Just can't decide between Drawdown, lifetime or fixed term annuity!

epsilon4900

Dazed_and_C0nfused said:

epsilon4900 said:

Thanks John, Unless I misunderstand you which is of course perfectly possible I think you are indicating some kind of altruism on my part if I chose the lifetime annuity and didn't last very long into it? Eg the company has more money to pay out to others but in all honesty I am considering the benefit/s of this for me? I'm sure that's not very altruistic of me but I regard these pots as for me as they all represent monies for which I worked hard albeit invested on my behalf?  I am not convinced about the inflation thing as it seems you get much too less to begin with only to increase later but no one can say you will live long enough to really benefit from that?

I can understand that sentiment however as a relatively young annuitant you could be getting the annuity for 40+ years.

And inflation will inevitably be a noticeable factor over that period.

Err I am not sure about that? Would involve living till I were 102? My father died when he was 83 and my Mum died when she was 90? So if all is fair ( is it? ever?.. ) I might think about living to my 80s? Mid ? late? 102? I don't think so. Sorry!

epsilon4900

gm0 said:

Your attitude to advice going in makes finding the right individual critical if you go that route. 

You may want someone to help you choose and then implement chosen form of annuity,  or a drawdown setup, and leave you to it.  Transactional.  You don't have to learn enough about the options or tax code to create it. 
They do a job, at a point in time, for a fee.  But you have to run it thereafter.  Simple enough to look after may be a criteria if the discussion veered back towards drawdown.  Lifetime annuity is intrinsically simple. 
The price of "not learning" is the setup fee for the transactional advice.

Some latent suspicion is healthy.  Advisers are on a spectrum from very expensively shod wealth managers charging 4x the market price for the same sort of regulated pension setup advice i.e. a rip off or more politely a veblen good. Playing on people's sensibilities of feeling part of a wealthier mass affluent group than they actually are.  Who cares.  Some people evidently do or it would not work.  Then across the advice spectrum there are also people pursuing an honest trade so far as retail financial services ever is (i.e. competently, whole of market independent and at market price).  At the bottom end are cheaper advice farms leveraging qualified adviser time heaviy with cheaper admin staff doing file preparation.  More impersonal, less attention, (sometimes) cheaper fee caps, similar result.

In all cases providing a specific tax and pension legislation expertise to execute the FCA regulated process for pension advice for a wide range of consumers with diverse employment histories.

So the fact find - capacity and attitude to risk.  Goals.  Pension pots.  Tax. etc. Solution. Cashflow.  Critical yield calculation vs current.  All of which will be "suitable" and not incompetently executed. And "insured" for at least that. 

Nothing to say about performance of investments or outcomes, or the future on the drawdown side.  That's not part of the outcome though the carefully sales curated "perception" of financial advice seems to sustain this misunderstanding of what it does.  The idea that advice delivers better results.  All depends on the comparator.  And the version of DIY and Advice on each end of the seesaw.  If it was *better* they could underpin it.  And somebody would differentiate their offer competitively by doing so. It isn't.  They don't.  That is not what it does.

It is, inevitably, a spectrum story.  A performance distribution

Good DIY > Good advice > Average DIY > Average advice > Wealth Management > Bad DIY

Viewed as performance (income available) net of fees. Performance for you.  DIY "portfolio" for portfolio has an inbuilt advantage of 0.5% pa cumulative and the initial fee at the start. What each portfolio shape does is hostage to the future.   Avoiding making stupid mistakes and ending up on the right hand end is the challenge for would be DIY drawdown users.

But paying 2% to a wealth manager to match or even underperform what you can pay 0.2% for.  Is grating. 
(Good DIY vs Wealth management example).  In a world of long term returns in a ~5% space.  Losing 1.8% to other people's grubby fingers *seems* a lot - because it *is* a lot.  

0.5% pa is the proper fee for the job supporting you so you don't have to know how to do it. 
Check twice. Cut once.  Read all small print.  Sign nothing in haste.
And with annuity purchases you likely won't want or need ongoing advice.

Going to an adviser to buy an annuity could well be a good idea for the rate you obtain. Quirk of the market. And wholesale vs retail and regulation. 

Given an advisor has to do a regulated advice cycle anyway.  You could be "unsure" as to best approach and the quote for doing the transaction leading to one of the annuities may not vary that much if you do/do not discuss drawdown as well in the fact find and discussion. Closing this off prior to engaging may not be necessary to reduce cost.  Won't know until you get quotes.  There is a fixed cost of time and insurance to do regulated stuff - dominant over extra work to go through mainstream options on a simple file with you

Good luck finding your solution

gm0 said:

Your attitude to advice going in makes finding the right individual critical if you go that route. 

You may want someone to help you choose and then implement chosen form of annuity,  or a drawdown setup, and leave you to it.  Transactional.  You don't have to learn enough about the options or tax code to create it. 
They do a job, at a point in time, for a fee.  But you have to run it thereafter.  Simple enough to look after may be a criteria if the discussion veered back towards drawdown.  Lifetime annuity is intrinsically simple. 
The price of "not learning" is the setup fee for the transactional advice.

Some latent suspicion is healthy.  Advisers are on a spectrum from very expensively shod wealth managers charging 4x the market price for the same sort of regulated pension setup advice i.e. a rip off or more politely a veblen good. Playing on people's sensibilities of feeling part of a wealthier mass affluent group than they actually are.  Who cares.  Some people evidently do or it would not work.  Then across the advice spectrum there are also people pursuing an honest trade so far as retail financial services ever is (i.e. competently, whole of market independent and at market price).  At the bottom end are cheaper advice farms leveraging qualified adviser time heaviy with cheaper admin staff doing file preparation.  More impersonal, less attention, (sometimes) cheaper fee caps, similar result.

In all cases providing a specific tax and pension legislation expertise to execute the FCA regulated process for pension advice for a wide range of consumers with diverse employment histories.

So the fact find - capacity and attitude to risk.  Goals.  Pension pots.  Tax. etc. Solution. Cashflow.  Critical yield calculation vs current.  All of which will be "suitable" and not incompetently executed. And "insured" for at least that. 

Nothing to say about performance of investments or outcomes, or the future on the drawdown side.  That's not part of the outcome though the carefully sales curated "perception" of financial advice seems to sustain this misunderstanding of what it does.  The idea that advice delivers better results.  All depends on the comparator.  And the version of DIY and Advice on each end of the seesaw.  If it was *better* they could underpin it.  And somebody would differentiate their offer competitively by doing so. It isn't.  They don't.  That is not what it does.

It is, inevitably, a spectrum story.  A performance distribution

Good DIY > Good advice > Average DIY > Average advice > Wealth Management > Bad DIY

Viewed as performance (income available) net of fees. Performance for you.  DIY "portfolio" for portfolio has an inbuilt advantage of 0.5% pa cumulative and the initial fee at the start. What each portfolio shape does is hostage to the future.   Avoiding making stupid mistakes and ending up on the right hand end is the challenge for would be DIY drawdown users.

But paying 2% to a wealth manager to match or even underperform what you can pay 0.2% for.  Is grating. 
(Good DIY vs Wealth management example).  In a world of long term returns in a ~5% space.  Losing 1.8% to other people's grubby fingers *seems* a lot - because it *is* a lot.  

0.5% pa is the proper fee for the job supporting you so you don't have to know how to do it. 
Check twice. Cut once.  Read all small print.  Sign nothing in haste.
And with annuity purchases you likely won't want or need ongoing advice.

Going to an adviser to buy an annuity could well be a good idea for the rate you obtain. Quirk of the market. And wholesale vs retail and regulation. 

Given an advisor has to do a regulated advice cycle anyway.  You could be "unsure" as to best approach and the quote for doing the transaction leading to one of the annuities may not vary that much if you do/do not discuss drawdown as well in the fact find and discussion. Closing this off prior to engaging may not be necessary to reduce cost.  Won't know until you get quotes.  There is a fixed cost of time and insurance to do regulated stuff - dominant over extra work to go through mainstream options on a simple file with you

Good luck finding your solution

Your post for which I am grateful makes me feel an IFA might be the answer. The decision just feels more and more complex. I may have to hold my nose after all!

epsilon4900

xylophone said:

Did you see my post above?

xylophone said:

Did you see my post above?

xylophone said:

Did you see my post above?

xylophone said:

Did you see my post above?

xylophone said:

Did you see my post above?

Responded thanks!

epsilon4900

dunstonh said:

DUNSTON H  That is an excellent point about the accumulation years. In fact all three pension plans ( which is one to which I have been contributing for a decade now after around a decade of it being dormant and the two other ones which to which I have not added for between 25 and 30 years ) have only gone up? Albeit sometimes very slowly and one has hardly gone up at all. The major thing which upset me was with the one to which I subscribe as they reduced their bonus in January and never bothered to tell me? Curiously the other one I have with the same company actually increased their bonus at the same time so it offset it to some degree. So what I am saying is that there really has not been that much turbulence over the years. Main gripe is with one that it's hardly risen at all.

If you take the last 7 years, equities have doubled but have zig zagged on the way.  Bonds are down slightly over that period and performed a bit like an upside down V.

I just also know I would have a HUGE problem trusting ANY financial adviser to whom I was going to pay a fee and also frankly to one if there were no fee and it was some kind of a commission thing. I would just find it hard to trust any full stop. I don't know how to avoid feeling they just look at me with dollar signs in their eyes? Is that so unfair of me! I wonder if it may be possible to get an annuity broker to agree to partially at least reimburse me for the commission they give to whomever?

FAs represent the company they are attached to.    IFAs represent you.  There are no commissions.  You pay an explicit fee.   So, for an IFA, it doesn't matter if company A or B or C is selected as you are paying the fee and its the same for the IFA regardless.   

You also get different business models.  You get the national or regional salesforces that exist to hoover up as much money as they can.  Often resembling the salesforces of old.   Or you have small independent local firms of 1-5 advisers that will happily do all sorts of transactions (one-off or ongoing)

If you go to an annuity broker, they will be on commission. That commission lowers the annuity rate. An IFA cannot take commission, and the annuity will be higher as it's on the nil commission rate. The IFA can be collected from the pension. If you get the IFA on a fixed fee and it's lower than the commission, then the IFA should give you a better outcome.

It's feeling like I need to have another look at IFAs and test drive a few!

epsilon4900

I am still inclined towards a annuity just need to decide if lifetime or fixed term. I will give IFA/s a go and see where I get. Thanks.

dunstonh

There appear to be differing views on if IFAs always do get you a better annuity rate? I know that is what I am supposed to believe but I am honestly not sure I am convinced about that.

I don't believe anyone has said that IFAs can or cannot always get you a better annuity rate.       Smaller pots would be harder for an IFA to get a better annuity rate as commission is percentage based on the direct/website method whereas IFAs tend to have caps/collars and tiering on their fee which means larger ones are likely to be better via an IFA. 
e.g. direct to consumer website with 2.7% commission with a £200k annuity purchase results in a £5400 commission.    Whereas an IFA with a fixed fee of £1500 is clearly cheaper.  

BUT even if it is true you have to factor in their fee right?

Correct.  But the IFA will not receive commission and the annuity rate will not be lowered to reflect the commission paid as there is no commission.    Both the commission on non-advised sales and the fee on advised sales will reduce the income.

The IFA fee can be paid directly or deducted from the pension fund.      Let's use that £200k minus £1500 fee example.   That means £198,500 x nil commission annuity rate = income

In the 2.7% commission example, the commission is not deduced from the £200k but uses the commission-paying annuity rate to reflect the commission's payment.

Real figures a clean application (no health or smoker etc). £200k 

Advised with £1500 fee = £13,263.60 p.a
non-advised with a 2.7% commission = £12,783 p.a.

epsilon4900

Thanks Dunston. I think I need to see which IFAs will give me a quote for a lifetime annuity and their fee so I can compare it with what the online annuity brokers tell me? I wonder if they charge for that though? I mean just to quote? I don't pay say HL just for a quote only if I go ahead? Could that be the same with an IFA? I suppose I could approach a couple and test this out. Eg see which gets the better rate and take account of the fee and or commission and do the math like you did above. 

dunstonh

Thanks Dunston. I think I need to see which IFAs will give me a quote for a lifetime annuity and their fee so I can compare it with what the online annuity brokers tell me? I wonder if they charge for that though? I mean just to quote?

IFAs will tell you their fees.  Some will be greedy. Some will not be.   

I don't pay say HL just for a quote only if I go ahead? Could that be the same with an IFA? 

If you ask an IFA to do it on an execution basis and ask for a quote, some will do it.  Some may not be interested.

zagfles

Some annuity brokers will refund part of the commission rather than just pocketing it all as implied above. See 
I'm buying an annuity with a £55k pot - why does my broker gets a commission? | This is Money
It's worth shopping around and seeing what you can get yourself, then maybe see if an IFA can beat it. 

Also if using a IFA it's worth doing a quick check for ombudsman decisions against them:https://www.financial-ombudsman.org.uk/decisions-case-studies/ombudsman-decisions

poseidon1

dunstonh said:

Sorry to hijack but can you explain this bit to me please?

A lot of people buying fixed term annuities do so on the basis of buying another one each time they hit the maturity point.   So, at each rollover point, they get the terms on offer at that time.   The annuity rates could be higher at that time or they could be lower.  That is unknown.   

Higher annuity rates at that time, would work in their favour.    As could a decline in their health which qualifies them for an enhanced annuity rate.     In those scenarios, a fixed-term annuity could work out more favourably.

However, if annuity rates are lower and they don't qualify for enhanced annuity rates, then the new terms would not be as attractive.    In that scenario, a lifetime annuity could work out more favourably.

There is also some provider risk here.  There are very few providers that offer fixed-term annuities.   None of the providers give you confidence for being around for the long term.  Not for payment, that isn't the issue but whether they or the product itself will exist in the future.   i.e. when you get to maturity, will you even be able to buy another fixed-term annuity?

Legal & General appears to be a fixed term annuity provider.

No idea how competitive their terms are in what is apparently a small market, but if I were in the market for such a product and chose them I would have full confidence in their being around at the end of the term.

 Of course the business model for fixed term annuities may change radically in the interim, so no guarantee that they would be able to offer a similar product at maturity , but no doubt in the OP's circumstances later down the line, a lifetime annuity might make more sense anyway ( subject to reasonable rates at the time).

I think what I would be more concerned about, if l were in the market for any kind of annuity is the increasing  pace of consolidation in the UK  Life & Pensions insurance industry, which is having a detrimental affect on consumer choice.

As more and more firms merge, close or mopped up by bigger competitors (without new participants entering the market place), not difficult to see an increasingly  non competive oligopoly begin to emerge. Most consumers would be blissfully unaware that this is occurring, or how it might affect the kind of deals available to them going forward.