Anuities Research

Richmmm

I am looking at understnding all the pros and cons of getting an Anuity for a small part of my SIPP pot.

As we are now advised to shop around, I found a web site which aims to check the whole market and get you the best  deal.

The site says it earns a commision on the money paid to the anuity provider.

My question is: Where does this money come from? my pot?

Surely i would get a better deal by not using a middleman?

Rich

zagfles

Unfortunately annuity charging is still in the dark ages where commission is built into the price, so going direct to the provider is unlikely to get you a better deal. You could use an adviser to avoid the commission but instead you'll pay advice fees which can be far more, and as people here have found, advisers usually want to do a full financial review at a high cost rather than just buy what you want them to buy. 

There are some annuity brokers which discount some of the commission so that may be a better way to go. See I'm buying an annuity with a £55k pot - why does my broker gets a commission? | This is Money 

DullGreyGuy

Richmmm said:

I am looking at understnding all the pros and cons of getting an Anuity for a small part of my SIPP pot.

As we are now advised to shop around, I found a web site which aims to check the whole market and get you the best  deal.

The site says it earns a commision on the money paid to the anuity provider.

My question is: Where does this money come from? my pot?

Surely i would get a better deal by not using a middleman?

It comes from the insurer. All the insurers money in principle comes from its policyholders or the investment returns they make from investing the policyholder's funds. 

Despite decades of Direct Line's marketing, it's not necessarily any cheaper to cut out the middleman. Selling insurance costs money, if the insurer isnt paying the broker to sell it then they have to have their own sales teams, their own marketing teams, pay their own google AdWords and so replicate many of the overheads the broker is having to cover with the commission. However an insurer will only sell their own product whereas a broker will sell from a range of insurers, as a consequence if you are an executive with great personal stats or a factory worker smoking 40 fags a day the broker will have someone on their panel aimed at you whereas the insurer is likely to prefer one over the other so all those execs clicking on the £10 adverts for the blue collar insurer is money out the window. 

Insurers have a host of regulations to meet around their ability to model their liabilities, that their staff are competent, that they arent exposed to one of their suppliers failing etc. Brokers are also regulated but in a notably lighter way because if they go bust your policy continues as normal. They can therefore be lighter, more innovative etc. As an example, I wanted to use a free piece of software available directly from Microsoft, the files a couple of KBs in size and does one thing alone, my client at the time (well known insurer in the annuity business) said it was ok but it would take 9 months and cost £60,000 for them to review the software and authorise it for use within their network. At the one broker I worked with, I was able to just download it and run it without ITs assistance. 

dunstonh

My question is: Where does this money come from? my pot?
Surely i would get a better deal by not using a middleman?

Not many insurers retail direct to public an those that do, still take a commission.

The nil commission rate is the best rate.    The more the commission taken, the lower the annuity rate.

The FCA has set in place distinct regulatory positions for manufacturer and retailer/distributor.     So, a firm selling its own products has to comply with the rules for both regimes.  So, its not actually saving any money by retailing direct unless it achieves significant distribution levels. Indeed, it could be costing it more.   Which is why, with annuities, it is often better buying from an IFA.    Especially with large pots.   Commission is uncapped but IFA fees are typically capped or tiered.

If you have clean health, then you are not likely to see much difference but if you have health conditions then differences can be significant.

Moonwolf

dunstonh said:

If you have clean health, then you are not likely to see much difference but if you have health conditions then differences can be significant.

Is it just health?  I had assumed it was all the things that would make life insurance more expensive could make a tailored annuity better value.

I won't get one yet but it is on my radar for 10 years time.  As well as health conditions I live in a postcode with a lower life expectancy and I'm an ex smoker.

Using the Moneywise site, at today's rates but putting in my age as 70 and everything else as now I could get £850 a month with £100,000 of pot. (2.5% growth, my partner would be 85).  Of course the distance from me giving up smoking and my current medical conditions would be further but I'll probably have something else.

At 70, my spreadsheet has me drawing down £750 a month (plus inflation) and £150K (includes 2% pa investment growth but no inflation) of pot left.  I reckon as I don't want to pass anything on, if I can guarantee a bit more income as my pot reduces I would be less subject to the vagaries of the stock market.

incus432

Richmmm said:

I am looking at understnding all the pros and cons of getting an Anuity for a small part of my SIPP pot.

As we are now advised to shop around, I found a web site which aims to check the whole market and get you the best  deal.

The site says it earns a commision on the money paid to the anuity provider.

My question is: Where does this money come from? my pot?

Surely i would get a better deal by not using a middleman?

Rich

If you can find an IFA to do it without a full financial review (some will) you will get the best rate. You pay them upfront (I was quoted 1% of the value) or they will take it from the pot before it's invested.  If not Retirement Line (a broker) are efficient and thorough - the rates may be slightly less - they took about 1.5% from the insurer as commission.  You can also get a quote from Sharing Pensions (seems to be run by an IFA).

https://www.sharingpensions.co.uk/annuity_quote.htm

You can also get guarantee periods of up to 30 years

The rates you get are good atm