Fees for setting up an annuity? And dealing with annuity providers directly

KeiserSoze

Doing a bit of annuity research and read that typically insurance companies charge a fee (either flat or a % of the fund) when taking on a new annuity. Perhaps naively I thought this would be fee free and they'd price this into their quoted rate.

I'd assume a fee of I were using an advisor but not going direct. I'm not ready to get a quote for another couple of years, I'm just at the exploratory stage at the mo, so can't really get a handle on who charges what. 

So any insights people have on what companies charge would be greatly appreciated!

Plus additionally whilst looking online, I noted Scottish Widows currently have one of the top annuity rates but only deal direct if you're an existing customer, they only take business for a new customer via an IFA, are they all like that? Seems pointless paying an IFA to instruct simply to direct funds to buy a SW annuity (unless the IFA gets a cut of the SW fee and I don't pay them directly?).

Cheers! 

TheGreenFrog

In my recent experience the quotes I got varied, with no logic I could discern.  The important figure is the post fee annuity amount.  The best quote I got was through a broker.  Other brokers came up with a lower amount from the same insurer.  The insurer itself gave me a direct quote which was beaten by the best broker quote.  I got an IFA to quote and he could not beat the best broker quote (even though his fee was slightly lower than that of the best broker).  I ended up using the IFA as I wanted some advice.

MEM62

KeiserSoze said:

Seems pointless paying an IFA to instruct simply to direct funds to buy a SW annuity (unless the IFA gets a cut of the SW fee and I don't pay them directly?).

Cheers! 

Far from pointless as that is not all that they do.  You will get a better return going via an IFA.

I am sure that @dunstonh will be along to elaborate.   

zagfles

See Anuities Research — MoneySavingExpert Forum

dunstonh

Doing a bit of annuity research and read that typically insurance companies charge a fee (either flat or a % of the fund) when taking on a new annuity. Perhaps naively I thought this would be fee free and they'd price this into their quoted rate.

Non-advised sales are fee free and they fo lower the annuity rate to factor in the commission.

I'd assume a fee of I were using an advisor but not going direct. I'm not ready to get a quote for another couple of years, I'm just at the exploratory stage at the mo, so can't really get a handle on who charges what. 

Which providers are charging a fee for you going direct?   Most (if not all) levy commission and give you a lower annuity rate for doing so.

So any insights people have on what companies charge would be greatly appreciated!

Its not the charge that matters.  It is the outcome.
For example, two shops sell the same washing machine.  One sells it for £400 and makes £50 profit.   The other sells it for £390 and makes £75 profit.        Which would you choose?

Last time I was competing against a non-advised sale via one of the large online annuity sites, my fee was slightly higher than their commission but I obtained a higher annuity rate.    

Plus additionally whilst looking online, I noted Scottish Widows currently have one of the top annuity rates but only deal direct if you're an existing customer, they only take business for a new customer via an IFA, are they all like that?

No. Some do have a direct distribution but they have a lower annuity rate to factor in their commission.  

Seems pointless paying an IFA to instruct simply to direct funds to buy a SW annuity (unless the IFA gets a cut of the SW fee and I don't pay them directly?).

IFAs cannot receive commission on advised sales.  Only non-advised.  
If advised, the annuity rate is increased because the nil commission annuity rate is used.  However, the IFA is paid a fee by you. Either from the pot (usually after tax free cash taken) or you directly.  Broadly speaking , if the fee is the same as the commission, then the outcome would be broadly similar.
If non-advised, then commission is allowed to be taken and it would mirror what you could get direct (if that option was available).  Or the IFA can take a fee for non-advised which could be lower than the commission and improve the annuity rate.

DullGreyGuy

KeiserSoze said:

Doing a bit of annuity research and read that typically insurance companies charge a fee (either flat or a % of the fund) when taking on a new annuity. Perhaps naively I thought this would be fee free and they'd price this into their quoted rate.

I'd assume a fee of I were using an advisor but not going direct. I'm not ready to get a quote for another couple of years, I'm just at the exploratory stage at the mo, so can't really get a handle on who charges what. 

So any insights people have on what companies charge would be greatly appreciated!

Plus additionally whilst looking online, I noted Scottish Widows currently have one of the top annuity rates but only deal direct if you're an existing customer, they only take business for a new customer via an IFA, are they all like that? Seems pointless paying an IFA to instruct simply to direct funds to buy a SW annuity (unless the IFA gets a cut of the SW fee and I don't pay them directly?).

Which insurer are you seeing doing direct to consumer sales?

Last time I checked they generally none had direct sales but some had setup a sister company acting as a tied agent. Irrespective if the agent is a sister company, an unrelated tied agent or a whole of market/IFA each receive a commission for their work. 

The majority of sales come from unrelated agents and insurers therefore won't simply undercut them by charging less to direct customers as thats a great way to lose your agents who supply the majority of sales. Independent agents can choose to waive some of their commissions and hence may be able to offer better rates. 

KeiserSoze

dunstonh said:

Doing a bit of annuity research and read that typically insurance companies charge a fee (either flat or a % of the fund) when taking on a new annuity. Perhaps naively I thought this would be fee free and they'd price this into their quoted rate.

Non-advised sales are fee free and they fo lower the annuity rate to factor in the commission.

I'd assume a fee of I were using an advisor but not going direct. I'm not ready to get a quote for another couple of years, I'm just at the exploratory stage at the mo, so can't really get a handle on who charges what. 

Which providers are charging a fee for you going direct?   Most (if not all) levy commission and give you a lower annuity rate for doing so.

So any insights people have on what companies charge would be greatly appreciated!

Its not the charge that matters.  It is the outcome.
For example, two shops sell the same washing machine.  One sells it for £400 and makes £50 profit.   The other sells it for £390 and makes £75 profit.        Which would you choose?

Last time I was competing against a non-advised sale via one of the large online annuity sites, my fee was slightly higher than their commission but I obtained a higher annuity rate.    

Plus additionally whilst looking online, I noted Scottish Widows currently have one of the top annuity rates but only deal direct if you're an existing customer, they only take business for a new customer via an IFA, are they all like that?

No. Some do have a direct distribution but they have a lower annuity rate to factor in their commission.  

Seems pointless paying an IFA to instruct simply to direct funds to buy a SW annuity (unless the IFA gets a cut of the SW fee and I don't pay them directly?).

IFAs cannot receive commission on advised sales.  Only non-advised.  
If advised, the annuity rate is increased because the nil commission annuity rate is used.  However, the IFA is paid a fee by you. Either from the pot (usually after tax free cash taken) or you directly.  Broadly speaking , if the fee is the same as the commission, then the outcome would be broadly similar.
If non-advised, then commission is allowed to be taken and it would mirror what you could get direct (if that option was available).  Or the IFA can take a fee for non-advised which could be lower than the commission and improve the annuity rate.

Thanks for the insight, greatly appreciated. Looks like I'm gonna hunt for an IFA then.  Obviously not gonna hold you to this, but as a rule of thumb what fee range would I be looking at to convert a £200k DC pot to an annuity? I.e. simply to get quotes from the market and I choose the provider based on the rate net of fees? Thanks again 

dunstonh

Obviously not gonna hold you to this, but as a rule of thumb what fee range would I be looking at to convert a £200k DC pot to an annuity?

It will vary across the country. City locations are more expensive.   Rural locations tend to be cheaper.    The time in the year you do it can impact.     Most IFAs will be close to being full until later in April.   

if you can find one that will do it on execution only, say circa £1500.  If its advised, maybe £2500.
If you have clean health, the rates will be broadly similar to websites.  If you have health issues, then this is where the IFA tends to get a notable difference unless you a very good form filler.

KeiserSoze

dunstonh said:

Obviously not gonna hold you to this, but as a rule of thumb what fee range would I be looking at to convert a £200k DC pot to an annuity?

It will vary across the country. City locations are more expensive.   Rural locations tend to be cheaper.    The time in the year you do it can impact.     Most IFAs will be close to being full until later in April.   

if you can find one that will do it on execution only, say circa £1500.  If its advised, maybe £2500.
If you have clean health, the rates will be broadly similar to websites.  If you have health issues, then this is where the IFA tends to get a notable difference unless you a very good form filler.

Nice one, appreciate you taking the time to respond 

arthur_fowler

MEM62 said:

KeiserSoze said:

Seems pointless paying an IFA to instruct simply to direct funds to buy a SW annuity (unless the IFA gets a cut of the SW fee and I don't pay them directly?).

Cheers! 

Far from pointless as that is not all that they do.  You will get a better return going via an IFA.

I am sure that @dunstonh will be along to elaborate.   

They may or may not get you a better rate. I couldn't get a better rate through an IFA when I bought an annuity last year.

dunstonh

arthur_fowler said:

MEM62 said:

KeiserSoze said:

Seems pointless paying an IFA to instruct simply to direct funds to buy a SW annuity (unless the IFA gets a cut of the SW fee and I don't pay them directly?).

Cheers! 

Far from pointless as that is not all that they do.  You will get a better return going via an IFA.

I am sure that @dunstonh will be along to elaborate.   

They may or may not get you a better rate. I couldn't get a better rate through an IFA when I bought an annuity last year.

Its all about the fee.    An expensive IFA and a smaller fund would find it hard to obtain better terms.    A lower cost IFA and a larger fund should see the IFA get better.

If there are no medical conditions, then the margins with standard terms are not as great and even small remuneration differences wont make adjust the annuity rate much.