7th November 2011

MetLife: Rising inflation cuts annuity income by 16% in five years

MetLife analysis highlights inflation risk to fixed retirement income Persistently high inflation cuts the spending power of pensioners on a fixed income by16% over five years*, new analysis from MetLife shows.

A 60-year-old taking a £6,180 annual income from a £100,000 fund would see the real
value cut to just £5,215.98 within five years if inflation averages 3.45% - and within 25
years the spending power would be reduced by 57% and be equivalent to just £2,646.83. Increased utility prices have driven consumer price inflation** to at an all-time high of 5.2%, more than double the Government's long-term target of 2%, hitting the real value of fixed incomes.

MetLife believes the risks of inflation and rising longevity, with pensioners spending longer in retirement, is driving the need for innovation and flexibility in retirement income solutions such as fixed-term annuities.
Its analysis shows annual inflation at 3.45% would mean prices rising by 133% over 25
years with the result that a pensioner would need a nominal income of £14,399 in 2036 to have the same spending power of £6,180 today.Dominic Grinstead, Managing Director at MetLife Europe Limited UK said: "The new retirement reality means planning for up to 25 years in retirement and even moderate inflation is a major risk to anyone on a fixed income.

"Pensioners literally have to live with the decisions they make on retirement income so providers need to focus on innovation and offer more flexible solutions which enable people to maintain control over their retirement."
MetLife's Freedom Income Plan (FIP) fixed-term annuity enables clients to transfer to another retirement product during their selected term should they become ill and qualify for enhanced terms on a lifetime annuity, or if the dependant attached to the plan should die.
They can choose either a level income or an incremental annual rise of up to 8.5% with the certainty of a known fixed income plus a guaranteed maturity amount at the end of the selected term.

Minimum investments in MetLife's FIP are £20,000 after taking a pension commencement lump sum with a choice of terms running from three to 25 years. The FIP can accept payments from registered pension schemes and recognised overseas pension schemes. Protected rights and pension credits can also be paid in.

Investments