Decent annuity rate?

dunroving

Might be a daft question, but I have been quoted the following rates for a single-life, lifetime annuity with a 15-year guarantee:

At age 60: 6.15%
At age 65: 6.81%

- this is pretty good, yes???

Gtekser

I haven’t heard of annuity rates! I am new to it as I have only just started the trek of looking for an annuity based upon my pension pot which has accrued back to the point before the bankers screw the economy. As I am self-employed this has accrued to £120,000.
With all the talk about how you can improve your pension by not going for the pension company you are currently with, I started out looking around the Internet.

Here is what I have found – its not easy at all!

The money-saving expert recommends getting advice because this can save you money.

I contacted my pension company HSBC to find out what they were offering and based upon this I then applied these findings to the comparison websites.
I am very clear on what I want to do so I do not want to be appraised or reviewed. I gave them the intention of me taking 25% tax-free and the rest to be set aside for an annuity with a 10 year guarantee - not wishing for a percentage or index-linked.

After applying the figures to the Internet on three different comparison websites, it was clear that HSBC pensions department was doing me no favours as they came 10th on my list of estimations - I use the word estimations but they are figures produced based upon what I put into the comparison websites..

Now for the revelation! I e-mailed several of the companies which were listed in the comparison, but only two were willing to put forward an estimation/quotation. I agree that these companies are going to pocket the equivalent of what an adviser would charge but they are still willing to put forward some figures. The other companies were very cagey and referred me to an adviser stating that they could not do business with me directly.

I agree that the financial services have to be regulated especially so that people are not being taken advantage of but there ought to be the ability to waver the need for you to be appraised/reviewed if you know exactly what you want.

I have started to contact pension advisers but it is not clear as to how much they are going to charge or what the likely outcome of an annuity will be. In fact the whole industry appears to be locked down in collusion. The pension advisers will not give you their ‘best they can do figure’ unless you pay them. However you do not know whether that is a good figure or not. So unless you pay out for several advisers, it's a bit like the game of cards ‘Find the Lady’. I also liken it to a game of poker where you are only able to see the other person's hand if you put the money on the table.

It would appear from the response from the pensions companies who do not want to deal with the man in the street and push it towards a financial adviser are acting like a cartel.

The bottom line is there is no way the man in the street is ever going to know that he has got the best deal even if he goes through a pensions adviser. There is no way of checking that that pensions adviser didn't go for an annuity that suited his or her pocket over and above the interests of the customer. As they are only human, what if they have a bad day and get you a better rate i.e 5th on my comparison list as opposed to 1st on the list! They still did their job didn't they?

It is with great anger that I look at something that should be fairly simple is in fact very complex. It's certainly not like car insurance where you phone up and ask for a quote and if you don't like it you move on until you do find something that suits you best. Where would the car insurance business be if you had to pay the broker before you were given any indication of how good the quotation would be?

The burning question is, how do I find the best rates? Or how do I find the best adviser with the best rate?

DancingBadger

The burning question is, how do I find the best rates? Or how do I find the best adviser with the best rate?

We've just been through that exercise. The received wisdom is to ask friends for a recommendation. Failing that, look for an IFA via www.unbiased.co.uk.

Be aware of percentage charges. For us the difference in charges was over £20k. We eventually went with a Chartered IFA who charges an hourly rate and has a clear and transparent charging structure.

Gtekser

Thanks for the reply and sorry if it hijacks the original question which I am sure this has relevance.

You say “Failing that, look for an IFA via! website unbiased.co.uk. “ well that is where most of the pensions companies send you anyway.

The problem is, who will do the best job and that's where the cloak and dagger stuff comes in – its a catch 22 situation. You have to pay to find out, so how transparent is that? If you paid 2 advisors and one is better than the other I doubt whether you would get a money back from the lower quotation advisor. I guess the answer would be that it was his/her best shot at the time even if qualified in annuities market.
It seems a very unfair, regulated system. But thanks for the reply.

Gtekser

Reference website 'moneyadviceservice.org.u...ools/annuities' YES YES YES .....very help as this is where I got the benchmarks to know that HSBC was bottom of the list.

As said I wrote to the companies on the list individually and got the responses previously outlined. Only one sent through a written quote. Legal & General, the problem was that it was not on the basis of the information supplied to that comparison website. It gave index linked and included spouse cover. Therefore it was 50% lower than given in the comparison.

dunroving

Gtekser wrote: »

Thanks for the reply and sorry if it hijacks the original question which I am sure this has relevance.

You say “Failing that, look for an IFA via! website unbiased.co.uk. “ well that is where most of the pensions companies send you anyway.

The problem is, who will do the best job and that's where the cloak and dagger stuff comes in – its a catch 22 situation. You have to pay to find out, so how transparent is that? If you paid 2 advisors and one is better than the other I doubt whether you would get a money back from the lower quotation advisor. I guess the answer would be that it was his/her best shot at the time even if qualified in annuities market.
It seems a very unfair, regulated system. But thanks for the reply.

Not hijacking at all - in fact I am glad there are some replies!


The current wisdom seems to be "annuities bad" but I hope they will get better with the pressure of people having other options due to the change in government rules for pension pots.


I have the Sunday Times Money Section in front of me, where I always glance at the back page ("Best Buys"). Under annuities, it has the following, based on an age of 65:


Single Life with 5-year guarantee: 5.29% (this is a "level" annuity - so £100,000 pot would give £5,290 p.a., and this would not rise with inflation) [Legal & General]


Index-linked single life with 5-year guarantee: 3.35 % (so, would yield £3,350, but this would rise each year with inflation) [Legal & General]


Joint Life with 5 year guarantee and two-thirds spouse income on annuitant's death: 4.59% [Legal & General]


- other companies in the Best Buy list were Aviva and Canada Life.

Gtekser

Well THANK YOU !
That is interesting reading.
I am not so sure that new legislation is in the interest of the man in the street - but I am a born skeptic/pessimist.

The problem is drilling down on the quoted prices even if they are a guideline. I will explain that we have a so called 'friend' as a qualified pensions adviser. When asked about best rate to be got, she immediately says that we need a review - But we don't. We know what we want to do. We ask can you beat this quote and whats the best quote? The answer is: "You need to pay me first but I am sure I can get a good deal" (I summarise). Now this is a friend! ?

dunstonh

he problem is, who will do the best job and that's where the cloak and dagger stuff comes in – its a catch 22 situation.

IFAs generally beat providers and internet sources on annuities on all but the smallest pots (which you wouldnt likely use for an annuity anyway)

You have to pay to find out, so how transparent is that?

Very transparent.

If you paid 2 advisors and one is better than the other I doubt whether you would get a money back from the lower quotation advisor.

If you were silly enough to employ two advisers to the point of incurring fees then of course you wouldnt get your money back. And why should you?

Reference website 'moneyadviceservice.org.u...ools/annuities' YES YES YES .....very help as this is where I got the benchmarks to know that HSBC was bottom of the list.

It should be considered a guide only. It is not reliable to make a final decision on. It fails to take into account lifestyle, health, economies of scale pricing and haggling.

I contacted my pension company HSBC to find out what they were offering and based upon this I then applied these findings to the comparison websites.
I am very clear on what I want to do so I do not want to be appraised or reviewed. I gave them the intention of me taking 25% tax-free and the rest to be set aside for an annuity with a 10 year guarantee - not wishing for a percentage or index-linked.

If you are very clear on what you want to do and have, then why are you using methods and options that are likely to result in a lower annuity rate?

I agree that these companies are going to pocket the equivalent of what an adviser would charge

That is an incorrect assumption. An adviser sets a fee. The fee can be paid out of the pension pot or directly. The direct options or non-advised options have a commission built into the annuity rate. This is typically a percentage based figure. Some of the internet companies take as much as 5% but 3% is common. IFAs tend to be more along the lines of fixed fee amount for annuities. So, if we look at a pot of £120k and use the 3% figure, then the commission is £3600. Whereas an IFA on annuity fee is likely to be around £1000-£1500.

I agree that the financial services have to be regulated especially so that people are not being taken advantage of but there ought to be the ability to waver the need for you to be appraised/reviewed if you know exactly what you want.

There is. It is called execution only. It is how all the DIY providers work.

I have started to contact pension advisers but it is not clear as to how much they are going to charge or what the likely outcome of an annuity will be. In fact the whole industry appears to be locked down in collusion.

There are 20,000 advisers out there and most are from small businesses employing 1-3 advisers each. It is very much a cottage industry in that respect. How would that collusion work in that respect?

There is no way of checking that that pensions adviser didn't go for an annuity that suited his or her pocket over and above the interests of the customer.

That is just silly. A fee is a fee. It is paid by you. No-one else is paying the adviser.

dunroving

Gtekser wrote: »

Well THANK YOU !
That is interesting reading.
I am not so sure that new legislation is in the interest of the man in the street - but I am a born skeptic/pessimist.

The problem is drilling down on the quoted prices even if they are a guideline. I will explain that we have a so called 'friend' as a qualified pensions adviser. When asked about best rate to be got, she immediately says that we need a review - But we don't. We know what we want to do. We ask can you beat this quote and whats the best quote? The answer is: "You need to pay me first but I am sure I can get a good deal" (I summarise). Now this is a friend! ?

Don't get me started on financial advisors (which is essentially what we are talking about). I am sure there are many good ones but even using unbiased site to find one doesn't mean you will find a good one. I have had four experiences - two in the US and two here - and all four left a sour taste and a hole in my bank balance.


In particular, it seems impossible to obtain "light touch" advice. You either have to dive in and pay gobs of money for on-going advice and management of your finances or go completely DIY.


What a lot of people want is an expert eye cast over their plan and an opinion. Or they know exactly what they want (in the example of annuities) and just want to be told - where is the best deal that fits this description?"

Gtekser

This is the kind of answers Dunstonh, I would expect from someone who knows the Pensions and Annuities market and how it works. Bear in mind that I have only just started looked at it and I go on how it comes across to me. Whether my pot is big or small obviously matters but I am an individual that is trying to make my money go as far as possible. So I am pleased you think its all transparent and simple but I don't and hence asking others for a little help.

dunstonh

This is the kind of answers Dunstonh, I would expect from someone who knows the Pensions and Annuities market and how it works.

Your money to waste.

So I am pleased you think its all transparent and simple but I don't and hence asking others for a little help.

It is good to ask. it is better to listen