MetLife UK managing director Dominic Grinstead says market volatility has provided an ideal opportunity for the firm to launch a fixed-term annuity to replace Living Time’s product.
Later this month, MetLife will introduce the freedom income plan, a fixed-term annuity which includes an option for customers to transfer out at any time if they have qualified for an enhanced annuity. In May, Money Marketing revealed that Just Retirement was launching a similar product.
The new product will replace the fixed-term annuity that MetLife has been distributing on behalf of Living Time.
Grinstead says the numbers of people who are reaching retirement and want to pause before making their final choice of retirement income is set to grow substantially and with markets so volatile, this option will be particularly welcome for many clients.
He says equity market volatility has cut the value of retirement pots at the same time as falling gilt yields have put more pressure on lifetime annuity rates.
Grinstead says: “The events of August have produced historically low gilt yields and that has had an impact on lifetime annuities. There is still a huge number of 60 to 65-year-olds retiring at the moment and the combination of these two things means the actual point where people are considering buying a lifetime annuity is maybe five to 10 years later than it was even before the financial crisis.
“Our own research suggests this is a market that will grow significantly over the next year or two to be a billion-pound market in 2013.”
Grinstead says the new product has been developed in response to consumer demand which suggested people like fixed-term annuities but wanted more flexibility, particularly over ill-health.
Living Time chief executive Kim Lerche-Thomsen says: “The Living Time product will cease and the MetLife product will come in to replace it. This is the logical next step. It has been a very good relationship but at some stage both parties would grow up and do their own thing.”
He says the replacement of Living Time’s fixed-term annuity does not signal a withdrawal from the market but the company will focus its attention on pushing the Offer More Options initiative, through the Pensions Income Choice Association, and is looking to develop new products either in partnership with MetLife or separately.
Grinstead is bullish on the prospects for the new product and the growth prospects for this section of the retirement market. He anticipates the typical client will be in their late 50s or 60s and will have a pension fund worth between £50,000 and £100,000. As a result, he says clients for the plan will not affect demand for the company’s guaranteed products, which have just passed £2bn in sales.
Grinstead says: “Those are clients who are prepared to accept a degree of investment risk. The unit-linked guarantee helps mitigate that risk but the benefit of a fixed-term annuity is there is no investment risk at all. A client can be very clear when he invests the money what he will get back at the end of five or seven years, whatever the term may be.”
The trade-off for security of income and a guaranteed outcome is lower rates from a fixed-term annuity but Grinstead says the benefit is that retirees are not tying up their money for a prolonged period.
He says: “Innovation is core to what we do. We have grown our business on the strength of product innovation and expect to continue to do that. I would hope to have some further news on innovation early in the new year.”