Finding an annuity

Time4T_Accounts

Afternoon, all

This question is prompted by another, recent thread. I have an initial meeting with an IFA later this week to start the ball rolling to purchase an annuity.  I’ve done my due diligence, and the firm / individual appears to be suitable for the job.  My question is, assuming we get as far as a product recommendation, do I still then need to do more ‘shopping around’? For example, I’m wondering if there are any companies which only sell directly to the public, rather than selling through IFAs;  or, should I be getting quotes from more than one IFA?

Thanks in advance.

incus432

I would check your IFA is truly an IFA and ask if he gets quotes from the whole market. You also need to know upfront what fee he will charge for this service -  they aren't allowed to work on commission now (whereas an annuity broker can).  Different IFAs may well charge different fees and many want to do a full financial review first which is VERY expensive . 

From what I've read it's very unlikely you will get a better deal from going direct and most providers wont do that anyway.

Time4T_Accounts

Thanks. I’ve been using the annuity tool on the moneyhelper website to get an idea of what I might expect. Apart from that, I’m not really sure where to look.

DRS1

That is as good a place as any.  If you start filling in forms on the Retirement Line web site you'll get a call from them, so be warned.

I tried to deal direct with the two providers who had the best quotes on Moneyhelper and neither would deal with me direct so going via an IFA is probably the way to go., 

dunstonh

 My question is, assuming we get as far as a product recommendation, do I still then need to do more ‘shopping around’? 

In theory no.  There are only a handful of providers still offering annuities, and the key differences between different intermediaries are the quality of the data (i.e health information) and the fee vs commission.

For example, I’m wondering if there are any companies which only sell directly to the public, rather than selling through IFAs;  or, should I be getting quotes from more than one IFA?

There are.  However, they will take a commission and the annuity rate will be lower because of it.  Whereas an IFA will charge a fee but will have the nil commission annuity rate which will be higher.  However, the pot, after TFC will be lower.   Broadly speaking, if your fee was £1500 and the commission was £1500 then the outcomes would be in the same ballpark.

 Different IFAs may well charge different fees and many want to do a full financial review first which is VERY expensive . 

There is no regulatory requirement for a full financial review.   The rules allow for limited advice and statistically, most advice is processed as limited.    It is up to the advice firm how and what they offer/require.     Limited advice just needs an extra risk warning in place stating that the advice was limited to "whatever" and that the advice may have been different if full advice had been given.

I think at the moment, the key thing is to get on quick because for the first time in a while, annuity rates dropped last week.   One provider that was coming out top on Thursday was 10% lower today.        

We don't know if this is the peak before the fall or whether it is a temporary reduction that will move upwards again but 20 and 30 year gilt yields have been falling for 2 weeks.

Time4T_Accounts

Thank you. That’s really helpful.  I’ve checked them out on the FCA website, and I’ve looked at their accounts on Companies House, and there doesn’t seem to be anything of concern there.  Just a thought… how would one know whether the fee is reasonable?  Presumably, ask how much work is involved, and get to an hourly rate?

DRS1

If you say how much is being used to buy the annuity then @dunstonh could tell you what a reasonable fee would be.  I am guessing that if the fee is less than 1% of the amount you are spending then it may be reasonable.  But obviously the more you are spending the lower the percentage should be.

I know commission is a percentage and fees are not but if you are saving the commission by using the IFA then fee vs commission saved is a reasonable measure.

dunstonh

Time4T_Accounts said:

Thank you. That’s really helpful.  I’ve checked them out on the FCA website, and I’ve looked at their accounts on Companies House, and there doesn’t seem to be anything of concern there.  Just a thought… how would one know whether the fee is reasonable?  Presumably, ask how much work is involved, and get to an hourly rate?

Remember that no money passes through the adviser's accounts.  So, you don't need to read companies house.   Plus, companies house data is not as detailed as it used to be for small firms.

Just a thought… how would one know whether the fee is reasonable?  Presumably, ask how much work is involved, and get to an hourly rate?

Hourly rate leaves you open to a clock ticking if there is an issue.  Most people go with either percentage (with tapering/cap if a large amount) or a fixed amount.

If you say how much is being used to buy the annuity then @dunstonh could tell you what a reasonable fee would be.  I am guessing that if the fee is less than 1% of the amount you are spending then it may be reasonable.  But obviously the more you are spending the lower the percentage should be.

1% on £100k would be very low.  Whereas 1% on a million would be high.   So, it boils down to the monetary amount in the end.  Commission tends to be around the 2% mark for non-advised.  However, non-advised firms can change their commission rate, which will increase or lower the annuity rate depending on how they change it.

sparklymarkly

Legal & General and Aviva both sell annuities direct.

DRS1

sparklymarkly said:

Legal & General and Aviva both sell annuities direct.

Interesting.  Shame they came last and last but one on the quote I just ran on Moneyhelper

Time4T_Accounts

One again, thanks all.  I’m looking at probably £450k - £500k to generate the sort of monthly income I’m looking for