Type: Fixed-term annuity
Minimum investment: Lump sum £20,000
Minimum-maximum age: 55-84
Minimum term: Three years
Minimum-maximum income: No minimum-subject to GAD limits
Income frequency: Monthly, quarterly, every four months, half-yearly or yearly
Options: Dependant’s benefits, freedom clause enabling access to pension fund before the end of the term if policyholder becomes ill and qualifies for enhanced terms on a lifetime annuity or if a dependent dies within the term, value protection providing initial investment less any income upon death of policyholder and any dependents, guaranteed period option to ensure the current value of future payments for a period of one month to 20 years, which are paid out as lump sum on death, level or increasing income
Commission: Initial 3% to 6% depending on length of product term
Tel: 0845 370 6040
MetLife’s freedom income plan is a fixed-term annuity that gives clients the flexibility to transfer to another retirement product before the end of their selected term if they become ill and qualify for enhanced terms on a lifetime annuity, or if the dependant attached to the plan dies.
The company says that unlike general drawdown, it provides no investment performance risk and allows clients to reassess their income requirements for their later retirement years.
Discussing the fixed-term annuity market in general, Informed Choice managing director Martin Bamford says: “Fixed-term annuities are still a relatively new concept in the UK market and this type of product has failed so far to gain traction with advisers or investors.
“The combination of known income for a fixed term with a guaranteed amount on maturity should appeal to some investors who don’t want to buy a conventional annuity with rates so low and who don’t want the inherent risks associated with unsecured pension.”
Bamford feels that the freedom clause feature, which allows investors to cancel the plan early if they qualify for enhanced annuity rates or their dependent dies, adds a useful degree of flexibility to the plan. However, he is not a big fan of fixed-term annuities, which he describes as half-way products. “In my experience clients prefer the lifetime certainty of a conventional annuity or the investment control associated with unsecured pension,” he says.
Bamford also believes it is potentially dangerous to use the term ’guaranteed’ with any financial product, as the strength of guarantees will always depend on the strength of the provider. “Advisers need to take particular care recommending this type of plan to cautious investors. It is often difficult to conduct the necessary level of due diligence in order to fully understand the associated risks of opaque third-way products,” he says.
Considering which products are likely to provide the main competition for Metlife, Bamford says: “This is a rapidly evolving market, with some providers removing their products from the shelf after a relatively short period of time. Until the market becomes better established, it is difficult to assess the competition.”
Summing up, Bamford says: “Comparing third-way products is difficult as an adviser, because they all tend to offer different core and additional features. The ’guarantees’ they offer can apply to income, capital or both. These products need to become more transparent in terms of how they provide guarantees and the adviser remuneration.”
Suitability to market: Average
Adviser remuneration: Average