IFA's and buying Annuities

rollon65

Hello,

As a result of my employer of some 36 years changing the providers for the contributary company pension scheme from time to time, at 21 months from my age 65 (male) retirement age I find myself with a number of pension "pots" of varying amounts.
The company failed in November 2004 and I converted the assets of the current fund at the time into a personal pension with the same provider (Scottish Equitable- now Aegon).
This is my largest pot, now standing at approx. £70,000.
Next I have approx. £30,000 in an Aviva plan.
I also have a bought-out policy with Guardian, with a stated 2004 GMP of £2,757 pa.
After that, I have various other policy documents from General Accident, CGU and National Mutual.
From the preceding you can see that it's quite a complex paperchase.
If anyone can assist with enhanced knowledge, I would like to know at what point do I need to find myself an IFA - and what are his typical charges likely to be (either by fee or commission) to advise on getting to grips with an overview of all the plans/policies that I have, then to advise on the purchase of annuities when the right time comes?
The volume of paperwork that I have accumulated is beyond my full comprehension and I really would appreciate any assistance with getting the maximum return on my saving at a time when we are being told that annuity pay-outs are currently half of what they were 15 years ago.
Sincere thanks in anticipation of any much appreciated assistance.

Best regards - rollon65.

dunstonh

I would like to know at what point do I need to find myself an IFA

About 3 months before you wish to commence the benefits or earlier than that if you dont know how you want the income to be paid. i.e. have you made your mind up on secured penson income or unsecured pension income? Or how your overall retirement income will be handled as a package and not just one transaction in isolation.

and what are his typical charges likely to be (either by fee or commission)

Annuities are actually probably stil better taken most of the time on commission. The reason is that most commission is 1 to 1.5%. The provider then factors that in over your estimated life expectancy. So, rather than pay an initial hit, the annual reduction is usually quite small. You can ask the IFA to quote with an without commission to compare fee vs commission. With larger pots, it may be better getting an agreed fee but using the commission to pay that fee (with no more than that agreed amount taken). With older pensions or those with GMPs, there may not be the choice of with or without commission.

at a time when we are being told that annuity pay-outs are currently half of what they were 15 years ago.

Thats sounds dramatic but in reality, whilst the annuity payments the lowest they have been, they are not far off what they were 9 years ago. The drops have already occured and we are now getting to the point where its mainly interest rates that are the primary pricing factor. Cross subsidy is on decline as more people take unsecured pension income (and that is only likely to increase) but interest rates are not likely to get any lower. Although gilt yields could take longer to bounce.

rollon65

Hi dunstonh,

Firstly, many thanks for your time and the valued information.

I'm afraid that your reference to "secured penson income or unsecured pension income", went over my head and some explanation re that would be very welcome, please?

It would be very much tidier, after all the previous changes to amass a total pot and then source a pension from a single provider from it (if that is what your following sentence is referring to).

Can you tell me please if that is do-able?

Best regards - rollon65.

dunstonh

I'm afraid that your reference to "secured penson income or unsecured pension income", went over my head and some explanation re that would be very welcome, please?

Secured pension income is your annuity option. unsecured pension option leaves the pension invested but allows you to draw an income. There is more flexibility with the income options with the unsecured option and death benefits can be better. However, it carries more risk as it remains invested (although every option has risks but in different ways).

t would be very much tidier, after all the previous changes to amass a total pot and then source a pension from a single provider from it (if that is what your following sentence is referring to).

Possible yes. Whether its best to is a different matter. The section 32 buy out bond may a keeper due to the GMP (which would be lost on transfer). It really depends on the figures.

rollon65

Thanks once again dunstonh,

Am up to speed with your terminologies re secured/insecured pensions now.
I guess I need to press any IFA in the near future re the combining of pension pots.
Can I be assured that any direction that he/she might point me in with regard to pension providers is more likely to be the one that gives me the best pension outcome, rather than the one that provides the advisor with the best commission, do you think?

Best regards - rollon65.

dunstonh

Can I be assured that any direction that he/she might point me in with regard to pension providers is more likely to be the one that gives me the best pension outcome, rather than the one that provides the advisor with the best commission, do you think?

IFAs handle the majority of transactions (recent reports IFAs as handling over 90% of pension advice). yet they have just under 2% of complaints at the FOS. You could be unlucky but the odds in your favour. If you have any doubts about perceived bias then go fee basis. Especially if the unsecured pension option is the outcome. The fee can always be collected via the commission system. i.e. commission to the value of the fee is taken. No more, no less. So no perception of bias can exist if you agree the fee in advance.

swiss69

The advice you have received so far is pretty spot on. As an IFA myself I would add that you may want to consider seeking advice about the continued suitability of the funds in which you are invested.

Many pensions are invested in stockmarket related funds and as we have all seen in recent years, these funds can be volatile.

You may want to reduce or take out the risk completely. An explanation of annuity against unsecured pension and various other options that are out there might be worthwhile now even if a fee is involved. If annuity sounds best for you then it may be time to take the risk away now.

Someone hitting 65 in March 2009 who didn't do this could have been looking at a fund 30% lower than they had a year earlier.

rollon65

Once again, many thanks for sticking with me dunstonh,

I do appreciate that I have taken up quite a lot of your time.
Just a couple of final points then, if you wouldn't mind please?
You have mentioned a commission of 1% - 1.5%. Is that of the pot or the pension?
What about the amount of a fee - what typically would that be likely to be - the same figure but paid by me in just the one hit?
I believe that I would probably go for the secured option. I would also want my wife of 38 years to continue to benefit in the event of my early demise.
Additionally, I would have to at least consider taking a lump sum that might go toward remedying any aspect of our home that I might not be able to tackle DIY style, (as I tend to do do now) with advancing age.
I do worry about just having the one call on this fairly modest provision for our dotage (my wife having given her best years over to motherhood and keeping house, has no provision beyond the state old age pension) and I am keen to avoid subjecting the pair of us to any lesser retired lifestyle than the very best that I can achieve under the circumstances.

Best regards - rollon65.

rollon65

Hello swiss69,

My very grateful thanks also to you for your contribution to my investigation.
I have assumed that as when my majority pension plan was additionally funded by my previous employer, that the "50% low risk and 50% no risk" profile was perpetuated when I converted it to a personal plan.
Heaven knows where the lately troubled banks and other previously considered rock-solid institutions sat in that scenario though.
Fairly recently I was contacted by Aegon with the news that as I was soon to be reaching retirement age a policy of protecting the accumulated value of my pension pot would be the default action, unless I informed them that I would like to risk improving my return by doing the opposite thing and moving into something with more potential for gain, but as a consequence would be attached to a greater element of risk.
I settled for the "safer" route.

Best regards - rollon65.

dunstonh

You have mentioned a commission of 1% - 1.5%. Is that of the pot or the pension?

If annuity, then its 1-1.5% of the amount after tax free cash is taken.

What about the amount of a fee - what typically would that be likely to be - the same figure but paid by me in just the one hit?

How long is a piece of string. A city IFA is likely to be more expensive than a rural one. A higher qualified one is likely to be more expensive than a lower qualified one. Its a case of shopping around a bit.

I believe that I would probably go for the secured option. I would also want my wife of 38 years to continue to benefit in the event of my early demise.

Both options allow that but death benefits are actually a bit better on the unsecured option. Its one of the key points that many feel makes the unsecured option the winner in their eyes.

Remember that risk is not on/off. Its a sliding scale. You dont need to go gung ho.

rollon65

A final sincere thank you for both your time and advice, dunstonh. Please feel entitled to a very well deserved "warm glow"!
All best - rollon65.