Drawdown Charges

Axel

Hi,

I have just retired and had three illustrations from my IFA for an annuity a drawdown and hybrid. They are from three different companies I note that on the annuity and the hybrid the company pays the IFA commission, but on the drawdown the commission comes out of the core investment. Is this normal?

Axel

Aegis

Axel wrote: »

Hi,

I have just retired and had three illustrations from my IFA for an annuity a drawdown and hybrid. They are from three different companies I note that on the annuity and the hybrid the company pays the IFA commission, but on the drawdown the commission comes out of the core investment. Is this normal?

Axel

Yes. Drawdown doesn't involve making a purchase, therefore no commission is paid by a provider, so any remuneration paid to your IFA would come from sale of investment units.

dunstonh

Is this normal?

Explicit charging is compulsory from 2013. At the moment its option but most companies are moving towards it as 2013 gets closer.

Explicit charging is also often cheaper as well or costs little or no difference. i.e. natural trail of 0.5% replaced by explicit trail of 0.5% (with natural trail rebated) is the same.

Cautious_Investor_3

Axel wrote: »

Hi,

I have just retired and had three illustrations from my IFA for an annuity a drawdown and hybrid. They are from three different companies I note that on the annuity and the hybrid the company pays the IFA commission, but on the drawdown the commission comes out of the core investment. Is this normal?

Axel

Hi

A few comments to add to the previous posts:

1. You don't have to pay commission for an Annuity or a hybrid product as you term it, it is perfectly possible for the IFA to rebate all commission either to the Annuity itself or directly to you and you then pay him a fee for organising the product

2. If you have a large fund then paying a fee could be more cost effective

3. Not all Annuity providers (whether traditional Lifetime Annuities or Hybrid) pay the same commission, so ask to see your IFAs research to ensure that he has recommended the best provider for you

Remember, once you have bought a Lifetime Annuity you can never change it, so spending a little longer making the decision could be time well spent.

I hope this helps.

The Cautious Investor

dunstonh

1. You don't have to pay commission for an Annuity or a hybrid product as you term it, it is perfectly possible for the IFA to rebate all commission either to the Annuity itself or directly to you and you then pay him a fee for organising the product

With pension based contracts, including pension annuities, you cannot rebate commission to the individual directly. Within the terms of the plan is fine though. (i.e. increase annuity rate or reduce product charges). HMRC would have issues with any rebate paid as cash.

Also, paying a fee but having it collected via the pension is very cost effective as the pension has had tax relief on it. So, you effectively get tax relief on the fee.

Axel

Hi,

Many thanks for the replies. I have not yet discussed comission for the drawdown with my IFA but I note that the quote states and initial transfer in fee which equates to 2% then there is the .05% annual fee so 2.5% deducted from my fund in the first year. Is this reasonable?

I note that the commision is about double to that paid to my IFA by the two companies who quoted for an annuity and a Hybrid, both about 1%.

Axel

dunstonh

I have not yet discussed comission for the drawdown with my IFA but I note that the quote states and initial transfer in fee which equates to 2% then there is the .05% annual fee so 2.5% deducted from my fund in the first year. Is this reasonable?

0.5% p.a. is normal (if you went DIY to HL for example, they take 0.5% for doing nothing. So, getting the servicing from the IFA at same cost is good).

The typical maximum initial commission is around 3-4%. So, you are getting a level of discounting on that. Whether 2% is fair or expensive will largely depend on the fund value.

I note that the commision is about double to that paid to my IFA by the two companies who quoted for an annuity and a Hybrid, both about 1%.

1 to 1.5% is the typical norm on annuities. However, unsecured pensions are a different beast to secured pensions. The liability and workload is higher with the an unsecured pension for both initial and future reviews.