Fixed term annuity

wallbash

Just to give a little balance. My wife is taking a fixed term annuity.Term is nine years , which is the length of time before her state pension kicks in .

if you're a financial adviser you get paid no commission for selling state pension deferral, but you do (and have to tell your customer) for selling an annuity.

Nicely put. If you are told ALL the info , you can make balanced choice.
The annuity is in her case only a small part of her pension planning.

dunstonh

There's a catch: if you're a financial adviser you get paid no commission for selling state pension deferral,

Remember commission doesn't exist any more for advisers.

ut you do (and have to tell your customer) for selling an annuity.

No. Only non-advised cases can take a commission on an annuity. Which has led to the rather strange situation where going DIY on some products, like annuities, can actually work out more expensive than using an adviser. Something that is being looked at in the thematic review later in the year as there are concerns that it is leading to an unfair outcome for distribution and for consumers.

Also, state pension deferral seems to have been mostly something that advisers just aren't used to considering at all, so it seems to be ignored even when it's the highest paying option.

It has only really come into favour since annuity rates fell and the pension freedom options changed what capital is available. Prior to that, you had to fall within triviality. it is far too early to say what 20,000 odd advisers are doing but state pension deferral is something that is covered in various financial journals. i suspect IFAs/whole of market advisers will be more likely to utilise it than tied/multi-tie sales reps (where product and product compliance is still the focus of advice rather than the advice itself).

jamesd

dunstonh wrote: »

Only non-advised cases can take a commission on an annuity. Which has led to the rather strange situation where going DIY on some products, like annuities, can actually work out more expensive than using an adviser.

That's an interesting effect alright.

dunstonh wrote: »

It has only really come into favour since annuity rates fell and the pension freedom options changed what capital is available. Prior to that, you had to fall within triviality.

The changes have certainly helped it a lot. The pension lump sum combined with GAD drawdown limited the potential a fair bit for typical pot sizes.

dunstonh wrote: »

it is far too early to say what 20,000 odd advisers are doing but state pension deferral is something that is covered in various financial journals.

Good to read. How are you finding the awareness levels in those you happen to chat with?

dunstonh wrote: »

i suspect IFAs/whole of market advisers will be more likely to utilise it than tied/multi-tie sales reps (where product and product compliance is still the focus of advice rather than the advice itself).

That's the sort of result that I anticipate as well without some form of explicit regulatory intervention.

Then I look at the likes of Hargreaves Lansdown which was earlier this year pitching as an example of a case of good advised service a customer around state pension age where annuity was mentioned but state pension wasn't. Not really a surprise when HL are mostly not doing advice, though definitely disappointing for an advice scenario. And of course on their non-advised annuity sales channel there's not even a hint that state pension deferral exists, as if they are in a time warp back before the FSA and FCA existed.

jamesd

wallbash wrote: »

Nicely put. If you are told ALL the info , you can make balanced choice. The annuity is in her case only a small part of her pension planning.

Though as dunstonh pointed out correctly, it's not actually true now for those really regulated as advisers. Just for the non-advised part that many people tend to think is advice.

TH1878

mania112 wrote: »

Fixed Term Annuity is written under Drawdown rules.

You normally take 25% out and then maybe a fixed income (optional) - at the end of the term you will have a known value, with which you have the same options again: Flexi-Access Drawdown, Lifetime Annuity... and the variations of both.

It's primarily seen as a way to defer making your final decision. In my experience Fixed-Term Annuities tend to be expensive (the return at the end of the term is usually unlikely to be as high as it would have been if you'd taken the conventional Drawdown option).

I'm therefore not a fan of Fixed Term Annuities because if you're not comfortable with an Annuity you should utilise Drawdown to its fullest extent (leave the plan flexible, and make the most of being able to invest your pot).

You can have a financial adviser arrange the plan (and investment) for you.

Completely disagree over the last few years and I'm a massive fan of drawdown.

I've recommended fixed term annuities with clients in the past few years because they didn't want to lock in to poor annuity rates and also didn't want the investment risk associated with drawdown.

The aim of the fixed term annuity is to provide a lump sum that will be able to purchase a lifetime annuity equivalent to the income they have been receiving from the fixed term product, assuming the annuity interest rate is the same as when they took the plan out. If annuity rates increase, they benefit without the investment risk

The decision isn't quite as clear cut under the pension freedom rules but fixed term annuities aren't necessarily a bad option given the poor gilt yields at the moment.