Annuity advice

beansy

HAPPY NEW YEAR.

I have received my Comparative Annuity quote from my provider and wonder if anyone can give me some advice regarding the best choice of annuty based on the info below please? This is based on a total pot of £59344.79 (not gtd). or 25% PCLS of £14836.19 with £44508.60 remaining to purchase the annuity.

Ann Inc, Ann Inc, Life basis, Gtd, Escalation
before PLCS, after PLCS, yrs

std quote
£2934.48, £29191, Sgle, 5 0%

other options
£1876.20, £1401.48, Sgle, 5, 3%
£2937.36, £2194.20, Sgle, 0, 0%
£1877.52, £1402.44, Sgle, 0, 3%

Jt Life options
£2806.08, £2095.20, 50%, 5, 0%
£1767.36, £1319.64, 50%, 0, 3%
Sorry I can't get the tables to line up and have tried to define them using a ,

I had made enquiries via an IFA before Christmas but the first quote Equitable sent me didn't include my final 2 payments (I had increased to a total of £3500) into the scheme so I had to request a new one! Anyway to be fair to the IFA he telephoned me to ask if I still wished him to continue as with the changes that came in in Jan there would now be a charge of 2.5% of the fund value for him to do so, which at the very best he could try to reduce this to 1.8% as I had made enquiries prior to Jan 2013 but he indicated this would still be in the region of £800 and there was probably little more advice he could give me than I had already gleaned. He was very tactfully telling me not to waste my money!

The problem is although I have looked at MSE annuity guide I am still a little confused by the options when comparing the maths! Unfortunately, I tried to dload Martin's 30 page guide but after putting my details in 3 times and trying with my husbands email account, it wouldn't download.

Sorry, this is very long winded but would really appreciate your help on this as I was able to receive the funds from this at the beginning of Dec so feel I am losing out plus it is not a gtd fund and has gone down by more than £300 since 27 December!

Thank you for all advice received.
:beer:

jem16

beansy wrote: »

HAPPY NEW YEAR.

I have received my Comparative Annuity quote from my provider and wonder if anyone can give me some advice regarding the best choice of annuty based on the info below please?

You are likely to be able to get better than what your pension provider has offered even after paying a fee to an IFA.

Linton

The best choice really depends on your needs. To go through them in turn.....

The PCLS is a tax free lump sum. Taking the £2934/£2191 example - that's a difference of £743/year. So taking the PCLS would take 14836/743 = 20 years before the larger non-PCLS pension gave you a higher total payout. But the lump sum is tax free whereas you may or may not, depending on your other income, be paying tax on the annuity. Also you could invest the lump sum to produce extra income and so put the break even point out further. So in my view taking the PCLS is probably worthwhile.

Life basis: does your husband need some of your pension income should you die first? If he has an adequate pension in his own name then he wont need some of yours. If not, he may. If its not needed, dont take it.

Gtd - guarantee period: By default, when you die your pension stops even if its just a day after your pension started. However if you had a guarantee period of 5 years the money would be paid to your estate for the first 5 years of the pension (ie until Jan 2018) even if you died in that period. The loss of pension to get that guarantee would appear to be extremely small so you may as well take the guarantee.

Escalation: Do you want a fixed pension or one that increases over time? I havent done the maths for your quote, but when I have in the past I have found that if you have an average life span the financial advantages are fairly marginal either way. From a quick calculation it will take about 15 years for the escalated annuity to equal the fixed one. So its a question as to whether you have any reason to believe that you will die earlier or later than average and whether you need the money earlier or later taking into account inflation.

Have you just got quotes from your pension provider or has your IFA done a search across all annuity companies?

dunstonh

Anyway to be fair to the IFA he telephoned me to ask if I still wished him to continue as with the changes that came in in Jan there would now be a charge of 2.5% of the fund value for him to do so, which at the very best he could try to reduce this to 1.8% as I had made enquiries prior to Jan 2013 but he indicated this would still be in the region of £800 and there was probably little more advice he could give me than I had already gleaned. He was very tactfully telling me not to waste my money!

However, there would be no commission factored into the annuity rate any more so the net effect is the same as before. Remember if you buy direct, they take a commission. Whether you call it fee or commission, both get factored into the annuity rate.

beansy

Linton wrote: »

The best choice really depends on your needs. To go through them in turn.....

The PCLS is a tax free lump sum. Taking the £2934/£2191 example - that's a difference of £743/year. So taking the PCLS would take 14836/743 = 20 years before the larger non-PCLS pension gave you a higher total payout. But the lump sum is tax free whereas you may or may not, depending on your other income, be paying tax on the annuity Thanks Linton, I will be paying tax as I have my occupational pension, this fund was from my AVC. Also you could invest the lump sum to produce extra income and so put the break even point out further. So in my view taking the PCLS is probably worthwhile We are with you on this, thank you.

Life basis: does your husband need some of your pension income should you die first? If he has an adequate pension in his own name then he wont need some of yours. If not, he may. If its not needed, dont take it When he retires my husband will have his own occ pension and he also pays into an AVC, which he is hoping can be used to purchase additional years at retirement. In addition to this, on my death he will get a survivors pension (of half of my pension). So this isn't essential if this wasn't deemed to be cost effective.

Gtd - guarantee period: By default, when you die your pension stops even if its just a day after your pension started. However if you had a guarantee period of 5 years the money would be paid to your estate for the first 5 years of the pension (ie until Jan 2018) even if you died in that period. The loss of pension to get that guarantee would appear to be extremely small so you may as well take the guarantee Thank youfor your explanation as this was confusing me as it seemed such a small difference, so we would agree with your thoughts on this.

Escalation: Do you want a fixed pension or one that increases over time? I havent done the maths for your quote, but when I have in the past I have found that if you have an average life span the financial advantages are fairly marginal either way. From a quick calculation it will take about 15 years for the escalated annuity to equal the fixed one. So its a question as to whether you have any reason to believe that you will die earlier or later than average and whether you need the money earlier or later taking into account inflation This is anyones guess, LOL but I am currently 59, have no known health issues and have what I would consider to be a fairly healthy lifestyle. I did, however, have cancer 31 yrs ago but have not had any problems since.

Have you just got quotes from your pension provider or has your IFA done a search across all annuity companies?

No. I sent them the lifetime annuity comparative quotation before Christmas and they were waiting for Equitable to get back to them and to see the outcome of the new changes.

What I should also have mentioned is that the quotation which I received is with Canada Life - who I believe Equitable tend to use now - and I have been using some online calculators and they do seem to be coming out the highest. I have also completed the lifestye questionnaire and this hasn't been making any changes to the quotes I received. I have a little more information which I will respond to in Dunstonh's post, I hope you don't mind but he has raised this.

Thank you for your really helpful reply, in addition to the other 2 posts.

As always, we do appreciate it.

:T :beer: :T

beansy

dunstonh wrote: »

However, there would be no commission factored into the annuity rate any more so the net effect is the same as before. Remember if you buy direct, they take a commission. Whether you call it fee or commission, both get factored into the annuity rate.

Hi Dunstonh

Thanks for your reply.

This confused me as we went to a free financial wealth seminar before I retired in November and the new changes were raised but we were told (although it wasn't explained in detail) basically what you have written. I think it was put to us that the commission was taken from the pot of money but you didn't get to see how much as it was built into the calculations of the quote.

So I didn't quite understand this but appreciated his honesty as he said if we took his advice even at the reduced rate of around 1.8% we would have to pay him a fee of approx £800. We didn't come to any decision as he suggested I look into it further then let him know my decision.

I got the feeling that he didn't feel he could enhance the offer being made by Equitable/Canada Life and therefore, I would be better off keeping hold of my £800. However, I need to add that he brought to our attention that there is a statement on my personal example from Canada Life as follows:

How much will arranging this policy cost?

Answer - For arranging the policy Canada Life will not be paying commission or deducting a charge.

I think this is what he was basing his advice on, as he said that Canada Life have confirmed there would not be any charges involved in providing this annuity - he seemed to think that Equitable have done a deal with Canada Life, as being the NHS this will probably result in a lot of business for them!

ANY FURTHER THOUGHTS ON THIS PLEASE?

:T:beer: :T

beansy

jem16 wrote: »

You are likely to be able to get better than what your pension provider has offered even after paying a fee to an IFA.

Hi jem16

Thanks for your reply.

However, on using the online calculators it would appear not. They all seem to be coming back with pretty much what is on my quote, give or take a few £s.

:T:beer::T

jem16

beansy wrote: »

Hi jem16

Thanks for your reply.

However, on using the online calculators it would appear not. They all seem to be coming back with pretty much what is on my quote, give or take a few £s.

:T:beer::T

I would imagine the online calculators would all be pretty similar. However the main advantage of an IFA is the ability to haggle with the provider, something which cannot be done online.

dunstonh

So I didn't quite understand this but appreciated his honesty as he said if we took his advice even at the reduced rate of around 1.8% we would have to pay him a fee of approx £800. We didn't come to any decision as he suggested I look into it further then let him know my decision.

£800 is fine. I tend to float between £500 and £1250 depending on complexity with most falling around £750-£1000. So, a fair fee from him in my opinion. If you took his offer, he would tell the provider his fee is £800 and they would use the commission system to release £800 to him as if it was £800 commission.

I got the feeling that he didn't feel he could enhance the offer being made by Equitable/Canada Life and therefore, I would be better off keeping hold of my £800. However, I need to add that he brought to our attention that there is a statement on my personal example from Canada Life as follows:

How much will arranging this policy cost?

Answer - For arranging the policy Canada Life will not be paying commission or deducting a charge.

I think this is what he was basing his advice on, as he said that Canada Life have confirmed there would not be any charges involved in providing this annuity - he seemed to think that Equitable have done a deal with Canada Life, as being the NHS this will probably result in a lot of business for them!

This is a quirk in the system of disclosure. Eq Life have a commercial agreement at corporate level. Not consumer level. We dont know how much Canada Life are paying Eq Life for doing the annuities. The cost of that arrangement is factored into the annuity rate but it is not a cost that is individual to you.

The annuity rate is not a clean figure that everyone starts with and then only gets reduced depending on fee/commission/cost of distribution. It is affected by economies of scale as well as cost of distribution. Recently, I came in with a better annuity rate than HL using the same provider despite my fee being £300 more than their commission (as as both were using the commission system to pay the fee/commission what was being paid didn't matter as the end result - the annuity rate - is what mattered).

Economies of scale is important. IFAs handle 3/4 of pension transactions. It is the dominant distribution channel. So, the rates offered to IFAs can be higher because they supply more business. The last Eq Life pension I did, we were able to beat it. Not by much but it was beatable. If you have multiple schemes and some with other providers then it is certainly worth it. If it is just the one scheme and no others then I would expect a gain but a small one.

One other consideration is size of fund. Larger funds can get better rates. Some providers tier the annuity rate. Others are flat rate. Jem as also mentioned the haggle. Strange as it seems for such a thing, haggle makes a difference (that HL one I mentioned did not get beaten until after the haggle). Not all providers haggle.

What it may be worth doing is asking the IFA if he can just quote a quick comparison. I would think most IFAs would be happy to run a quick quote on a standard health case to see what comes back at no cost to you on the basis that if its higher you will use them. If you have health issues or prescribed medications then you would expect the IFA to beat it every time there are no guaranteed annuity rates on the existing provider. In your case (and assuming you dont qualify for enhanced terms), I would expect a small increase over what is being offered. The standard annuity providers are not that eager to haggle. Typically you need a pot of £50k or over after tax free cash for them to start offering a bit more. The enhanced providers is where that fun really comes into play as they will haggle on anything.

beansy

dunstonh wrote: »

£800 is fine. I tend to float between £500 and £1250 depending on complexity with most falling around £750-£1000. So, a fair fee from him in my opinion. If you took his offer, he would tell the provider his fee is £800 and they would use the commission system to release £800 to him as if it was £800 commission. (He said we would need to pay him the £800 ish as it couldn't come from the pot - not that this would be a problem, depends on which option is the best?



This is a quirk in the system of disclosure. Eq Life have a commercial agreement at corporate level. Not consumer level. We dont know how much Canada Life are paying Eq Life for doing the annuities. The cost of that arrangement is factored into the annuity rate but it is not a cost that is individual to you.

The annuity rate is not a clean figure that everyone starts with and then only gets reduced depending on fee/commission/cost of distribution. It is affected by economies of scale as well as cost of distribution. Recently, I came in with a better annuity rate than HL using the same provider despite my fee being £300 more than their commission (as as both were using the commission system to pay the fee/commission what was being paid didn't matter as the end result - the annuity rate - is what mattered). (It just so happens this is HL shhh)

Economies of scale is important. IFAs handle 3/4 of pension transactions. It is the dominant distribution channel. So, the rates offered to IFAs can be higher because they supply more business. The last Eq Life pension I did, we were able to beat it. Not by much but it was beatable. If you have multiple schemes and some with other providers then it is certainly worth it. If it is just the one scheme and no others then I would expect a gain but a small one.

One other consideration is size of fund. Larger funds can get better rates. Some providers tier the annuity rate. Others are flat rate. Jem as also mentioned the haggle. Strange as it seems for such a thing, haggle makes a difference (that HL one I mentioned did not get beaten until after the haggle). Not all providers haggle. I didn't think this happened in this line of business, LOL!

What it may be worth doing is asking the IFA if he can just quote a quick comparison. I would think most IFAs would be happy to run a quick quote on a standard health case to see what comes back at no cost to you on the basis that if its higher you will use them. (He seemed to indicate that if I received any form of advice he would have to charge me, however he did say he had contacted Equitable the day before to obtain a quote?) If you have health issues or prescribed medications (I am on eltroxin - following total thyroidectomy - for life but enjoy a full and healthy lifestyle on this) then you would expect the IFA to beat it every time there are no guaranteed annuity rates on the existing provider. In your case (and assuming you dont qualify for enhanced terms), I would expect a small increase over what is being offered. The standard annuity providers are not that eager to haggle. Typically you need a pot of £50k or over after tax free cash for them to start offering a bit more. The enhanced providers is where that fun really comes into play as they will haggle on anything.

Is it also true that Annuity Rates are not good at the moment and should I consider holding back for a short while? I noticed my pot had gone down by over £300 since 27 Dec to 2 Jan and it was going up and down quite a bit in Oct/Nov before my final contributions were received.

I am happy to pay the IFA if I am likely to see some extra benefit in the longer term but I don't have this sort of money to throw around and he didn't seem very optimistic that this would be the case and clearly stated that neither Equitable or Canada Life would be making a charge if I took the annuity with Canada Life, only if I was to receive/use HL

. So I am unclear about this statement.

BLB53

These annuity offers seem to me to be extremely poor value but as you say annuity rates are at rock bottom and gilt yields are the lowest for many years.

Of course, you do not have to take an annuity, you could opt for income drawdown i.e take the TFLS and draw an income from the remaining pot which is left invested.

You may need to transfer the pension to a low cost provider like Sippdeal to do this but I think it would be worth exploring and/or mentioning to your IFA.

Good luck!