Pension annuity rate

dunstonh

I think I still do not understand how this commssion works. When I raised this issue in another thread, this was your reply:

He is correct. Who do you think pays for the commission if you dont? The amount of the commission is factored into the annuity rate.

(Sorry - I don't know how to paste a link to the thread) However, this implies that if the IFA takes a commission, then my pension amount could be reduced accordingly. Can you pls elaborate more on this?

The commission is payable whether you use an IFA or not. Either it is paid to the IFA or it is kept by the annuity provider (and in some cases paid to the original agent that set the pension up in the past).

By not using an IFA you are not avoiding the commission, you are just changing its destination.

Acromion

From the consumer point of view, the retention of the commission, either by the Insurance Company or the IFA, does seem anachronistic and indeed a bit of a racket. Of course I understand that some people will require ongoing advice, but in Linda's case the 9% is a no-brainer, she doesn't need the advice but money is going to be subtracted from her policy anyway.

I have also been offered an attractive annuity rate - 7% - and while not quite up to lindabea standards I doubt if it can be bettered either. But even if I take that decision unaided, someone other than me will get the reward.

Surely this aspect of crystallising a pension is ripe for reform?

gadgetmind

Acromion wrote: »

Surely this aspect of crystallising a pension is ripe for reform?

I really hope so.

However, given the choice, I'd leave the commission with the annuity provider.

This is because -
1) I have a deep-seated dislike of middle men. Yes, they are sometimes a necessary evil, but their "evil" often spreads into the unnecessary.
2) If the commission is left with the annuity provider, they can (on aggregate and over the long term!) provide higher annuities.
3) I hold shares in a few annuity providers.

lindabea

I have received some further communications from my pension provider... hmmm the annuity rate of 9.25% does not seem so attractive as I first thought. It would appear that the pension is payable annually in arrears with a 5 year guarantee. I'm beginning to wonder what else I may yet to find out, as every time I speak to them, something new turns up. Getting an IFA to advise me is beginning to sound good as I don't know how to get round this issue; however, if he then gets the commission, is there a risk that I could end up with a lower pension as I don't know if the rate quoted is before or after the commission is taken out either by the provider or an IFA.

atush

The fact that there is a 5 year guarantee is actually good, as we had supposed there would be no guarantee at all with a rate of 9+%.

And arrears is a pain, but still you will be getting over 9% instead of 5%. Still a no brainer.

I know you are having trouble with this decision, but the rest of us who can look at it from afar still feel taking up the GAR is best.

SallyG

http://www.moneymarketing.co.uk/pensions/why-do-life-offices-fail-to-spell-out-guaranteed-rates-clearly?/1037881.article

"Consider the ways that life companies talk about that rarest of things, the guaranteed annuity rate. Once offered as a sweetener on some early pension contracts, providers now quake in their boots at the prospect of actually honouring these guarantees."

Is it really true that annuity providers and IFAs can take ongoing annual commission payments from annuities?

atush

Yes, some providers like Equitable life went under/cloesed to new business just by paying GARs out.

SallyG

For the GARless:
http://www.telegraph.co.uk/finance/personalfinance/pensions/8790186/Not-in-the-best-of-health-You-could-triple-your-income-in-retirement.html
"the uncertainty in the markets is making it very difficult for providers to price annuities, which are, after all, long-term products. As a result, they are keeping business levels low by making sure their products are not in the best buy tables for long, according to annuity experts"

Even the annuity providers don't want to provide annuities to anyone with normal life expectancy?

dunstonh

A lot of the legacy pensions from decades ago pay the commission because it was in the contract at point of sale. Increasingly, modern pensions dont do that and some dont even offer an annuity option and force you to use the open market option where you can get your own terms.

lindabea

atush wrote: »

And arrears is a pain, but still you will be getting over 9% instead of 5%. Still a no brainer.

I know you are having trouble with this decision, but the rest of us who can look at it from afar still feel taking up the GAR is best.

Of course, the main disadvantage of having an annuity paid annually is that no payment would be made in the year I were to die. This could be a max of 11 months pro rata payments which my estate would not benefit. These are the factors which I need to consider, but as you say, the GAR is excellent.