By Jennifer Hill

LONDON (Reuters) - British consumers can now protect themselves against the risk of outliving their retirement savings, with the launch of a new type of financial product.

The longevity income plan, the first product by newly-formed Life Trust, has been designed to deal directly with the financial issues of increasing longevity.

Unlike traditional annuities -- whereby insurance companies keep any unused capital when a customer dies -- Life Trust will redistribute investment fund growth accruing to funds previously held by deceased policyholders to those still alive.

These "birthday units", coupled with investment returns, which are also calculated to increase each year, lead to a rising income as the policyholder ages.

Sales director Simon Burgess said this "mortality uplift" could add about 2.5 percent a year beyond fund returns.

Someone who invested 50,000 pounds when they were 50 could expect an initial payout of 19,600 pounds by the time they were 80, assuming annual investment returns of around 7 percent.

The payout would rise to 30,600 pounds by the tenth year and if the planholder was still alive to receive the final payment 20 years later, at age 100, the payout would have grown to 257,000 pounds.

If a policyholder dies before they start drawing from the plan the original investment is refunded to their estate, and if they die before the maximum 20-year payout period is up their estate is refunded the original sum minus any payments they have received -- meaning people never get out less than they put in.