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Home > Pensions > Annuities

Fixed-term annuity market divided

News of Metlife leaving sector raises concerns pricing and market conditions could hamper market

By Laura Suter | Published Oct 09, 2012 | comments

The fixed-term annuity market hit a stumbling block in September when Metlife decided to pull back from promoting its product because it could not get the pricing right.

However, on the heels of this news fellow fixed-term annuity provider Primetime Retirement announced a link-up with quote portal Avelo, saying business was in fact going very well.

Rather than announce it was quitting the market altogether, Metlife said it would not write any new business in fixed-term annuities until pricing conditions improved, blaming low interest rates for its inability to offer appropriate customer returns.

This is not an issue that appears to be troubling other UK providers and could instead be based on the dynamics of the multinational company.

Stuart Wilson, marketing director at Primetime, said because Metlife operates globally, it may have seen more benefit in focusing efforts in other countries, rather than the hard UK environment at the moment.

Wilson added that business has been brisk for Primetime, which launched its new form of fixed-term annuity in February this year.

While he would not disclose actual new business figures, Wilson said, “Compared to where Living Time was six months after launch we are certainly doing better and are very happy with the volume of business we’re generating.”

Metlife’s move casts doubt on a market that relies partly on the premise of annuity rates rising during the fixed-term annuity’s lifetime. Annuity rates have consistently fallen in recent years because of lower gilt yields, meaning the rates now stand at just over half of 2009 levels.

Andrew Pennie, marketing director at Intelligent Pensions, said the market is now “tough” making it “very hard to price something that’s attractive”.

He added it would be “extremely difficult and highly unlikely” that a new entrant would come and fill the gap Metlife has left in the market.

David Trenner, technical director at Intelligent Pensions, added, “I’ve done quite a bit of analysis of the market and I’m not convinced it’s going to go anywhere.”

On the issue of rates currently being low, he said that, were cash returns higher, retirees could put their money in it, take the interest as income and wait for poor health to occur in order to buy an enhanced annuity.

Instead, he said the company believes drawdown to be a better option, offering more flexibility on income and more options for retirees.

However, with the new caps on income and the investment market being particularly tough, drawdown has its fair share of critics.

Wilson admits its horses for courses, and entirely depends on the individual’s circumstances and the level of flexibility they want.

laura.suter@ft.com

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