MSE News: Don't let retirement apathy cost you thousands

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"Around 60% of elderly people accept their pension provider's annuity plan, which is likely to be a grave financial error ..."

Read the full story:
Don't let retirement apathy cost you thousands

dunstonh

For the benefit of those reading the article and coming across the following point:

A 65-year-old man with a £50,000 pension pot could earn £3,228 a year with the best annuity rate today, compared to £2,892 with the worst, from the rates published on the Financial Services Authority's comparison tables. Some providers refuse to disclose rates, meaning their offering could be even worse.

Dont rely on the FSA tables to decide your annuity purchase. They use too many assumptions and you often find the real life figures are different and the order of companies comes out different. Use it only as a guide but thats all. IFAs cant use it as its so unreliable. You often find the best company is one that is not listed or if it is, it comes out in third place on the FSA tables but top in real life.

Research firm Moneyfacts says the average male annuity rate has dropped by a whopping 45.5% over the past 15 years, and female rates are down by 41.8%.

We covered that recently on the forums. The way moneyfacts have published the information is to make the figures sound a bit sensationalist in the media. When you look more closely at annuity rates going back to 1991, you will see the drops occurred mostly between 1991 (where a 65 year old male could get £14,430 on £100k fund) to 1999 when it was £8876. Since 1999, annuity rates have had much less decline and largely followed interest rates. 2005 was the low point ( £7302)before they started rising again (to 7879) until last year where they took a decline because interest rates where £6615 is now the figure.

jakal3222

Annuity choice

Until earlier this year, everyone with a private pension, other than final salary scheme members, had to turn their pot into an annuity by age 75.

However, Chancellor George Osborne announced in this year's emergency Budget that this rule was to be scrapped be scrapped.

to be scrapped be scrapped.. someone needs to press delete.

SallyG

Maybe it's not apathy but the lack of any reasonable way to compare annuities - especially if the "FSA" tables are useless?
I wanted to compare other annuities with the one offered annually by my stakeholder pension company.
I was told by the YIG adviser I spoke to last year that it would cost me £500 to get an annuity quote from him.
Why does it cost so much and how can I compare 5 or 6 different deals at those sort of charges?

SallyG

PS Why can't I ring an annuity provider and ask for a quote?
Are annuities so very difficult that I wouldn't understand?

dunstonh

Maybe it's not apathy but the lack of any reasonable way to compare annuities - especially if the "FSA" tables are useless?

They are not useless. Just unreliable to make the final decision. They will give you a good guide using a number of basic assumptions. However, like most retail products, IFAs can negotiate special terms with providers that get them better rates. Think of the FSA tables as an RRP. However, they are subject to economies of scale and special offers which will not be reflected in the FSA tables. Some are also subject to IFA haggling to get the figures up. They also assume maximum commission basis and that may not always apply.

I was told by the YIG adviser I spoke to last year that it would cost me £500 to get an annuity quote from him.

Was that because he did it on nil commission basis?

Why does it cost so much and how can I compare 5 or 6 different deals at those sort of charges?

It's up to you how you pay. If you dont want to go fee basis then go commission.

PS Why can't I ring an annuity provider and ask for a quote?

Some will retail direct but they just keep the commission they would pay the IFA for themselves. Some choose not to retail direct because its not cost effective for them to do so. If you set up to retail direct to public you have further cost implications under solvency requirements as well as compliance costs.

You go to the supermarket to buy your food. You dont go to each manufacturer directly to buy the food. Annuities are much the same.

Charis

Richard Eagling, from Moneyfacts, says: "There has been a spate of annuity re-prices over the summer months which has unfortunately left rates at record lows.

"In a few months the first baby boomers will hit retirement..."

The first of the female 'baby boomers' were old enough to retire in 2005!