Metropolitan Life launches innovative guaranteed annuity with option to increase income

Metropolitan Life announced the launch of a new guaranteed annuity product called the Capital Preservation Income Option (CPIO) on the 11 February 2013. This new product gives investors the option to increase or boost annuity income if they opt to reduce

According to Ollewagen, the product design is a result of customer research, which shows that while capital preservation is important to people, especially parents who want to leave something for their children: (1) investors’ capital preservation needs reduce over time and, (2) most annuitants would prefer their income to increase (as the cost of living increases) if the option was available to them.

“When an investor chooses to reduce their capital investment, the new product gives the investor three options: (1) realise a higher or boosted income from day one, (2) boost income after every five years as capital preservation drops 10% every five years to a minimum of 25%, or, (3) maintain 100% capital preservation upon death.”

Ollewagan says while more than 80% of retirement annuities sold in SA are Investment-Linked Living Annuities (ILLAS), a product range that is coming under increased scrutiny from the industry and investors over costs, risks to investors, the ongoing advice needed and annual withdrawal rates; most retirees in Metropolitan Life’s main markets still opt for guaranteed annuities.

According to Ollewagen, guaranteed annuities are extremely popular in its market because a stable income is provided for life - which means no surprises. “While ILLA’s are sold with capital preservation being a major draw-card, few investors realise the implicit costs relating to the guarantee. Our product saves the annuitant money as the capital preservation cost reduces (if that’s what the annuitant requires) and translates that into a higher monthly income.”

The following table, which was extracted from a real quotation illustrates the benefits options for a 60 year old male who invested R100 000 of his retirement money into CPIO’s Retirement Income Plan. No increase in income was selected. A capital preservation percentage of 100% was selected.

(Click on picture to enlarge)

(Click on picture to enlarge)

Note that for a similar quote, but purchased with voluntary money, the figures will not be the same. This is due to different assumptions and tax treatment of voluntary money.