Choosing a pension provider

bobone

This is my first post. Hello to all MSE members.

I have decided to buy an annuity.

Other than regulation by the FSA, coverage under the FSCS and a credit rating of at least "B", what are the most important criteria to consider when choosing a pension provider?

To illustrate my topic, Just Retirement were recently acquired by Permira who injected £25m (why?). For existing and potential annuitants is this good, bad or of no consequence?

Aegis

Why not just go to a local IFA and ask him/her to source one for you? They'll probably be able to get you better rates and will be able to explain the risk and tax implications in as much detail as you like.

There's not really anything to lose in this situation, as the IFA will be paid by the commission that the annuity provider will only keep if you go direct.

bobone

Aegis, thanks for the prompt reply.

This was actually my fourth attempt at posting, but the first three, which included much more detail, disappeared into the "ether" so the last was a cut down version before I finally gave up.

I have already spoken to two IFAs and the PAS and the ABI. The ABI were "not able to help" and the others were content to rely on FSA regulation plus coverage under the FSCS. To say the least the FSA have a patchy record and the compensation scheme has not yet been tested.

As an investor with Equitable Life and in an endowment mortgage, this time I want to make an informed choice using whatever information is publicly available with particular reference to: financial strength; longevity; ownership; customer service.

I have looked, but cannot find.

jamesd

You can buy several annuities so why not spread your risk by doing that? If you had £100,000 to spend then five annuities at £20,000 each could leave you in a decent position if one failed.

You also have the option of using income drawdown instead of buying an annuity. This can be better if you're happy to manage investments and see their ups and downs in capital value.

bobone

Thank you for your reply Jamesd.

I have considered drawdown but rejected it as I am inherently risk averse.

I have considered splitting but ( because I know no better) have decided that this is probably overly complex and too conservative.

My central dilemma, which may be regarded as a non-problem by many members, is how to choose between, for example: a smaller, younger provider @ £100pa; a mutual @ £98pa; a long standing heavyweight @ £93pa. (figures are illustrative only).

All three are regularly recommended by IFAs but is the best return necessarily the best choice?

EdInvestor

bobone wrote: »

Other than regulation by the FSA, coverage under the FSCS and a credit rating of at least "B", what are the most important criteria to consider when choosing a pension provider?

To illustrate my topic, Just Retirement were recently acquired by Permira who injected £25m (why?). For existing and potential annuitants is this good, bad or of no consequence?

More info on JR and Permira below.The takeover appears to have strengthened the company.

http://www.citywire.co.uk/adviser/-/news/pensions/content.aspx?ID=358894&Page=1

Some points:
1.There has never been any lapse in payment of conventional annuities, including at ELAS, despite incidents of poor management and poor regulation.

2.Mutuals are inherently weaker than plcs as they don't have easy access to the capital markets if they get into trouble

3.It is worth investigating the background of annuity provider companies as what may appear a small company in the UK may have substantial overseas backing.On the other hand that didn't help investors exposed to the likes of AIG and Lehman Bros recently.

4.Placing part of your money in an income drawdwon SIPP invested directly in a portfolio of Govt gilts will provide the best security, but may not pay out as much income as you would hope if you also want to maintain capital value.It does however provide flexibility and you remain in control, which is not the case when you relinquish your capital for a conventional annuity.

5.Choosing more than one provider can makes sense, especially where they are all actively competing in the market and among the top 4 providers, as they have an interest in runnning the businesss competently. Providers which appear to pay well over the odds may be suspected of being more risky, though they may not be.

Good luck.

Tammer

EdInvestor wrote: »

Some points:

2.Mutuals are inherently weaker than plcs as they don't have easy access to the capital markets if they get into trouble

That is certainly the theory. Empirical evidence from the recent banking crisis doesn't necessarily confirm this however. Think RBS v Nationwide.

dunstonh

Think RBS v Nationwide.

Thats picking the two extremes. Nationwide hasnt failed but its picked up some mutuals that did.

C_Mababejive

I think the whole private pensions industry is the next big time bomb...but then i think we all secretly know that dont we. We just dont like to say.

McKneff

Dont touch Phoenix with a 50ft barge pole they are incompetent in the extreme.
I lodged a formal complaint just lately and this has been upheld but i have heard of so many horror stories since.

My pension adviser sorted me out with Just retirement after getting quotes from six providers. I have had no problem with them at all.

jamesd

I'm not inherently cautious but I would split. I just don't see the reason to put all my eggs in one basket when I can split them and get increased safety. So I'd go for the top five providers, or perhaps the top three. Possibly excluding any provider that seemed particularly small or unsafe for some reason. Or maybe four and get annual payments staggered to arrive once a quarter.

Since there are sweet spots for amounts used to buy annuities, splitting can also increase payouts sometimes.