Annuity set up charges

Wurly

Hi all
I have a few pensions with Royal London that i was aiming to take when i reach 60 (about 20 months from now).

Some of these have a guaranteed rate of 7.61%, so my retirement planning has been using this rate. I contacted Royal London to find more info at an early stage just to reassure myself that all is in order.
I have just received the quotes and to my surprise the percentage rates are working out to be 7.29% not the guaranteed rate promised.

Either they have made a mistake or the setup charges are being taken from the total investment. Which in effect, means i will be paying this forever!

Does this seem right? surely a set up charge would only have to be paid once. Should i have the option to pay a one off charge instead of the charge being taken from my total pot?

jamesd

Ask them to explain the difference. Guaranteed annuity rates can be different it used at different ages.

To do a proper job you will also need to know whether the 7.29 or 7.61% rates increase with inflation or not. If not then it might pay to defer your state pension instead, though that is some way away. under current rules you get 5.8% plus inflation increases for your money from state pension deferral.

Depending on when you reach state pension age and what your other income and capital sources are to cover living costs that might or might not be viable.

Also you should be aware that if you have any medical condition that causes a reduction in life expectancy it may be possible to get an enhanced annuity rate that could pay more than the rates you're being quoted.

dunstonh

Some of these have a guaranteed rate of 7.61%, so my retirement planning has been using this rate. I contacted Royal London to find more info at an early stage just to reassure myself that all is in order.
I have just received the quotes and to my surprise the percentage rates are working out to be 7.29% not the guaranteed rate promised.

Royal London will adjust the base GAR depending on the options selected. So, they may have a base figure on single life, level, 5 year guarnatee, monthly in arrears. However, if you ask for 10 year guarantee or spouse or in advance, with or without proportion etc, then these will swing the figure either side of that base figure.

So, have you adjusted the terms from the default?

surely a set up charge would only have to be paid once.

On fee basis, yes. On commission basis no (although the net effect is similar).

Should i have the option to pay a one off charge instead of the charge being taken from my total pot?

Fees are only for advised cases. Commission is still the option on non-advised. However, I doubt that this is the issue here.

Wurly

Thanks for the replies.

I have not adjusted the terms, thats why i asked for more info to see what would be available should i decide to include further options.

As it stands, the pension quote is for single life, level and a 5 year guarantee to be paid to my estate after i snuff it. (Pretty sure thats what i signed up for many years ago).

There are further bonus's to be paid to my pot by leaving the pension until it reaches final date (my 60th), thats exactly what i am going to do.
It just seems a 'swizz' to take fees from my pot which effectively lowers my overall rate of return.

I'm really not sure of set up fees or commision until i call them again. I'll report back. Hopefully they've messed up.....?

Wurly

No plans to defer state pension James (and that would depend on my health anyway). I would add that i have a further DC scheme that i will drawdown but the RL is to provide the certainty of income in the form of an annuity that i would like to extract the best from. Plus drawdown+SP+ savings and a good plan for early retirement.
I think....

sandsy

Just ask them.
Commission is normally allowed for already in the GAR terms.
If advised, the fund would normally be reduced by the amount of the adviser charge and then the guarantee rate applied to the reduced fund.

mania112

seems to me that 7.61 to 7.29 is just a rounding error or something - where did you actually see these numbers?

any costs to Royal London are included in these rates, so that's not the answer.

Wurly

I have found out the reason for the difference in the rates offered in the quote. Hopefully this may be of use for folks who also have a GAR with Royal London.

The reason being, is that the GAR is for the end of term of pension. What they have given, is a percentage slightly lower as there is 20 months left although, the exact difference can only be provided from their actuary dept (?). They are going to confirm this with a letter.
I didn't necessarily ask for this quote, i was after more information about pension choices and the quote was provided.

There is a commision paid by Prudential (the pension provider) to RL, i do not pay anything from my investment (which is what i have been told before).
On a £50K fund the commission is approx £2.5K (depending on whether TFLS is taken). I wrongly assumed this was the amount being taken from my pot for commission.....it isn't a 'swizz' after all. I have restored faith :0)

But the 5 year guarantee is from start date, i misunderstood this from an earlier telephone conversation.

Does the above 'appear' to be correct?

sandsy

It doesn't appear unreasonable. But it all depends what the terms and conditions say. Many GARs are only guaranteed on very specific dates and you would only be entitled to open market annuity rates at any other times.

The basis for a slight deduction must be laid out on the terms and conditions for them to apply it in this way as it's not in their interests to do so voluntarily.

dunstonh

It is normal for GARs to apply from a fixed date. Any paperwork issued in advance will show the rate applicable at that point. Not a future point.

Some providers are able to produce forms prior to the specific date with the future date recorded on them. This allows preparation in the month or two before commencement.