Extreme market volatility puts emphasis on guarantees
MetLife believes that the near-retirement and in-retirement segments need to focus on investment guarantees and protection products in the light of the current very challenging stock market volatility.
UK defined benefit pension schemes are estimated to have lost more than £34bn from their equity portfolios – 4% of their total assets – in the week between August 1st and 5th. In the light of this extreme instability, MetLife is urging investors to consider their options in an effort to protect income and lifestyle expectations at retirement.
In particular, MetLife believes that this should include fixed-term annuity as well as protected products, both of which offer strong benefits to risk averse investors in times of volatility.
The near-retirement and in-retirement segments are facing very tough market conditions, making 2011 one of the worst years in which to retire. These fundamentals include:
Volatile stock markets – FTSE100 down circa 10% YTD 2011
Record low interest rates – flat at 0.5% for the past 29 months and considered unlikely to rise until the middle of 2013
Declining government bond prices – 15-year gilts have fallen from around 4.1% in mid-April to just over 3.5% at August 1
Decreasing annuity returns – joint life (2/3rds) £100,000 annuity pay-out has fallen from around £6,700 in August 2008 to £5,900 in August 2011
High inflation and rising costs of living in the UK – Consumer Prices Index (CPI) inflation rate at 4.4% and Retail Prices Index (RPI) at 5% in July; CPI has been above the 2% BoE target for 36 of the past 42 months.
Dominic Grinstead, Managing Director at MetLife UK, said: “The whole concept of retirement is changing rapidly, driven by new regulation and the wider economic environment. It is a time when people are increasingly looking for benefits such as security and protection and MetLife offers products which meet these needs.”
MetLife, which pioneered unit-linked guarantees with its award-winning Retirement Portfolio, offers income, deferred income and capital guarantees plus guaranteed death benefits across its product range.
MetLife’s Protected Growth Bond, launched in February, locks in a level of investment growth daily via a choice of investment protection levels. The product provides active risk management for investors, and guarantees which protect against stock market volatility.
Dominic Grinstead, Managing Director at MetLife UK, said: “2011 may prove to be one of the worst years to take retirement income, and MetLife research has shown that many people are looking to continue working during these tough economic times in an effort to retain as much retirement value as possible(3). But 2011 is also teaching us that we need to think about protection more proactively and fixing income streams, and MetLife is building its product suite with this in mind.”