Annuity purchase. IFA or DIY?

joetheminer

I want to buy an annuity with my PP fund and cannot understand the following: can someone advise please?
My current fund provider has given me an illustration/quote etc for buying from them while pointing out that I can shop around via OMO etc.
I have also had very similiar quote values online from comparison tables via "The Money Service" website.

Initially I started my enquiries of by using an IFA and paying a nominal upfront fee of £75 for his time/admin etc as the process seemed full of possible pitfalls to me. However, it turns out that the best annuity the IFA can source is from my fund provider with the same figures/benefits.
The IFA tells me that while his/my illustrations/benefits may be the same, should I buy through him his commission would be paid by the fund provider from my fund and illustrations I have from them would have taken this into account, and this is normal for the industry.
My query is simply:
Why is any pension I might buy the same if I buy direct myself or through an IFA while the IFA`s commission is being paid for from my fund? Why is my simple "buy direct and cut out the middle man" quote not offering more?
My IFA simply tells me this is the industry accepted norm.
I`d be grateful for any `expert advice` please.

Aegis

joetheminer wrote: »

I want to buy an annuity with my PP fund and cannot understand the following: can someone advise please?
My current fund provider has given me an illustration/quote etc for buying from them while pointing out that I can shop around via OMO etc.
I have also had very similiar quote values online from comparison tables via "The Money Service" website.

Initially I started my enquiries of by using an IFA and paying a nominal upfront fee of £75 for his time/admin etc as the process seemed full of possible pitfalls to me. However, it turns out that the best annuity the IFA can source is from my fund provider with the same figures/benefits.
The IFA tells me that while his/my illustrations/benefits may be the same, should I buy through him his commission would be paid by the fund provider from my fund and illustrations I have from them would have taken this into account, and this is normal for the industry.
My query is simply:
Why is any pension I might buy the same if I buy direct myself or through an IFA while the IFA`s commission is being paid for from my fund? Why is my simple "buy direct and cut out the middle man" quote not offering more?
My IFA simply tells me this is the industry accepted norm.
I`d be grateful for any `expert advice` please.

If you go direct the insurance company pockets the commission for themselves, increasing their profit. It's definitely an industry norm.

grizzly1911

Same query really for all the comparison sites, presumably they get some form of "introduction fee" even if if not the full IFA tariff.

Currently looking for a family friend.

Are there any recommended comparison sites? PP is < 100k and person is not in the best of health, age 57, and would like to take max cash lump sum.

Aegis

grizzly1911 wrote: »

Same query really for all the comparison sites, presumably they get some form of "introduction fee" even if if not the full IFA tariff.

Currently looking for a family friend.

Are there any recommended comparison sites? PP is < 100k and person is not in the best of health, age 57, and would like to take max cash lump sum.

If they're not in the best of health, go to an IFA who can try to negotiate with insurance companies for enhanced annuity terms. The commission should pay them enough for their time, and the rate increase from using someone with experience in the area can be significant.

dunstonh

Why is my simple "buy direct and cut out the middle man" quote not offering more?

Because you are not cutting out the middle man. You are replacing it with another one; the provider. Think of it as retailer/distributor and manufacturer. The annuity provider is the manufacturer but they need a distributor. They either use an IFA (some pension providers will not offer their own solution) or they will retail their offering to you as retailer.

FSA regulation and cost goes up for providers that retail their own products compared to those that do not.

Same query really for all the comparison sites, presumably they get some form of "introduction fee" even if if not the full IFA tariff.

Currently looking for a family friend.

Are there any recommended comparison sites? PP is < 100k and person is not in the best of health, age 57, and would like to take max cash lump sum.

Recent posts from those that compared a few annuity comparison sites to local IFAs found that the local IFA came in better. Especially on enhanced terms. That would not be surprising as you can haggle rates with providers via the company rep that deals with the IFA. A computer doesnt do the haggling that an IFA would.

CannySaver_2

Hi

I think the point has been well answered about why "going direct" is not any cheaper.

However I would add that the OP's £75 outlay has been money well spent as at least they now know that the existing pension provider produces the best annuity rate. Although to take this point on a little further its the first time I have heard of an IFA charging upfront to do the research, is this the effects of RDr coming into play I wonder?

Personally whenever friends ask me about annuities I always suggest they use an online pension annuity calculator such as the one in the link and then request advice from an IFA. The online quote (s) give them an idea of the rate they should be expecting but more importantly an idea of the cost of adding in options such as guaranteed periods, spouse's pensions etc.

I would always advocate using an IFA to arrange an annuity, and preferably one which doesn't simply take orders but offers advice too, there are of course many other options than just an annuity. I would also get them to haggle with the provider re rate, especially on enhanced cases, and for larger cases I'd haggle on the commission or consider working on a fee.

Hope this helps.

The Canny Saver

dunstonh

However I would add that the OP's £75 outlay has been money well spent as at least they now know that the existing pension provider produces the best annuity rate. Although to take this point on a little further its the first time I have heard of an IFA charging upfront to do the research, is this the effects of RDr coming into play I wonder?

I have seen it before and indeed, done it myself where the existing provider is one that you or suspect doesn't pay a commission (if it does, you just offset it against the fee agreed). However, it will become more common post RDR when the whole process will become fee based as standard.

The problem with post RDR rules is that existing plans will not pay a commission on commencement post RDR (the provider gets to keep it irrespective). The IFA will have to charge. Not a problem on the 8 times out of 10 where OMO or transfer are the best options but on the 2 out of 10 cases where existing provider is best, the advice will need to be paid for by the person whilst the provider keeps the commission that they would have paid pre RDR.

joetheminer

Thanks for all replies.
As a newbie and most likely naive regards annuities/insurance (as most folks of a certain age are when buying an annuity) it is easy to understand how the finance industry has got itself a bad press in recent years when an Insurance company I have saved with for some 35 years wants to take yet more money from my savings other than offer me a saving by buying/dealing with them direct on my annuity/pension.
While certain transactions are the norm in the industry is`nt it about time The Finance Industry took account of the general public`s perception of the whole industry?

dunstonh

it is easy to understand how the finance industry has got itself a bad press in recent years when an Insurance company I have saved with for some 35 years wants to take yet more money from my savings other than offer me a saving by buying/dealing with them direct on my annuity/pension.

I dont understand that. You have spent your life buying goods each week and every time the retailer makes money out of you. Every time the manufacturer makes money out of you. So, why shouldnt financial services when you are buying a new product?

Or how about a painter/decorator who has painted 6 rooms in a 10 room house. 3 years later you ask him to come back to paint the other four rooms but you wont pay him as you paid him for the other rooms before and dont see why you should pay him again. Is that what you are saying?

As you are now retiring, you would have spent a life being paid a wage. How do you think the company could afford to pay your wages if it didnt charge people for the work it did?

While certain transactions are the norm in the industry is`nt it about time The Finance Industry took account of the general public`s perception of the whole industry?

OK. What is your answer? You are now the annuity provider. You are not allowed to charge the client or factor a profit into the product (which is how the remuneration/profit is handled).

How would you stay in business?

CannySaver_2

joetheminer wrote: »

Thanks for all replies.
As a newbie and most likely naive regards annuities/insurance (as most folks of a certain age are when buying an annuity) it is easy to understand how the finance industry has got itself a bad press in recent years when an Insurance company I have saved with for some 35 years wants to take yet more money from my savings other than offer me a saving by buying/dealing with them direct on my annuity/pension.
While certain transactions are the norm in the industry is`nt it about time The Finance Industry took account of the general public`s perception of the whole industry?

I have to agree with dunstonh here, this is a completely different transaction.

If you buy a car that's one transaction, if you then need it serviced, a part changed, etc then you pay for it, same here with pensions. You have paid charges to accumulate and now you are buying an Annuity (one of at least 10 options you have to take an income) then it is a new product, piece of work or advice and you therefore need to pay again; unfortunately nothing is free.

I would agree with you though, although not necessarily because of the exact reasons in this case, that the financial services community needs to take a look at itself. That starts from the FSA right down to the one man band IFA in the high street. I have heard a lot of stories about some very iffy practices (particularly relating to SIPPs) over the past few weeks from friends, and been offered some myself. The majority of IFAs who are ethical and want to add value to their clients financial lives need to stand up / continue to stand up to those people in their industry who are simply just trying to rip people off.

Rant over! :mad:

The Canny Saver

joetheminer

The recent news item from the NAPF goes some way to endorse my concerns at the fairness of this industry.
Case is rested.