Buying an Annuity

susanann_2

Can you get a better deal for yourself shopping around for an annunity or should you go to an IFA.

jem16

susanann wrote: »

Can you get a better deal for yourself shopping around for an annunity or should you go to an IFA.

Always best to go to an IFA. An IFA can make sure you have the right annuity - eg any enhancements due. He/she can also haggle with providers and some deals are only available through IFAs. He/she can also check if there are any guarantees attached to your exisiting pension pot.

It's a no-brainer option to use an IFA.

CannySaver_2

Hi

Agree with Jem, in fact have already posted to that effect today.

I'd always suggest doing some of your own research using a pension annuity calculator, that way you have an idea of the cost of the various options, I'd also suggest doing your own reading to gen up on the options.

I would then seek out a couple of IFAs and chat through with them what you are looking for, the service they offer and their charging structures. I would expect an IFA to do:

1. Talk me through the various options and make a recommendation

2. Facilitate any recommendation

3. If the recommendation is for an Annuity then I'd want them to check if I qualify for enhanced rates, haggle with Annuity providers if my fund is large enough and reduce their commission, again if the fund is large enough (I don't want much! )

But always always go to an IFA, if you go direct you will probably get a worse deal and the annuity provider will simply pocket the commission as a windfall.

The Canny Saver

Nearly_Old

I posted this on a similar thread https://forums.moneysavingexpert.com/discussion/3899769

I retired last October and was very glad that I used an IFA. I used a couple of the comparison sites to get an idea of what sort of pensions were available but at the time I was intending to head down the drawdown route. Discussions with the IFA over future lifestyle and taking into account other pensions, savings and investments made me reconsider and I went for an annuity.

The IFA then got me to complete quite a lengthy questionnaire that he sent to a number of annuity providers. Some annuity providers do not deal directly with the public so the only way to get quotes is through an IFA. After getting the results back the IFA went through them with me and then negotiated with two of them to get the best deal he could. It did take about 3 months (partly due to the Christmas period) but IMO it was worth it in the end both for the value of the pension and for the independent look at what future lifestyle I was hoping for.

EdGasket

Nearly Old - may I ask why you changed your mind about drawdown? I am also thinking of the drawdown route and would be interested to hear why you ended up with an annuity?

Nearly_Old

EdGasket wrote: »

Nearly Old - may I ask why you changed your mind about drawdown? I am also thinking of the drawdown route and would be interested to hear why you ended up with an annuity?

I started my career in Local Government so had an index linked pension that I could take at age 60. After that I was in the private sector and had a total pension fund of £280k last year (age 62) that had a normal retirement age of 63. I qualify for the basic state pension in April 2014 and this is index linked. My wife also has an indexed linked Local Authority pension that she will take from this September. My wife also qualifies for the basic state pension from January 2013. In addition we each have Cash and S&S ISAs and other cash savings.

We have kept annual accounts since 1995 so we had a fairly good base from whch to estimate our requirements for the baseline retirement budget. Our IFA analysed all our assets and reviewed our draft retirement budget that covered all our regular expenditure including holidays, etc. Fortunately all our indexed linked pensions just about equaled our baseline budget - interest from personal savings and investments was excluded from this calculation. This opened up any number of options for the pension fund.

Drawdown:
1) Actively self manage to maintain the value of the fund - lowest cost but knowing my own (probably less than adequate) capabilities probably also the highest risk.
2) Partially self manage but with the IFA advising on my plans - slightly reduces the risk but adds a cost.
3) The IFA actively manages the fund - lowers the risk further but introduces significant cost.

Annuity:
Due to the other index linked pensions I could go for a level annuity, 10 year garauntee, 50% spouse benefit.

Lifestyle (probably the deciding factor):
I play golf and I am a car enthuistiast ( I bought my retirement car 3 years ago!),
we want to travel (long haul trips and European driving holidays). We have quite a few friends we like to visit / come to stay with us. We are also looking to move house to upsize our outside space and make room for a bigger garage and workshop.

The IFA then asked did I want to be sat in hotel in Sydney / Perth / New York / Etc logging in to check my fund when we are away for 2 or 3 months? Similarly did I want to be doing it when I could be out on the golf course or doing things with the cars? So in the end the IFA went with the Open Market Option and got a good deal on the annuity. Than all I had to do was plug the numbers into the spreadsheet to double check, sign the forms, check that the money was coming in and get on enjoying life.

Those that have been active investors may have chosen the Drawdown route and it would be fine - really there is no right or wrong way. I suppose with age comes a better realisation of our own capabilities and I didn't feel 100% confident of self managing a Drawdown pension and fully enjoying my retirement.

srcandas

Really valuable post 'Nearly Old'. It would be great if more people who have jumped a hurdle came back and shared their experience.

Just a couple of thoughts I had:

I thought it strange that your IFA inferred looking after your drawdown funds would be so tedious. I'd have thought the temptation to over play was for most amateurs far more of a risk than leaving a well balanced porfolio to look after itself for a few months or even longer.

In my case the number one attraction (if I've got it right;)) to drawdown is the ability to pass the fund onto my step daughter.

But very enlightening. Thank you :beer:

Nearly_Old

srcandas wrote: »

Just a couple of thoughts I had:

I thought it strange that your IFA inferred looking after your drawdown funds would be so tedious. I'd have thought the temptation to over play was for most amateurs far more of a risk than leaving a well balanced porfolio to look after itself for a few months or even longer. It probably wouldn't be that tedious except probably for my personality as I would have been looking at it most days and wondering if I needed to do anything.

In my case the number one attraction (if I've got it right;)) to drawdown is the ability to pass the fund onto my step daughter. We had long discussions with our son over this and as long as he gets the house (care home fees permitting) he is comfortable with this.

But very enlightening. Thank you :beer:

Just a couple of other things that I've thought about:

After completing all the forms I did have a bit of a wobble about handing all my money over so the IFA said OK stop and sit down and write down what's worrying you and look carefully at your annual pension statements. My employee contributions were actually less than 10% of the total fund with the rest being employer contributions and investment growth. So with the 10 year garauntee the annuity will pay back at least 8 times the amount that I personally put into the funds.

The other thing was what if I deffered the annuity for a couple of years? Unfortunately neither of us had the crystal ball handy but the IFA said "Amongst all the unknowns let us assume that your date of death is fixed." Now even if annuity rates doubled in the next 2 years (cue laughter) how many years would it take to recoup the 2 years lost income?

Then there was the unknown of the potentially variable GAD limit (I don't meet the requirements for flexible Drawdown) in the future?

Oh and there is also my model railway (18ft x 12ft when fully assembled) that has been packed in boxes in the loft for the last 20+ years. Plus my wife's 2 knitting machines, sewing machines, etc that she wants to get using again. Over the past 5 years she has also been buying vintage shoes and handbags and she wants to start selling these on EBay focussing on the American and Japanese markets. So much to do - how did we ever fit work in?

Started my housework early this morning (my wife does now introduce me as her Domestic God) and the sun has come out so not going to use the sensible car. Nice roof down driving to get my errands done, fit in a quick 9 holes and back home in time to welcome her home from work.