Comission rates when buying an annuity

Dave-Geo

Hi

Sorry if this has been covered before, I have searched the forums without success.

I am about to buy an annuity with a total fund of approx 120k. 25% will be taken as a tax free lump sum.

The quote from the IFA shows that he is paid over £ 3,000.00 for his advice and then 1% of the annuity fund value each year. Is this normal? It seems quite excessive to me.

Any help would be appreciated.

Dave

dunstonh

he quote from the IFA shows that he is paid over £ 3,000.00 for his advice and then 1% of the annuity fund value each year. Is this normal? It seems quite excessive to me.

That is very unusual. The norm is 1 to 1.5% initially with nothing in following years. (if you dont use an IFA then the insurer keeps the money for themselves)

On drawdown cases, having a servicing amount is more common as the IFA is required to provide reviews. 0.5% is more common there although its not uncommon to see it rise to 1% for smaller funds (under 100k after TFC is starting to be classed a bit more as smaller). So, whilst you could probably get 0.5% p.a. easily, it wouldn't surprise me to see 0.75% or 1%.

Loughton_Monkey

Here is a site from which you can get an annuity quote.

http://tables.moneymadeclear.org.uk/Comparison-tables-home/Annuities/Compare-Annuities/

I would not assume that it is either complete or totally accurate. But it will give you a guide as to the sort of figure your IFA comes up with. You would normally expect a commission of 1% or slightly more on the purchase price. That's one-off. I have never heard of an ongoing fee.

dunstonh

I would not assume that it is either complete or totally accurate.

Its not to either. However, its closer than it used to be. Not enough to rely on to make the final decision as real world figures still can vary but enough to give an idea of the sort of income likely.

I have never heard of an ongoing fee.

I'm not aware of any lifetime annuity providers that offer it, let alone an adviser wanting it. That's why I wondered if its a drawdown arrangement (with maybe a short term annuity or third way product) rather than a lifetime annuity.

Dave-Geo

I'm not aware of any lifetime annuity providers that offer it, let alone an adviser wanting it. That's why I wondered if its a drawdown arrangement (with maybe a short term annuity or third way product) rather than a lifetime annuity.

What has been recommended is investing in a fund with mgmadvantage. The money is invested and if it performs well then a higher income can be taken in future years but it also has a guaranteed minimum payment.

I like the idea of this but think the initial fee and subsequent 1% per year to the IFA is a lot. There is also a management fee of 0.139% per month for the proteceted rights part and 0.15% per month for non protected rights. They say that effect of the charges would be to reduce 7% growth per year down to 2.45%

Thanks for your help so far.

Dave

dunstonh

I'm not a fan of these hybrid options. They are full of compromises and the guarantees cost money. When you work it all it, it isnt worth the extra cost and you may as well stick to the tried and tested conventional options of structured portfolio drawdown or annuity. Reduction in yield on your example is 4.55%. Compare that to a more typical 1.2-1.7% depending on assets without the guarantees. With almost 3% a year difference you could "buy" yourself a typical stockmarket crash on a mixed asset portfolio within 5-7 years with the difference in charges.

In things like this it is very much personal choice. Either accept the risk with drawdown remaining invested or go with secured income with annuity. Sitting on the fence in the middle is just compromising and you don't get the best of either option in my opinion.