Metlife Pension

pmd123

Afternoon all

I spent some time yesterday reviewing the retirement plans for my MiL, who is a member of the LGPS scheme and looking at retiring at age 62 in 4 years time. I calculate that if she works 4 more years and takes this pension early she will receive in the region of £500 per month (once the actuarial reduction is taken into account).

On top of this she has a private pension with Metlife, which currently has a value of £71k (£78k income guarantee) which I've advised her she would be able to take out 25% tax free, which combined with the small TFLS she will receive from her LGPS pension will allow her to pay off her remaining mortgage. The aim would then to be to draw down on the private pension around £7.5k per annum to bring her income up to £12.5k up to age 67 when her state pension will become payable (full state pension entitlement has been checked).

My query is regarding the Metlife pension, which seems to have high (3%) fees, and from reading previous posts on here appears to be a niche pension which she is paying over and above for the income guarantee element. She is a cautious investor, and given she is looking to retire in around 4 years does not want her pension invested in a volatile market, where if there is a dip in the markets may put her plans to retire at 62 on hold, but I feel she may be better to invest in a cautious fund (Vanguard 20% for example) inside a SIPP where she will be able to draw from it at 62.

My knowledge of pensions mainly comes from reading this forum, and I'd consider myself a half educated novice at best, so would really welcome advice and opinions on the Metlife pension (especially what the income guarantee will offer her over Vanguard 20%) and whether moving it to a cautious fund with lower fees would indeed be better than leaving it where it is and seeing £2k+ going out in fees each year.

Thanks in advance

Paul

Malthusian

More information needed. How exactly does the income guarantee work? At what date does the guarantee apply?

MetLife's products are poor (due to the eye-bleeding charges that you have noticed), but the question of whether to come out of one is very different from the question of whether to go into one. There is not much point in her selling out and dumping most of it in corporate bonds, and then finding that she has less than the amount she would have been guaranteed on the guarantee date (assuming there is one). On the other hand if the guarantee applies long after age 62 and she wants to draw down the pension to bridge the gap to State Pension age, the guarantee may be of little use.

Vanguard 20% is unsuitable for most investors as it is not meaningfully lower risk than more balanced multi-asset funds (in a proper crash everything becomes correlated downwards) and the potential return is too low for the risk (especially given the risk of capital loss when future interest rate rises are priced in).

pmd123 wrote: »

My knowledge of pensions mainly comes from reading this forum, and I'd consider myself a half educated novice at best

Then my advice is to walk away and suggest to your mother in law that she creates an MSE account and posts here directly.

dunstonh

As above, the metlife products are expensive and niche. However, they did offer an element of capital security on higher equity weightings (we don't know if that is the case here).

Whereas VLS20, even with its lower charges would be expected to underperform the higher equity weightings of Metlife (again repeating that we dont know what your MIL has). The charges of Metlife may be far too high but if she is in a higher equity version, then the charges difference will be insignificant to the performance difference of VLS20 and its low performance expectation.

You should not look at VLS20 past performance is an indication of the future. VLS20 was launched after the credit crunch and its performance looks far better than it would be expected because it was able to take advantage of the recovery from the credit crunch and the low interest rates and QE that pushed gilts up in value.

Gilt and bond funds, in a very general sense, do not rise in value when looking only at the capital value of the underlying assets. They have a wavy line. The yield will push the fund value up if reinvested and there can be some other influences that could help the value rise and fall. However, for the last decade, those influences and the cycle have been pushed the values up. That will reverse at some point. When is an unknown. People were claiming it would start in 2012. Then 2013, 14, 15, 16, 17 etc. It is coming. When is unkown.

VLS is not a particularly cheap option either. VLS20 needs an invesmtent platform. So, lets take the largest provider in the DIY market and that is 0.45% p.a. The fund itself has total charges of 0.35% (0.22% OCF plus 0.13% TC). That makes an annual charge combined of 0.8% p.a. You can get cheaper platforms but you can get cheap stakeholders at 0.55% all in. And personal pensions at 0.34% all in. You can get cheaper multi-asset unit trusts/OEICs as well.

Family members run great risks trying to advise other family members on money issues. If you get it wrong, it can sour the relationship for life.