Guaranteeing retirement options for clients
The year ahead will see a period of rapid legislative change for the pensions market with changes on the way for public sector pensions, the calculation of pension inflation and compulsory annuitisation at age 75. There are also plans for an overhaul of state pensions including the restoration of the link with average earnings.
It all adds up to a great opportunity for the Government and providers alike to introduce increased flexibility in retirement options and just as importantly to encourage saving for retirement. Legislative change should encourage providers to launch new retirement and investment options to enable clients to benefit from increased flexibility.
Advisers have a vital role to play in helping clients to achieve the retirement they want and guaranteed options will increasingly playing a more important role in retirement planning. With the FTSE-100 recording a strong year climbing around 9% from 5,500.3 in January to nearly 6,000 by the end of the year it is an ideal time to look at retirement options.
Nationwide research* among consumers and IFAs on behalf of MetLife shows that customers who are in the run-up to retirement desperately need expert help if they are to achieve their retirement goals.
On average clients are targeting a retirement income of £18,100 but working adults aged 50+ on average have around £51,200 saved in their pension fund. Nearly two-thirds of working adults aged 50+ either do not believe or do not know whether they will ever be financially prepared for retirement.
Advisers themselves believe just 25% of clients will achieve their target retirement income and the research shows that on average 35% of advisers' pension and retirement planning clients first contact them when they are in the 10 years before their planned retirement date.
MetLife's research** among savers shows that 70% want to start taking an income on their pension fund by the age of 65, with a quarter hoping to cash in on retirement savings by age 60. Just 3% of clients are willing to wait until they are past 70 and just 1% are willing to wait until they are over 75 before taking an income. Around 27% would like to start drawing an income from their retirement savings between the ages of 65 and 70.
The research shows that when it comes to taking an income the key for savers is being protected against the effects of inflation with half of savers choosing keeping pace with rising prices ahead of their income being guaranteed to last a lifetime.
Conventional annuities offer a form of guarantee – savers using their pension fund to buy an annuity will be guaranteed an income for life. The issue is however that once they buy the annuity they have to literally live with the decision as their income from a conventional level-term annuity is fixed for life. Currently in order to generate an income of £10,000 a year with a conventional annuity a 65-year-old man needs a pension fund of about £235,000. For an annual income of £50,000 with a conventional annuity a 65-year-old man needs a fund of around £1.15 million.
Retirement products offering guarantees on capital in the run-up to retirement and on income when clients have retired can play a key role in encouraging retirement saving as well as potentially producing stronger returns for clients.
The aim is to offer the best of both worlds to savers and their advisers by delivering a guaranteed income for life with the potential for the income to keep rising during retirement.
Instead of taking a fixed income at retirement or taking a risk by remaining invested in the stock market clients' pension funds remain invested but with guarantees. They receive an income for life while their funds are protected. Any gains in the value of the fund are locked in – clients can choose annual lock-ins or lock-ins every two-and-a-half years with MetLife for example – and once added the gains cannot be taken away so savers are protected from stock market volatility.
About MetLife
During its 140 year history, MetLife has developed into one of the most powerful and respected brands in financial services. Financially strong, stable and trustworthy, we're now the second largest insurance group in the US, with operations throughout Europe, Latin America and Asia Pacific – and we've now brought our expertise to the UK retirement and savings market.
MetLife's guaranteed options represent a major breakthrough in UK financial services at a time when they are needed most. So, whether your clients are planning for their retirement or saving for the long term, our savings and retirement products can be recommended with confidence.
Clients can choose to guarantee their pension income or they can choose to guarantee their pension fund. There is also the option of choosing to fix the income they want before retirement through deferred income guarantees.
Clients who have yet to retire might want a capital guarantee so that their pension fund does not suffer from stock market shocks in the run-up to retirement while those who have retired or are about to retire might opt for an income guarantee or a deferred income guarantee. Death benefits are also payable.
Guarantees have proved to be ideally suited to the current stock market conditions helping to protect savers from sudden falls while also enabling those who have retired to benefit from stock market rises. But MetLife believes there is always a case for guarantees as part of retirement planning as income in retirement is crucial and savers need to know what they will receive from their pension fund.
Guaranteed retirement options help address concerns about the performance of pensions and investments among clients by providing certainty in the accumulation phase and flexibility in the post-retirement phase.
Insuring pension income when they stop work means that clients can be guaranteed that the income from their pension fund in future will not fall below a minimum level. If investments perform well their income can rise but if the investments perform badly the income is still fixed at the minimum level.
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