Annuities -who pays what!

BaBaBee

I am starting to look at taking an annuity from my pension fund.
All's going well quotes from Pru/ Saga/ Aviva/ HargreavesL for LV/ ScotttishW.
I can't seem to get my head around who pays what!
Is that? -commission V fees?.

I think I have understood that the quoted annuities for me are frontloaded and that the set up fee quoted (£300ish to £2K) by each company will not come out of my pension fund nor the quoted annuity cash I receive each month but will be paid out of commission (somehow)?

What is the simple explanation?
I thought I understood (have asked questions) but was told recently by an internet company that I would be separately invoiced for the set- up fee.
Also was asked to sign over for them to investigate my pension fund with my pension provider. None of the bigger companies asked that!
Looking forward to your replies.

dunstonh

All's going well quotes from Pru/ Saga/ Aviva/ HargreavesL for LV/ ScotttishW.

So none of the ones that typically come out best.

I can't seem to get my head around who pays what!

There is one easy solution for you. See a local IFA. Its a no brainer.

Many companies will only transact via IFAs and quite a few will haggle their prices upwards via.

I think I have understood that the quoted annuities for me are frontloaded and that the set up fee quoted (£300ish to £2K) by each company will not come out of my pension fund nor the quoted annuity cash I receive each month but will be paid out of commission (somehow)?

Commission comes out of your pension fund. Either on day one or over your life expectancy depending on company.

I thought I understood (have asked questions) but was told recently that I would be separately invoiced by an internet company.

Quite possibly if you agreed to do it on fee basis and not have the fee collected via the product.

Also was asked to sign over for them to investigate my pension fund with my pension provider. None of the bigger companies asked that!

It is not their job to do that. That is what the IFA does and you havent gone to an IFA yet.

CannySaver_2

Hi

A couple of points to make here:

1. If you are using an IFA there are essentially two ways to pay them. Firstly they recieve a commission from the chosen Annuity provider (between 1% and 3%, although the lower end of that scale is more the norm) and you pay no explicit fee. Secondly you could pay a fee, normally an hourly rate multiplied by the number of hours worked and no commission is taken, which increases the income you will recieve.

2. As a general rule the larger the fund the more attractive a fee is compared to commission, but that is just a very general rule and dependant on a lot of variables, not least the number of hours the IFA will take and the hourly rate they charge

3. You lose nothing by consulting an IFA. If you go direct to the Annuity provider and miss out the IFA logic would dicate you get a better Annuity rate, but it doesn't work like that, the Annuity provider simply pockets the commission that would have been paid to the IFA

4. A good IFA will shop about for the best Annuity rate, will look at whether you qualify for an enhancement due to health or lifestyle issues (you would be surprised how may people qualify who think they wouldn't) will talk you through other options if appropriate e.g. Income Drawdown, Fixed Term Annuity etc etc. For larger cases they will also negotiate with the providers to try and improve on the rate

5. There is of course no harm in getting some indicative quotes yourself, this pension annuity calculator (link given) will allow you to get quotes instantly. Its fine for non enhanced Annuities but doesn't really do the job for an Enhanced Annuity as these are generally individually underwritten

I hope these thoughts help.

The Canny Saver

Loughton_Monkey

Unless this is an exceptionally large (or small) pension fund, then you simply go to an IFA who draws a commission from the annuity provider.

Firstly, you use one of the 'calculators' to get a 'ballpark' figure for best in market. But ask one (or even 2/3) IFA's - there are some that are easy to deal with over the Internet on somethings as simple as this - and you just become mercenary and go for the highest bidder. There is no room for 'sentiment' in the simple case of annuities. That's provided you are quite clear on the type you want (escalating, guaranteed, joint....) and make sure you compare like with like.

You might care to 'question' the guy who is trying to obtain your mandate to contact the pension provider. In most cases, this is simply not necessary. Because you know the rough value, and when it is paid over, it will be a few shillings different but you still get the quoted annuity rate. I'm just suspicious in case what he's fairly sure about it that you might have a 'guaranteed' annuity rate with your current provider. It's important you check this out.

dunstonh

Firstly, you use one of the 'calculators' to get a 'ballpark' figure for best in market. But ask one (or even 2/3) IFA's - there are some that are easy to deal with over the Internet on somethings as simple as this - and you just become mercenary and go for the highest bidder. There is no room for 'sentiment' in the simple case of annuities. That's provided you are quite clear on the type you want (escalating, guaranteed, joint....) and make sure you compare like with like.

Just to note that the local IFA should be able to beat the internet companies. I have 9 open market options on the go at the moment (everyone seems to be wanting to do OMOs at the moment) and with each set of figures I have been able to get the providers to increase their figures. The gains have been around 7-10%. Not just on enhanced or impaired but on standard annuities as well.

CannySaver_2

Loughton_Monkey wrote: »

You might care to 'question' the guy who is trying to obtain your mandate to contact the pension provider. In most cases, this is simply not necessary. Because you know the rough value, and when it is paid over, it will be a few shillings different but you still get the quoted annuity rate. I'm just suspicious in case what he's fairly sure about it that you might have a 'guaranteed' annuity rate with your current provider. It's important you check this out.

The IFA who wants authority to get information on the existing pension is likely to be doing this so he can indeed check out whether guaranteed Annuity rates apply and get some confirmation for his file that they are / are not applicable. The IFA may also want to check things out such as whether there is any protected tax free cash above the 25% figure or exact splits between protected and non protected rights.

This would seem perfectly sensible, he is hardly doing it for monetary gain as any ongoing renewal commission will not last long as an Annuity is going to be bought.

The Canny Saver