Annuity Advice?

65StillRockin

Just entered the minefield of annuity purchasing, so any advice welcome! I reached retirement age 65 over a year ago (in December 2009) and decided that a) I didn't really want to retire yet because I love what I do for a living and, b) my self-employed pension fund had been affected adversely by the financial crisis and just might improve in 2010. So at reaching 66 in December 2010, I got the up-to-date figures for the pension fund and it had improved substantially. Now that my wife is also retiring, I have to take the private pension fund and go for an annuity. I have quotes from one or two annuity specialists but the variety of possibilities is daunting. I've been self-employed for 32 years and I haven't been able to afford to put enough pension contributions into the fund due to income/outgoing levels, but the fund now stands at £72k. Better than it was a year ago by a mile but still hardly a fortune!

The state pension I receive is nowhere enough to live on, so I've got to get the very best deal I can. I've probably got to work two or three days a week for ever to supplement the state and private pension anyway! The up-to-25% lump sum seems to reduce the monthly pension income too much. Every quote seems to give only the options of no lump sum, or 25% lump sum -- can I just take, say, a £6K lump sum to help buy a newer, smaller and more economical car and invest the rest in an annuity? Quotes for basic single and basic joint annuities seem to vary a lot: it looks like I'd have to live a long time to justify going for the joint options.

yelf

yes you can take UPTO 25%. You dont have to take a lifetime annuity - there are lots of options. Joint annuities payout less initiially becuase the company is more likely to have to pay out more (and your estate will receive more). Have you spokenj to an IFA? They could sort this for you very quickly and very efficently.

dunstonh

I have quotes from one or two annuity specialists but the variety of possibilities is daunting.

Go to an IFA. Its a no brainer as if you dont use one the provider will keep the commission. If you do use one the provider will pay the IFA.

rabbitmumu

1. You can request quotes for lump sum up to 25% - simply ring them and ask.

2. Note lump sum is tax free, whereas annuity is not. Need to consider your tax position if you continue working. (Simply guessing here ... 77k may give you an annuity JUST under the personal allowance, and if you work, you may become a tax payer)

3. If you take more lump sum then you need - then you need to consider where you will invest the rest of your money. Lots of investments options available depending on whether you want risks (i.e. possible higher return) or security (e.g cash/ISA).

4. Big difference between single and joint life annuities - coz' woman are expected to live longer than men, and so if you have been quoted 1/2 or 2/3 of spouse pension after your death, your initial pension will be a lot lower.

5. Taking single or joint life annuity - you said your wife is retiring soon - you may wish to consider her pensions arrangement too and see if her own pension is sufficient for herself. if it is, then you may just consider a single pension for yourself. Also please consider if you have any other expected big expenditure like in the next 10 years or so?

6. Lump sum vs annuities - all depends on your need for cash now, tax position, as well as how healthy you think you are (i.e. how long you are expected to live). A 65 year-old man is expected to live till something like 83-85, and a woman something like 86-89. So if you think you are healthy, and you don't really need that much lump sum, then can opt for more annuities.

7. If you are unhealthy (as defined by insurers) and/or long term smoker, then you maybe qualified for an "impaired life" annuity where you can get more pensions for the same amount of fund you have.

8. Obviously the best thing is to go and see an IFA but they will ask you to consider the above areas anyway. So you may wish to do some preparation work before seeing them. Also you can try to get more quotes from different insurers as there can be some difference.

Hope this helps.

65StillRockin

Thanks everyone. I was trying to avoid using an IFA because I have had bad experience of one in the past. Although he was recommended by the Federation of Small Business (they don't do that now!) I was very much tucked-up on a pension mortgage plan. I was successful in claiming compensation via the financial ombudsman, but it still did not really compensate for messing up my future financial position.

dunstonh

was trying to avoid using an IFA because I have had bad experience of one in the past.

There are 30,000 IFAs out there. Is it fair to tar them all with the same brush because of just 1? Especially when the transaction you did was likely so long ago and in an era of less professionalism and regulation

Still, the fact is that if you don't use an IFA then you will not get the best terms.

65StillRockin

You are right, of course -- it was a long time ago. Would you consider those companies on the internet, for example only, Annuities Direct, as IFAs? Or are they too close to the providers? Is a small local outfit generally better -- it certainly helps IMO to have local personal contact rather than dealing at arms length on the internet.

dunstonh

Would you consider those companies on the internet, for example only, Annuities Direct, as IFAs?

Annuities direct are IFAs and doing nothing that no local IFA to you cant do. (expect the local IFA will fill the forms in for you). We have had people post on here in the past that their local IFA beat the terms offered by the internet based ones (like HL). That doesnt surprise me as we can often haggle with some providers and play them against each other to get them to increase their rate.

Or are they too close to the providers?

It doesnt work that way with IFAs. You are thinking of tied agents or multi-tied agents. Take Standard Life, they offer an annuity service which uses their own sales staff and has a limited panel of providers. They have been caught telling people that it cuts out the middle man (the IFA) yet in reality they are keeping the money the IFA earns and offering only companies that benefit them. Thats the type you need to avoid.

Is a small local outfit generally better -- it certainly helps IMO to have local personal contact rather than dealing at arms length on the internet.

Small local firms rely on word of mouth and reputation. Also, if you can see the owner/partner or director of the firm and if you have a large enough pension fund you will often be able to negotiate terms or agree the level of remuneration which you may not be able to do with a faceless internet based process. Although a pot of £72k before 25% tax free cash doesnt give much scope for discounting (an IFA will earn around £540 on that using the typical remuneration).

The IFA will have access to companies that you will not have access to if you dont use an IFA. You can ask to see the research on who offered what as well as go through the various differences of monthly in advance or arrears, with or without proportion, the different indexation levels etc. If you qualify for enhanced terms then you really need to use an IFA as all the main providers in this area will only transact via an IFA.

65StillRockin

Great advice there. Thank you so much. To find an IFA local to me is going to be the next step in the minefield! It seems like a lottery. Where do you start? I'm still a member of the Federation of Small Businesses but I've been in contact with the local branch and they will no longer committ to recommending anyone.

dunstonh

To find an IFA local to me is going to be the next step in the minefield! It seems like a lottery. Where do you start?

IFAs still handle the majority of regulated advice transactions (over 65%). Despite that we have under 2% of complaints at the FOS. So, statistically the odds of getting a bad one are low. If you search on https://www.unbiased.co.uk you can find an IFA by postcode. It will show a range of filters and give you the nearest ones. Don't go over the top on the filters. They are a bit sensitive. The qualifications one is a bit messy as well as there are about a dozen or so pension qualifications which all meet the criteria and level but if you select one of them it will only show those advisers with that particular one. If you select more than one it will only show those with all the ones you select (which are not going to be any as there is no point duplicating qualifications). So, disregard the qualifications filter - you dont need it anyway as any experienced adviser can do this with their eyes closed.

I'm still a member of the Federation of Small Businesses but I've been in contact with the local branch and they will no longer committ to recommending anyone.

I've never been a fan of that sort of thing anyway. Often there was cash being passed around for referrals or they were getting a cut of the commission. That isnt professional and is very 1980s. It doesnt fit in the modern world.

65StillRockin

Thanks again -- good advice. I checked that link and was very surprised. I thought there'd be hundreds of IFAs around here but there are not very many. That makes the choice easier. A few appear to be the financial advice wings of large accountancy practices -- two of whom I have dealt with in the distant past and left because of their astronomical fees. I'll pass on those. The service I have been enjoying over the last sixteen years from an individual accountant (who used to work for one of those big practices) has been exemplary. Two other IFAs listed are very local to me and appear to be either individuals or listed under their own name but working for larger outfits.

Will contact one of those and report back on results.