Internal annuity offers always a worse deal?

SallyG

http://www.telegraph.co.uk/finance/personalfinance/pensions/9916599/Force-annuity-firms-to-treat-all-customers-equally.html

"Quite frankly, some of the differences in rates are nothing short of scandalous and the market will only be right for customers when providers are clear and transparent about the rates they are offering."
Mr Barral said some providers offered different internal and external rates in order to "cream off a higher margin" from annuity customers.
He said: "Effectively providers have been taking advantage of customer inertia. That is something we are totally against."

FatherAbraham

SallyG wrote: »

"Quite frankly, some of the differences in rates are nothing short of scandalous and the market will only be right for customers when providers are clear and transparent about the rates they are offering."
Mr Barral said some providers offered different internal and external rates in order to "cream off a higher margin" from annuity customers.
He said: "Effectively providers have been taking advantage of customer inertia. That is something we are totally against."

But it's the lazy, incompetent or incapable customers who subsidize better annuity rates for those of us who shop around!

This campaign could be a disaster for us!

Warmest regards,
FA

bilbo51

Two words.

Caveat emptor.

dunstonh

Its strange that in other retail areas you dont see the media getting in a frenzy. You go into Tesco and you see rows of shampoo. Some of which is cheap, some of which is expensive. Is it scandalous for people to have the choice and for retailers and manufacturers to decide their price based on what they can afford to offer?

SallyG

Well except that I can check on the price of shampoo everywhere for free - to check on an annuity outside my current provider I have to pay about £500 to an intermediary to haggle - and then the offer isn't guaranteed?

GhIFA

In other news, the sun is hot - another piece of quality journalism!

You can check for free, look at the Money Advice Service - although you'll be restricting your options.

dunstonh

Well except that I can check on the price of shampoo everywhere for free - to check on an annuity outside my current provider I have to pay about £500 to an intermediary to haggle - and then the offer isn't guaranteed?

The offer is guaranteed. Providing your are truthful. In the very many years I have been doing this, I have only had two cases where the rate changed. In both cases they were down to people saying they were smoking more than they were. They lied to me and they lied to the insurer. Neither were accidental. Both tried it on.

The money advice service allows you to get basic non-adjusted for retail prices.

IFAs are advisers and retailers. Retailers earn on the retail of the product. Many retail products you cannot buy direct and even when you can buy them direct, they are at an MRP/RRP and not at a retailers chosen price based on economies of scale. You may cut out the retailer by going direct but a good chance you end up with a worse deal. In the case of annuities, we see frequent posters on this board say that their IFA beat the online sites on annuity rates. I had a case similar to that over Christmas where someone got an annuity quote from the place mentioned on this website. My fee was £300 more than their commission but my annuity rate with exactly the same provider was 10% higher. Spending that £500 or whatever for an IFA is money well spent when it comes to annuities. It may not be in every retail financial services area but it is with annuities.

Freecall

dunstonh wrote: »

Its strange that in other retail areas you dont see the media getting in a frenzy. You go into Tesco and you see rows of shampoo. Some of which is cheap, some of which is expensive. Is it scandalous for people to have the choice and for retailers and manufacturers to decide their price based on what they can afford to offer?

I think that this is an unrealistic comparison. I say this for three reasons :

1. Most people by shampoo every few weeks for decades and therefore get good at it, they buy an annuity only once in a lifetime.

2. An error, even a gross error buying shampoo has no real downside whereas even small details in the purchase of an annuity can have life changing implications.

3. Buying shampoo is intrinsically simple, buying an annuity is so complex that many people find it advisable to employ an advisor to help them through the process.

I do get the underlying point that you are making but this comparison is just a bit too simplistic.

How about comparing to a house purchase maybe?

dunstonh

1. Most people by shampoo every few weeks for decades and therefore get good at it, they buy an annuity only once in a lifetime.

Most people have 40-50 years to plan to buy the annuity and there is plenty of information and advice available to prepare and complete it.

2. An error, even a gross error buying shampoo has no real downside whereas even small details in the purchase of an annuity can have life changing implications.

Ok. Replace shampoo with any other retail product that people have made mistakes on over the years.

How about comparing to a house purchase maybe?

That would be a fair comparison and the amounts of money involved are typically similar.

I spent four hours buying a car yesterday. I bought a mobile phone earlier in the year which I spent a few hours researching. I have done 5 open market options in the last fortnight. The typical first meeting takes 90 minutes. The presentation and sign up about another 60 minutes. So, for the consumer, thats about 2.5 hours on the biggest or second biggest purchase of their life. Its not much to ask.

Although you wouldnt spend 2.5 hours on buying shampoo