Buying an annuity - DIY, Broker, or IFA?

andy_mc

I'll be looking to buy an annuity at the end of this year and trying to decide whether to just try to find the best one myself using comparison sites, retirementline.co.uk, moneyhelper.org.uk, etc... or whether it's worth paying for independent advice.

All the quotes I've had so far have been very similar, with Legal & General and Scottish Widows offering the highest income, so would a financial adviser be able to offer anything better?

My pot (with ReAssure) is around £150,000.

Thanks in advance.

Albermarle

I'll be looking to buy an annuity at the end of this year

As well as lots of different providers and third parties involved, there are also lots of different types of annuity ( fixed term, lifetime, index linked, level etc ) Do you know exactly what you are looking for? Maybe an IFA can have access to more variations ?

andy_mc

Sorry, I should have supplied those details:
Lifetime and index linked.

dunstonh

If you buy without advice (which is the method used on direct or websites) they will take a commission from the annuity which will reduce the annuity rate.    If you buy an annuity via advice, then a commission is not allowed but a fee would be paid.   The fee could be taken from the pension fund which would not lower the annuity rate but would lower the fund value.   So, in effect, it depends on who has the best fee or commission rate. 

If the fund value to buy the annuity is £150k, then a commission of 2% would be £3,000.   If an adviser charged 2% then the fee would be £3,000.  So, the net outcome is the same.  However, if the IFA charge was £1,000 then it would favour the adviser.

Finally, last time I had a client comparing rates,  he used one of those websites and their annuity rate was lower than that we obtained despite our fee being higher than their commission.     I put that down to the haggling with the provider and we filled out the medical questions in more detail than the person had given the website.   You generally find the website ones just accept what you tell them whereas IFAs will usually question the detail and encourage more from you (my Just Retirement rep told me that some years ago)

All the quotes I've had so far have been very similar, with Legal & General and Scottish Widows offering the highest income, so would a financial adviser be able to offer anything better?

I suspect that when you actually get real quotes via an IFA that would change.   Those two providers seem to come out top where generic quote information is put in.   However, when extended personalised details get input you typically find others lower down the list go above them.      Also, those two tend not to have good death benefits whereas the others can do.  So, it depends on what level of death benefits you are selecting (e.g. value protect).

andy_mc

Thanks that's all very useful to know.
Perhaps the best thing to do is get an initial consultation with an IFA (many seem to offer the first one free) and see what figures they come up with, then go with them if the numbers they come up with are higher.

dunstonh

andy_mc said:

Thanks that's all very useful to know.
Perhaps the best thing to do is get an initial consultation with an IFA (many seem to offer the first one free) and see what figures they come up with, then go with them if the numbers they come up with are higher.

Do you know what type of annuity you want and the terms?     Non-advised services are order takers.    Advised services will go through your scenario/objectives and make you aware of options that available to you to meet your objectives.

e.g. what death benefits are you are after (there are a lot more variations than there used to be)?  with or without proportion? if married, continue on remarriage or not? Current spouse only or include future spouse?  If indexation then with floor of zero or unrestricted?

Linton

AIUI from when this question has been asked in the past....

 there is no reason not to buy an annuity from an IFA as the pension company will effectively charge extra if you go direct because of the need to pay for their customer-facing staff.  So the overall annuity rate should be much the same.

Also....
1) Not all annuity companies sell directly to the retail market.
2) The IFA should know which company has the best deals for someone in your circumstances
3) There are a very large number of options possible with annuities which may not be listed in standard price lists or application forms.  An IFA can advise on which options are best suited for your needs.
4) Your detailed circumstances, particularly your health, may lead to a better deal.  The IFA should know how best to take maximum advantage of this.  It may need individual negotiation.

andy_mc

dunstonh said:

Do you know what type of annuity you want and the terms?     Non-advised services are order takers.    Advised services will go through your scenario/objectives and make you aware of options that available to you to meet your objectives.
e.g. what death benefits are you are after (there are a lot more variations than there used to be)?  with or without proportion? if married, continue on remarriage or not? Current spouse only or include future spouse?  If indexation then with floor of zero or unrestricted?

Thanks, I think I have a pretty good idea of what I need, one thing you mentioned I wasn't aware of is the indexation floor.

The basics of what I'm looking for:

Lifetime annuity
Rising annually
No dependants
No health issues (well, one that isn't life-threatening or life-shortening in any way so I don't think it would affect things)
Non smoker, non drinker.

dunstonh

No health issues (well, one that isn't life-threatening or life-shortening in any way so I don't think it would affect things)

It doesn't need to be life-threatening.    A medication prescription can increase annuity rates, as can things that affect mobility or be relatively minor life high blood pressure or cholesterol.  Some occupations get an increase as do some postcodes.

westv

Albermarle said:

I'll be looking to buy an annuity at the end of this year

As well as lots of different providers and third parties involved, there are also lots of different types of annuity ( fixed term, lifetime, index linked, level etc ) Do you know exactly what you are looking for? Maybe an IFA can have access to more variations ?

There aren't that many providers of annuities now. Five maybe??

Albermarle

westv said:

Albermarle said:

I'll be looking to buy an annuity at the end of this year

As well as lots of different providers and third parties involved, there are also lots of different types of annuity ( fixed term, lifetime, index linked, level etc ) Do you know exactly what you are looking for? Maybe an IFA can have access to more variations ?

There aren't that many providers of annuities now. Five maybe??

OK , I was not aware of there were so few.