Buying _one_ annuity with multiple private pension pots

squirrelpie

dunstonh said:

2) buying direct gets a lower annuity rate as it factors in the commission being paid.

Now calculate the reduced annuity on a 2% commission for going direct?  (commission rates vary and could be higher or lower)

I'm prepared to accept that this is correct, but I don't understand. Exactly what is this commission in the direct sale case? Who is it paid to?

TheGreenFrog

My foray into the annuity world revealed that the ex-fee/commission rates are not the same for the same provider through all the channels - and that means that focussing on the commission or fee rates is not that worthwhile.  From a pure cost PoV, the important figure is the annuity income.  If advice is or might be beneficial then that can be factored in.  I could have got my annuity most cheaply through a broker.  But I ended up going through an IFA as I wanted a bit of advice and a more personal service.  Annuity income through IFA and after factoring in the IFA fee of 1% was slightly less than the broker best price (for exactly the same product), and yet the broker commission was 1.25%.   

I sought quotes from two brokers, one IFA and one direct (the direct one being the top provider from the other quotes).  Same facts in each.  The lowest annuity was from the direct quote, the highest from one of the brokers, with the IFA and the other broker being about the same.

dermotological

dunstonh said:

Now calculate the reduced annuity on a 2% commission for going direct?  (commission rates vary and could be higher or lower)

I don't understand why there would be a commission for going direct? Who is getting that commission? The only people involved would be myself and the annuity provider. I can't imagine the pension fund gets a commission - they send the money where they are told to send it and have no influence on the choice of annuity provider.

I'm definitely missing a piece of the picture here.

TheGreenFrog

dermotological said:

dunstonh said:

Now calculate the reduced annuity on a 2% commission for going direct?  (commission rates vary and could be higher or lower)

I don't understand why there would be a commission for going direct? Who is getting that commission? The only people involved would be myself and the annuity provider. I can't imagine the pension fund gets a commission - they send the money where they are told to send it and have no influence on the choice of annuity provider.

I'm definitely missing a piece of the picture here.

There is no commission.  They just quote you a rate which is no lower than the rate you would get by going through any broker (and on my experience a broker who is taking a hefty commission rate!).

squirrelpie

TheGreenFrog said:

There is no commission.  They just quote you a rate which is no lower than the rate you would get by going through any broker

But why do they do that when they could give you a better rate and still keep some extra profit? Surely one firm would look to capture extra sales?

Albermarle

squirrelpie said:

TheGreenFrog said:

There is no commission.  They just quote you a rate which is no lower than the rate you would get by going through any broker

But why do they do that when they could give you a better rate and still keep some extra profit? Surely one firm would look to capture extra sales?

I guess it is the same as many other businesses who use distributors. 
Using a distributor ( IFA in this case) saves money. You can employ less staff and you can let the IFA do all the boring regulatory/compliance stuff/dealing with all the questions from Joe Public etc.

Also something not mentioned so far is that there are many different types of annuities; fixed term; with inflation link or not; with fixed annual increases or not; spousal payments or not; reduced longevity; with or without guarantees etc .
Once you have made the decision it can not be unwound, so some advice in this area is probably useful for many, especially as it will be effectively free. 

TheGreenFrog

squirrelpie said:

TheGreenFrog said:

There is no commission.  They just quote you a rate which is no lower than the rate you would get by going through any broker

But why do they do that when they could give you a better rate and still keep some extra profit? Surely one firm would look to capture extra sales?

I assume it's because, even for insurers who offer direct, most of the annuity sales are through IFAs (or FAs) and brokers and the insurers do not want to undercut any of them.