegon said: “It is designed to provide the security of a lifetime- income guarantee while retaining the investment flexibility and control that many people desire.”

However, some advisers have criticised it as an expensive way to secure an income, with one describing it as a “throwback to the high- charging plans of the 1990s that fell into disrepute”.

Annual charges on the underlying funds range from 2.25% to 1.55%. Financial advisers who sell the product can receive a commission of up to 6.75%.

But Stuart Bayliss at Annuity Direct, an adviser, said plans of this type would be attractive to some pensioners.

You cannot invest your pension fund in the plan, so you must use cash outside your pension to open a scheme. The minimum investment is £15,000 and you cannot take the 5% income until the age of 60.

Bayliss said: “If you need to top up your pension income, it could be useful. However, you could achieve the same result, and at lower cost, by investing in your own mix of cash, bond and equity funds.”

Investors in the Five For Life plan will be able to invest in three funds, each with different amounts in shares and bonds. A fourth option offers a guarantee of 4.5% but with a higher equity exposure.

The annual payments will eat away at your lump sum unless investment returns of more than that amount are achieved. But if the pot of money runs out before the saver dies, Aegon will continue to cover the guaranteed payment.

If the investment does well there is the ability to “lock in” growth every three years and receive a higher guaranteed income. Say your fund is worth £100,000 at the age of 60. You can take a guaranteed income of £5,000. Three years later the fund is worth £110,000, which will increase the guaranteed income level to £5,500. That is then protected for life, even if your fund value subsequently falls.

Unlike with an annuity, any money remaining in the scheme can be passed to family members when you die, though there may be an income tax and inheritance tax charge.

Savers can withdraw their money from the product at any time but again this might result in a tax payment.

For more on pensions visit www.timesonline.co.uk/pensions

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