Annuity purchase. IFA or DIY?

dunstonh

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

You mean the report that says people that fail to use the open market option get around 30% less? That's old news. Surely the same applies to any retail market?

The report has flaws....

"It is virtually impossible to find a specialist adviser who covers the whole market and who is willing to help those with smaller funds," the NAPF said

Easy. They are called IFAs.

It identified a number of "sharp practices" such as insurers "tailoring" their annuity prices according to how much money was being used to buy the annuity

What's wrong with that? Savings rates have tiered interest rates. Charges on many things are tiered.

There are some issues that could be better but personally I put the reason people dont shop around is that the average pension size is small and they cant be bothered. Apathy. It is easy to do and sort out.

SailorSam

Aegis wrote: »

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

On Saturday lunch time, Radio 4 Moneybox, Paul Lewis was talking about this and pressure is being put on them to stop it. But it's easy money they don't want to give up.

dunstonh

SailorSam wrote: »

On Saturday lunch time, Radio 4 Moneybox, Paul Lewis was talking about this and pressure is being put on them to stop it. But it's easy money they don't want to give up.

There are two issues here.

1 - Very old contracts have the commission on the annuity written into the contract provision. It has to be paid to the servicing agent at the time. Many old contracts no longer have a servicing agent and it reverts back to the insurer. Whilst they no doubt like that, to change it would require legislation to overrule contract law.

2 - The purchase of a annuity is a purchase of a product. It is being retailed and as such, why shouldn't the retailer have some provision of profit? If the retailer happens to the manufacturer then what is wrong with that? Replace annuity (or financial services) with any other retail product and would we be seeing the same concerns?

SailorSam

dunstonh wrote: »

There are two issues here.

1 - Very old contracts have the commission on the annuity written into the contract provision. It has to be paid to the servicing agent at the time. Many old contracts no longer have a servicing agent and it reverts back to the insurer. Whilst they no doubt like that, to change it would require legislation to overrule contract law.

2 - The purchase of a annuity is a purchase of a product. It is being retailed and as such, why shouldn't the retailer have some provision of profit? If the retailer happens to the manufacturer then what is wrong with that? Replace annuity (or financial services) with any other retail product and would we be seeing the same concerns?

On the face of it. it appears as if we're just getting ripped off again. But when you explain it like that i understand why the insurance companies feel it's OK.

atush

Personally, I feel it is a product like anything else.

It is only people's ignorance (sometimes willful) of finance in general that makes it so hard to understand.

A commission is generally paid anyway, so you might as well use a professional who can get you a better deal. Or, just don't buy an annuity. It is no longer mandatory.

SallyG

From the new report on DC pensions/annuities:
http://pensions-institute.org/reports/TreatingDCMembersFairly.pdf
"Rate analysis is essential to an efficient OMO service. Providers at the top end of the OMO tables tend to change rates every few weeks and might even make more than one change within the space of a week, if market conditions are very volatile or if they decide they need more or less of a certain size of fund to meet their business plans. At the bottom end of the OMO tables, providers might change their rates once a year and only then because they’ve realised that through inaction their rate unintentionally has become attractive.!!
A specialist adviser can exploit these rate fluctuations and anomalies to the customer’s advantage. The
research indicated that the more inefficient and unpredictable the market, the more important it is for DC members to have access to a firm with the best software and systems. While the FSA tables adopt rate changes, they tend to provide only limited information. This can conceal ‘cliff‐edge’ rate bands, which can have a significant impact on the outcome."!

The report concentrates on occupational DC pensions but the findings seem to hold good for individual non-GAR DC pension holders?

dunstonh

A specialist adviser can exploit these rate fluctuations and anomalies to the customer’s advantage.

I dont get this "specialist" tag with regards to annuities. We know from people posting on here that local IFAs have been getting better rates than so called specialists. A specialist is just a firm that does more but it doesn't mean they know more. Unless they are referring to specialist as IFAs in general. i certainly dont consider it specialist. To an IFA, it is a bread and butter transaction that requires no real specialist information. Paperwork is a pain as there are quirks on things you can and cannot do but apart from that its easy for an IFA.

While the FSA tables adopt rate changes, they tend to provide only limited information. This can conceal ‘cliff‐edge’ rate bands, which can have a significant impact on the outcome."!

The FSA tables have always been unreliable. They are better now but they assume data that is specifically input and do not cover all the options available. They also do not take into account that IFAs can often get better terms. Think of it as the FSA table showing the RRP but the IFA directly or through their network may have obtained better terms.

The report concentrates on occupational DC pensions but the findings seem to hold good for individual non-GAR DC pension holders?

Mostly yes.