Pension advice please/commission charges

hethmar

xylophone wrote: »

OP, if you have the security of a DB pension and state pensions, what is you reason for choosing an annuity rather than going into drawdown?

When do you reach state pension age?

Already past that - 65

kangoora

Typically you would be better off defering your SP and getting 10.4% increment yearly whilst drawing down your pension pot cash to subsidise yourself until you decide to start your SP.

That is a far higher rate than any annuity you could purchase. Lots of posts on this topic in various threads etailing the advantages.

atush

although I would not defer if in ill health.

hethmar

Thanks for input. I think, due to personal experience, we would rather have the money in hand/in bank than defer.

Ive contacted another specialist broker who has added another £155 a year to the enhanced quotation and says he will try to improve on that with the actuaries ...........

So is it actually possible to haggle with brokers/IFAs? and ask for some of their commission?

dunstonh

So is it actually possible to haggle with brokers/IFAs?

To some extent but it depends on their price and how busy they are at that time.

and ask for some of their commission?

There is no commission. it was abolished at the end of 2012.

zagfles

hethmar wrote: »

Thanks for input. I think, due to personal experience, we would rather have the money in hand/in bank than defer.

Ive contacted another specialist broker who has added another £155 a year to the enhanced quotation and says he will try to improve on that with the actuaries ...........

So is it actually possible to haggle with brokers/IFAs? and ask for some of their commission?

Some will, some won't. Like shopping around for anything really.

hethmar

Thanks for everyones advice. We bit the bullet and had an IFA who was very recommended.

My goodness, didnt realise the choices available. Basically he went through options we hadnt even considered and he is preparing several different illustrations. I think now that the bog standard annuity we had first thought of may not be the best thing for us as we have sufficient funds otherwise.

Thanks everyone.

jamesd

hethmar wrote: »

My 65 year old husband has three pots, one is an occupational one which is very worthwhile and we have decided to take that one as per the annuity/guarantees/escalation/lumpsum that it gives. So that one aside

The other two is a small Equitable life plus a Friends Life which add together to be £149,154. After taking the max 25% this pot is £111865.

There is a slight enhancement for a health condition and having run a check on different providers on Hargreaves Lansdowne's website, we can get an annuity of about £900 per annum above the FriendsLife annuity offered (on the same option basis). The equitable life is only £8900, and Ive not got a figure for an annuity from them due to the situation with that company.

Those are pretty unimpressive income levels for that much money. I'm assuming that they are level annuities, meaning not increasing with inflation.

A person who reaches their state pension age from 6 April 2016 gets a 5.8% increase in it per year that they defer taking it, inflation-linked. 5.8% of the £111,865 would be £6,488 a year of inflation-protected income for life. It wouldn't actually be that much because it would take a bit of time to defer enough to get the income up, since it only goes up by 5.8% of the state pension per year of deferring. The inflation protection is very valuable even though the income starts out lower than a level annuity.

For a person who reaches stated pension age before 6 April 2016 the increase is 10.4% a year and mostly inheritable by a spouse. If you've reached our state pension age already it might be better to use this way to get a higher income by deferring your pension.

For the alternative of income drawdown it's pretty commonly accepted that 4% of the pot per year, inflation-linked for life is doable without undue risk. using assorted rules that reduce income if necessary a starting value of around 6% is doable. Both of these are likely to leave a significant amount of the money available for inheritance and both provide a 100% spousal pension, potentially of substantial benefit to a survivor after the first death.

If you want income, it's readily possible at the moment to get 10-12% and more from peer to peer lending in secured loans but there's no guarantee that this level of income will be available in the future. Currently taxable, a P2P ISA is expected next April.

VCT investing is available and there are VCTs that do secured lending that will pay 10% to 11.2% tax free income and get 30% of the purchase price refunded by HMRC. This 30% is capped at the income tax actually paid during the year. The combination of higher and tax free income than a level annuity with the refund of a substantial part of the purchase price can make this very attractive for a portion of the money, though no more than about 10% would be suitable, generally, just for diversification reasons.

hethmar wrote: »

Well and good but when I look at the small print I see the annuity provider will pay £2600 commission to HL for this contract. ... Im just wondering how HL has earned that £2600 when basically we have not received any advice, just entered our figures, chosen our options and clicked a computer button?

Because they can. You don't have to accept it, you can negotiate with them, you can look at unbiased.co.uk and ask an advisor from there whether they will do it for less. You can almost certainly find many who will. You can also probably find at least one who would get a higher annuity income because there is some element of negotiation possible with enhanced annuity income levels, work that HL just won't do.

Rather than just buying what I assume is a level annuity I suggest that you instead use a range of options, with state pension deferral being the primary one due to its inflation protection.

For annuities you may also want to consider splitting the amount instead of buying all from just one annuity firm. This is to reduce your risk in case one provider has financial trouble in the future, so you can sleep easier. You should be well protected by the FSCS - it'll pay 100% of what a bankruptcy judge says it should pay - but diversification would still be good if the cost isn't large.

You wrote "due to personal experience, we would rather have the money in hand/in bank than defer" and that's really puzzling, since deferring is the option that leaves the money in your hand/bank rather than with an insurance company. It means taking the money from the pension and using that to pay the "income" of state pension plus what the annuity would pay while deferring. So I'm wondering what the personal experience was that caused you to be reluctant to do what's most likely to be the best thing.

jamesd

hethmar wrote: »

Thanks for everyones advice. We bit the bullet and had an IFA who was very recommended. ... My goodness, didnt realise the choices available. Basically he went through options we hadnt even considered and he is preparing several different illustrations. I think now that the bog standard annuity we had first thought of may not be the best thing for us as we have sufficient funds otherwise.

Thanks everyone.

Good to read that you went to an IFA for personal advice and are getting a broader range of options. There are many excellent things available to meet various objectives.

Please do let us know what the IFA ends up recommending and which options you end up going for. It's always interesting to know the result as well as the original question.

hethmar

Well, I think he will go for a fixed term investment of £150000 which the IFA tells us is currently paying 8% per annum?

It is apparently with big institutions/banks etc. so if put in two plans will be safe ?