MSE News: Pensions firms face competition probe over annuities

gadgetmind

dunstonh wrote: »

Even in-house ones disclose the commission.

Fair enough, but do they let you avoid the commission?

I freely admit to being *very* fee adverse (bitten by big fees as a child) but do people really need to have part of their life savings being spirited away at the point of retirement?

I doubt I'll use an annuity for myself but my wife might as her pot at retirement will only be around £50k. Choices would seem to pay a fat whack of commission to buy a meagre annuity or to face large annual fees for drawdown.

Current plan is to find the most fee efficient drawdown provider that doesn't have exit charges and to keep hopping as and when they get too greedy.

zagfles

gadgetmind wrote: »

Fair enough, but do they let you avoid the commission?

I freely admit to being *very* fee adverse (bitten by big fees as a child) but do people really need to have part of their life savings being spirited away at the point of retirement?

I doubt I'll use an annuity for myself but my wife might as her pot at retirement will only be around £50k. Choices would seem to pay a fat whack of commission to buy a meagre annuity or to face large annual fees for drawdown.

Current plan is to find the most fee efficient drawdown provider that doesn't have exit charges and to keep hopping as and when they get too greedy.

There are annuity discount brokers eg http://www.annuitydiscount.co.uk And as we've seen recently customers can haggle direct for annuities.

For a smallish drawdown I think you'd be hard pushed to beat HL, they're probably the best value!

gadgetmind

zagfles wrote: »

For a smallish drawdown I think you'd be hard pushed to beat HL, they're probably the best value!

Until they unilaterally increase their fees many fold while trying to maintain punishing exit fees.

dunstonh

There are annuity discount brokers eg http://www.annuitydiscount.co.uk And as we've seen recently customers can haggle direct for annuities.

I wouldnt call that a haggle. Haggles add around 5-10% to the rate. That was a few quid.

zagfles

dunstonh wrote: »

I wouldnt call that a haggle. Haggles add around 5-10% to the rate. That was a few quid.

It was 5-10% as I remember, and it was you who gave that OP the idea to haggle, well done!

ETA: this was the thread http://forums.moneysavingexpert.com/showthread.php?t=4846538

bmm78

gadgetmind wrote: »

But surely that's because standard involves the annuity company pocketing the commission rather than putting it into the annuity pot?

Perhaps these are the next hidden fees that the FCA needs to address?

Commission on annuities is a strange, murky world, and the FCA really should redress the balanced between advised and non-advised sales and outlaw commission on all annuity purchases.

That said, it's not an intuitive system, in the sense that lower commissions do not necessarily mean a higher annuity rate.

For the same provider/product, reducing the commission will indeed increase the annuity rate, but often by a negligible amount. For example, a commission reduced from 2% to 1.5% will increase the rate on that particular annuity.

Across providers though, the comparison becomes less meaningful. The most competitive annuity rates are offered by enhanced annuity providers, who also generally offer the highest rates of commission. One of the main enhanced annuity providers offers commission that could be considered obscene, but often have the highest annuity rate for the customer.

It's all to do with business models, how aggressively they are competing for the business, and the margins they are working with. The enhanced annuity space generally lower margins, greater competition, and more aggressive price-matching.

These are all things that the consumer can use to their advantage, by using the commission the broker has, playing firms off against each other, and getting the highest rate possible. This isn't the same as shopping around for the "cheapest" broker deal, which just doesn't work as people may think.

This is the biggest issue with services like Cavendish - if they don't have access to the enhanced annuity providers and use a fully automated service, they not only miss out on the highest rates, but also on the ability to haggle and negotiate a better rate. Unless they are getting the highest rate, the commission saving is just a smokescreen.

The amount of commission (or adviser charge if an IFA) only becomes significant if and when you have got the highest rate (or best product). It is a factor, but normally well down the list of priorities.

dunstonh

This is the biggest issue with services like Cavendish - if they don't have access to the enhanced annuity providers and use a fully automated service, they not only miss out on the highest rates, but also on the ability to haggle and negotiate a better rate. Unless they are getting the highest rate, the commission saving is just a smokescreen.

The FCA review has missed the bit on haggling too as it asked providers to supply quotes on advised and DIY. They supplied the default quotes. Not the haggled bit that follows.

It was 5-10% as I remember, and it was you who gave that OP the idea to haggle, well done!

We didnt have enough to go on with that thread to see why the increase occurred. It maybe a clarification of health information. For example, someone saying they have high blood pressure but not giving their latest readings will get a lower annuity rate than someone with readings. There are a lot of quirks like that. We dont know if it was a clarification of health or a haggle or a combination or what. It was a nice result but nothing to put in context with. Especially as the providers that consistently come out top will not deal direct with the public.

zagfles

dunstonh wrote: »

We didnt have enough to go on with that thread to see why the increase occurred. It maybe a clarification of health information. For example, someone saying they have high blood pressure but not giving their latest readings will get a lower annuity rate than someone with readings. There are a lot of quirks like that. We dont know if it was a clarification of health or a haggle or a combination or what. It was a nice result but nothing to put in context with. Especially as the providers that consistently come out top will not deal direct with the public.

Do they deal with execution-only brokers?

This article has some good tips:

http://www.theguardian.com/money/2013/dec/14/buying-an-annuity-top-tips

dunstonh

Do they deal with execution-only brokers?

They do. However, one provider pulled out because the quality of information for underwriting was so poor via the DIY side compared to the advice side. I have had many postal medical questionnaires returned to me over the years which I have then gone on to get improved information which has resulted in better rates. However, the DIY side doesnt see that happen.

zagfles

dunstonh wrote: »

They do. However, one provider pulled out because the quality of information for underwriting was so poor via the DIY side compared to the advice side. I have had many postal medical questionnaires returned to me over the years which I have then gone on to get improved information which has resulted in better rates. However, the DIY side doesnt see that happen.

What, never? I'm surprised - surely anyone who has any sort of life expectancy affecting health issue would want to make sure that anyone providing an annuity quote has full details.