Metlife takes third way
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MetLife’s freedom income plan is a fixed-term annuity providing a regular fixed or annually increasing income of up to 8.5 per cent a year over a term of three to 25 years.
The plan operates under the capped drawdown pension rules that allow people to invest their pension funds and take income from them at the same time. The maximum permitted income is based on limits published by the Government Actuary’s Department and takes in to account the client’s age, gender, returns from gilts and the size of their pension fund. It is similar to the level of income clients would receive from a lifetime annuity.
The Metlife product enables clients to defer the purchase of a lifetime annuity and receive a guaranteed maturity amount at the end of the term if they or their dependent survives, with no investment performance risk.
Defaqto insight analyst for wealth management Andy Leggett says: “Drawdown offers freedom and flexibility but comes with significant risks and responsibilities. Annuities bring certainty and irrevocable inflexibility. Third way products like Metlife’s fill the middle ground but it isn’t a free lunch, it’s always about suitability.
“The minimum purchase price is lower than potential alternatives from Aegon, Axa and Aviva but double Just Retirement’s £10,000 minimum. Like similar products, the income is relatively inflexible – either level or with a rate of escalation fixed at the outset. There is no investment choice, just a guaranteed maturity value at the end of the term.
“The flexibility of the freedom clause to cope with changing circumstances has significant potential attraction. But advisers will need to consider the cost of the guarantee, which is implicit and difficult to calculate; the uncertainty over the level of income the guaranteed maturity value will be able to purchase and the potential risk of continuing low interest rates, particularly if clients remain in good health.
“That said, increasing longevity, a later kick-in point for mortality cross-subsidy and longer retirements will force clients to look at alternatives to conventional annuities.”
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