Current annuity rates

dunstonh

bostonerimus said:

dunstonh said:

Is it possible to get a feel for current rates without filling in a large form from an IFA?

Yes.  Although the rates you will get will be basic rates without commercial uplifts that IFAs usually get or any of the medical/lifestyle enhancements that may apply.

Also, you wont get all options considered.  

What's the logic behind "commercial uplifts that IFAs usually get"?

As mentioned higher up, the vast majority of annuities are arranged via IFAs, and the providers are rather happy about that as it saves them money compared to doing it themselves.    

Personally I would look for an annuity specialist rather than just a generic advisor. 

That isn't a good idea.   Many online annuity firms only give advice on annuities.  That means they cannot discuss drawdown or other strategies outside of the annuity.     And a good number are non-advised.  So, they take a commission instead of a fee and the ones I have seen have the commission higher than the fee on all other than the smaller values.  The commission is factored into the annuity rate.       It is around £25k+ where an IFA would be able to beat those taking commission.

There are far too many people that have bought the default on the non-advised route. (5 year guarantee, 50% spouse, level).   For an option that is cast in stone at the outset, an IFA is usually better.       Indeed, many pro DIY investors on this site have said that annuity is the one area they would use an IFA for.

I had a case not long back where the person had quotes from a certain high-profile online annuity site.  Our fee was £150 more than their commission (as it wasn't a large fund), but the annuity rate that we obtained was higher on a like-for-like basis.  Plus, they went on to do a different option as they didn't realise that various options exist now, and the online site hadn't mentioned any of them. 

IFAs are the specialists when it comes to annuities.    

What fees do customers pay to brokers/IFAs for arranging annuities ?

It varies.   IFA firms are each free to set their own charging structure.   However, figures of 0.5-2% of the pension fund are commonplace.  Many have a cap and collar where there is a minimum fee or a maximum fee.  Some have a flat charge irrespective of the value.

The non-advised annuity retailers tend to be around 2-3% with no upper limit.

What sort of differences are we talking about on average? On average a few hundred £s??

It's usually a few basis points on the annuity rate.  For larger pension fund values where the IFA is using a flat fee or a capped fee arrangement, you can add a few more basis points as well.

OldScientist

ukdw said:

I've just filled in one of those long forms myself, in fact had to go to a 2nd form to fit in all health declarations!  

Will be interesting to see what sort difference the enhancement makes.

Even at the basic HL ~6% for Age60 Level Joint 50% I think is worth considering as rates are apparently about 58% up since December.   6% is a fair bit higher than my current DC withdrawal rate too.

I was going to wait until I was about 70 before considering annuities - but am thinking it may be worth moving a percentage of my DC pot over now.

Not sure what the likely break even point is between level vs RPI annuities - but I suspect it may be >30 years - so will probably go for Level rather than RPI or escalating.

All depends on what inflation does over your lifetime (i.e., nobody actually knows which will be best - you'll find out in 20 or more years!). Assuming a level annuity gives 7.1% income and an RPI one 4.1% (single life, 5 year guarantee aged 65 - at HL), then

Inflation (%)   Crossover (years)
0                      Never
1                      >30
2                        28
3                        19
4                        14
5                        12

where the crossover point is defined as where the instantaneous income from the RPI annuity exceeds that of the level annuity (not where the accumulated payout is equal). Which is more attractive then depends on what you think inflation might do (if you can believe the markets, then implied inflation 15 years ahead is currently around 4%, see https://www.bankofengland.co.uk/statistics/yield-curves). In the, hopefully unlikely, event our current rate of inflation of 10% was sustained, the crossover point would be about 6 years.

One approach would be to buy enough RPI linked income to satisfy your essential expenditure and buy a level one to cover discretionary expenditure that will then be front loaded in real terms to the beginning of retirement (in the event that inflation is about 4%).

Albermarle

All depends on what inflation does over your lifetime (i.e., nobody actually knows which will be best - you'll find out in 20 or more years!). Assuming a level annuity gives 7.1% income and an RPI one 4.1% (single life, 5 year guarantee aged 65 - at HL), then

As I understand it the RPI will be scrapped in 2030. Presumably then these RPI linked annuities will be then linked to CPIH?

If so, then as CPIH is typically lower than RPI, it will reduce the value of an RPI linked annuity as from 2030. Maybe the change is already accounted for in the rates on offer. ? I have no idea!

It varies.   IFA firms are each free to set their own charging structure.   However, figures of 0.5-2% of the pension fund are commonplace.

Assuming you were not already a client of the IFA, would this fee also include more general advice, on how to best mix and match annuity and drawdown strategies for example? Or would that be extra? Also would the IFA need all details about you and your finances, like they do when you become a 'normal' client?

wjr4

Deleted_User said:

Something like an annuity… Its an irreversible decision. There is a surprising number of options.  Personally I would either read lots and lots or consult a specialist. Ideally both. And brokers like IFAs do get special rates. Personally I would look for an annuity specialist rather than just a generic advisor. And it’s easy to compare to see if you got a good deal. 

You don’t need an annuity specialist. IFAs are fine to deal with annuities. 

bostonerimus

when you buy an annuity through an IFA is it a one time transaction with a single fee?

westv

OldScientist said:

ukdw said:

I've just filled in one of those long forms myself, in fact had to go to a 2nd form to fit in all health declarations!  

Will be interesting to see what sort difference the enhancement makes.

Even at the basic HL ~6% for Age60 Level Joint 50% I think is worth considering as rates are apparently about 58% up since December.   6% is a fair bit higher than my current DC withdrawal rate too.

I was going to wait until I was about 70 before considering annuities - but am thinking it may be worth moving a percentage of my DC pot over now.

Not sure what the likely break even point is between level vs RPI annuities - but I suspect it may be >30 years - so will probably go for Level rather than RPI or escalating.

where the crossover point is defined as where the instantaneous income from the RPI annuity exceeds that of the level annuity (not where the accumulated payout is equal). 

Shouldn't it be the accumulated payout?

dunstonh

Assuming you were not already a client of the IFA, would this fee also include more general advice, on how to best mix and match annuity and drawdown strategies for example? Or would that be extra? Also would the IFA need all details about you and your finances, like they do when you become a 'normal' client?

The IFA would have to justify the recommendation and how it fits with the retirement income plan for life.    They wouldnt just limit to the purchase.

Details would be necessary as you cannot provide advice without them.

when you buy an annuity through an IFA is it a one time transaction with a single fee?

yes

zagfles

I suspect the recent very brief period where annuities were good value has just ended - looks like yields on most index linked gilts have gone or are close to negative again. Despite today's events!

[Deleted User]

wjr4 said:

Deleted_User said:

Something like an annuity… Its an irreversible decision. There is a surprising number of options.  Personally I would either read lots and lots or consult a specialist. Ideally both. And brokers like IFAs do get special rates. Personally I would look for an annuity specialist rather than just a generic advisor. And it’s easy to compare to see if you got a good deal. 

You don’t need an annuity specialist. IFAs are fine to deal with annuities. 

So all IFAs are in agreement on this. Surprising, eh? 

You may well be right but my opinion is that it should be an annuity specialist. Who may or may not be an IFA. As a customer I only care that he/she knows the subject in great depth and has access to whole of the market. I would use references and learn enough to evaluate the advisor is indeed meeting my needs. And pick the best option out of advised recommendations. 

There are a lot of options and issues that need to be covered, eg income annuities, variable, fixed index, deferred, partial annualization, handling of legacy, insurance, guaranteed payout, tax; risk management, pooling and premium, credit risk, etc. There is quite a bit of maths behind it (eg Monte Carlo analysis to properly understand risk premium).  

I believe you but still have some residual scepticism that every IFA knows all there is to know about annuities. 

dunstonh

So all IFAs are in agreement on this. Surprising, eh? 

It is their job.  So, not that surprising unless you are based on another continent and dont know what they do.