Annuities - why all the hate?

dunstonh

snowlaser said:

dunstonh said:

 I have asked my own scheme twice and got generic non-answers like "you should seek financial advice at retirement".

They are not authorised to give advice.  The staff members are disciplined if they try and firms can face regulatory action if they act outside of their authorisations.

I understand they can't give advice, but I have literally twice asked "is it POSSIBLE (not ADVISABLE) to do 50:50 annuity:drawdown" and just been told to seek advice.

They cannot answer that question as they don't know what is available on the marketplace.   Remember that these are call centre workers.    Many of whom are on short term rolling contracts with limited training and script templates that they need to stick to.

Expecting them to have an indepth knowledge of the marketplace and options available across the marketplace is unrealistic.

Albermarle

snowlaser said:

dunstonh said:

 I have asked my own scheme twice and got generic non-answers like "you should seek financial advice at retirement".

They are not authorised to give advice.  The staff members are disciplined if they try and firms can face regulatory action if they act outside of their authorisations.

I understand they can't give advice, but I have literally twice asked "is it POSSIBLE (not ADVISABLE) to do 50:50 annuity:drawdown" and just been told to seek advice.

That is a bit daft/jobsworth, they should be able to tell you what is possible, without advising you to go in one direction or another.

Otherwise sentiment ( on this forum anyway) has moved much more positive towards annuities, due to the current good rates, and the impending change to IHT rules on unused pension pots. Although there is some debate on the latter issue pros and cons. For example.
Using an annuity to reduce IHT ? — MoneySavingExpert Forum

ader42

I think the people that dislike annuities tend to come to their conclusions from the thought of what if I only live two years and die in a car crash…

Personally I think annuities are still bad value from that perspective compared to keeping the funds elsewhere. Currently in the quotes I’ve had I’d get about a 2.5% uplift over a regular interest account for the risk of not living very long - I don’t think that’s good value at all.

Personal choice though. If I had no-one to leave an inheritance to my thoughts may differ. 

MyRealNameToo

Cobbler_tone said:

MyRealNameToo said:

JamesRobinson48 said:

I'll admit to having a visceral suspicion of annuities, although I don't rule them out completely in my case. But I'd need an annuity salesman to give me straight answers to some direct questions.

Somehow or other, the company providing the annuity must skim off money to pay its overheads, sales force and earn a commercial profit on the level of capital it needs to hold to cover financial and operational risks - for decades into the future. Indirectly, surely the annuitants collectively must bear the cost of all that, otherwise there would be no providers.

You may say all the above is typical of long term insurance policies more broadly. Granted. But having worked in the industry myself, I've seen what large salaries and bonuses practitioners normally have, and how little about these policies' profit margins is publicly disclosed.

It's also unclear to me who or what stands behind the annuity payments in the unlikely event that the provider becomes insolvent. 

On the whole I'd rather buy a gilts ladder DIY. The pricing is transparent, returns are locked in, there are fewer intermediaries to pay off, and HM Treasury stands behind the contractual payments. Oh, and I'm quite likely to leave something behind for my heirs. Although it's true, if I'm still living aged 105, I might have done better with an annuity.

When calculating the rate they include an annual administration fee which includes a margin. It is however very much a numbers game and the per year fee per policy is very modest. 

Obviously the a large proportion of profits emerges from investment returns, for long term insurance these are much more significant than general insurance which tends to be short tail and so needs to be highly liquid funds with a good amount in nothing more than basic money market funds. 

There is also the difference between expected longevity and experienced longevity. How much prudence is built into their longevity risk models. Add to that in recent years we've had pandemics, austerity, cost of living crisis etc all of while have helped annuity providers books. Obviously you need to look at the book as a whole though as many in the annuity space are also in the life space and those events have had the opposite effect there... the two diversify well in capital modelling for obvious reasons. Were we to have a realistic disaster scenario come into play in annuities (eg a cure for cancer) their fortunes could turn quickly. 

The FSCS stands being annuity payments in the same way as it does all insurance. To date no annuity insurer has actually failed. 

snowlaser said:

dunstonh said:

 I have asked my own scheme twice and got generic non-answers like "you should seek financial advice at retirement".

They are not authorised to give advice.  The staff members are disciplined if they try and firms can face regulatory action if they act outside of their authorisations.

I understand they can't give advice, but I have literally twice asked "is it POSSIBLE (not ADVISABLE) to do 50:50 annuity:drawdown" and just been told to seek advice.

Your forgetting how tight people are on "giving advice"... I recall a guy getting a final gross misconduct warning when he worked on the Motor Insurance Quote line because a customer called up saying he'd come into money and wanted to lease a ferrari 612 as his dream car for a couple of years but wanted to know how much the insurance would be before he does. The Agent said "nice car" and Compliance deemed he'd given professional advice because he worked in Motor insurance. 

Thankfully HR was told to remove the warning because the MD decided it was a statement of fact not a piece of professional advice but when you can be frog marched out the building for a relatively minor comment you can understand why agents are so cautious in what they say. 

A bit off piste but what you are alluding is extremely harsh and misguided. Would have been a good ER case if they had dismissed him. From what you stated I am assuming it went to appeal and the MD overruled it, probably after some legal advice! You would have hoped the disciplining manager had taken some counsel ahead of the hearing.
HR wouldn't be removing warnings on the word of anyone but god knows what goes on at some dodgy companies.

The essence is right though. Any professional organisation not in the business of giving financial advice are usually very careful with their words.

They didnt dismiss him, they initially gave him a final written warning for gross misconduct as he had a reasonable length of service and previously good record. Had they been a new recruite or someone with a checkered past then things may have been different. 

For this sort of thing it was a fairly straightforward process, QA constantly monitor calls randomly of different agents. Most minor things get fed back to their line manager to take up with the agent but there were certain elements that went straight to warnings etc as they were such strong red lines, one of which was giving advice. The line manager is informed but not part of the decision making process. 

It didnt go to appeal, we were a relatively small business unit in a much larger organisation. The MD became aware of it the next day or so and stepped in before any formal response from the agent in question and almost certainly without seeking legal advice. 

Totally agree it was harsh and as far as most of us were concerned simply wrong which is why the MD decided to act. 

MyRealNameToo

Bostonerimus1 said:

For example I have a DB pension and SP to come so I have plenty of index linked "guaranteed" income and so won't be buying an annuity.

Though with the bulk annuity market as it is at the moment it very possible that your DB scheme (assuming not governmental) will do a buy in and subsequently buy out which effectively transfer your DB pension into an annuity. 

chuffinnora

Bostonerimus1 said:

For example I have a DB pension and SP to come so I have plenty of index linked "guaranteed" income and so won't be buying an annuity.

A very good point actually. If the DB/SP element of someone's pension accounts for a reasonable proportion of your needs, why commit too much of a DC to an annuity. Down to how you view risk and longevity.

Cobbler_tone

MyRealNameToo said:

Cobbler_tone said:

MyRealNameToo said:

JamesRobinson48 said:

I'll admit to having a visceral suspicion of annuities, although I don't rule them out completely in my case. But I'd need an annuity salesman to give me straight answers to some direct questions.

Somehow or other, the company providing the annuity must skim off money to pay its overheads, sales force and earn a commercial profit on the level of capital it needs to hold to cover financial and operational risks - for decades into the future. Indirectly, surely the annuitants collectively must bear the cost of all that, otherwise there would be no providers.

You may say all the above is typical of long term insurance policies more broadly. Granted. But having worked in the industry myself, I've seen what large salaries and bonuses practitioners normally have, and how little about these policies' profit margins is publicly disclosed.

It's also unclear to me who or what stands behind the annuity payments in the unlikely event that the provider becomes insolvent. 

On the whole I'd rather buy a gilts ladder DIY. The pricing is transparent, returns are locked in, there are fewer intermediaries to pay off, and HM Treasury stands behind the contractual payments. Oh, and I'm quite likely to leave something behind for my heirs. Although it's true, if I'm still living aged 105, I might have done better with an annuity.

When calculating the rate they include an annual administration fee which includes a margin. It is however very much a numbers game and the per year fee per policy is very modest. 

Obviously the a large proportion of profits emerges from investment returns, for long term insurance these are much more significant than general insurance which tends to be short tail and so needs to be highly liquid funds with a good amount in nothing more than basic money market funds. 

There is also the difference between expected longevity and experienced longevity. How much prudence is built into their longevity risk models. Add to that in recent years we've had pandemics, austerity, cost of living crisis etc all of while have helped annuity providers books. Obviously you need to look at the book as a whole though as many in the annuity space are also in the life space and those events have had the opposite effect there... the two diversify well in capital modelling for obvious reasons. Were we to have a realistic disaster scenario come into play in annuities (eg a cure for cancer) their fortunes could turn quickly. 

The FSCS stands being annuity payments in the same way as it does all insurance. To date no annuity insurer has actually failed. 

snowlaser said:

dunstonh said:

 I have asked my own scheme twice and got generic non-answers like "you should seek financial advice at retirement".

They are not authorised to give advice.  The staff members are disciplined if they try and firms can face regulatory action if they act outside of their authorisations.

I understand they can't give advice, but I have literally twice asked "is it POSSIBLE (not ADVISABLE) to do 50:50 annuity:drawdown" and just been told to seek advice.

Your forgetting how tight people are on "giving advice"... I recall a guy getting a final gross misconduct warning when he worked on the Motor Insurance Quote line because a customer called up saying he'd come into money and wanted to lease a ferrari 612 as his dream car for a couple of years but wanted to know how much the insurance would be before he does. The Agent said "nice car" and Compliance deemed he'd given professional advice because he worked in Motor insurance. 

Thankfully HR was told to remove the warning because the MD decided it was a statement of fact not a piece of professional advice but when you can be frog marched out the building for a relatively minor comment you can understand why agents are so cautious in what they say. 

A bit off piste but what you are alluding is extremely harsh and misguided. Would have been a good ER case if they had dismissed him. From what you stated I am assuming it went to appeal and the MD overruled it, probably after some legal advice! You would have hoped the disciplining manager had taken some counsel ahead of the hearing.
HR wouldn't be removing warnings on the word of anyone but god knows what goes on at some dodgy companies.

The essence is right though. Any professional organisation not in the business of giving financial advice are usually very careful with their words.

They didnt dismiss him, they initially gave him a final written warning for gross misconduct as he had a reasonable length of service and previously good record. Had they been a new recruite or someone with a checkered past then things may have been different. 

It didnt go to appeal, we were a relatively small business unit in a much larger organisation. The MD became aware of it the next day or so and stepped in before any formal response from the agent in question and almost certainly without seeking legal advice. 

Totally agree it was harsh and as far as most of us were concerned simply wrong which is why the MD decided to act. 

Ah, so they probably didn't follow the due process to issue the warning in the first place, without the appropriate investigation etc. Almost certainly unduly "frog marched" him off site and then wiped the warning off without following the due process. You could have a field day with how some of these tin pot organisations misapply employment law. I'm surprised they didn't sack him on the spot.   
It is easy to offload a newbie though.

MyRealNameToo

Cobbler_tone said:

MyRealNameToo said:

Cobbler_tone said:

MyRealNameToo said:

JamesRobinson48 said:

I'll admit to having a visceral suspicion of annuities, although I don't rule them out completely in my case. But I'd need an annuity salesman to give me straight answers to some direct questions.

Somehow or other, the company providing the annuity must skim off money to pay its overheads, sales force and earn a commercial profit on the level of capital it needs to hold to cover financial and operational risks - for decades into the future. Indirectly, surely the annuitants collectively must bear the cost of all that, otherwise there would be no providers.

You may say all the above is typical of long term insurance policies more broadly. Granted. But having worked in the industry myself, I've seen what large salaries and bonuses practitioners normally have, and how little about these policies' profit margins is publicly disclosed.

It's also unclear to me who or what stands behind the annuity payments in the unlikely event that the provider becomes insolvent. 

On the whole I'd rather buy a gilts ladder DIY. The pricing is transparent, returns are locked in, there are fewer intermediaries to pay off, and HM Treasury stands behind the contractual payments. Oh, and I'm quite likely to leave something behind for my heirs. Although it's true, if I'm still living aged 105, I might have done better with an annuity.

When calculating the rate they include an annual administration fee which includes a margin. It is however very much a numbers game and the per year fee per policy is very modest. 

Obviously the a large proportion of profits emerges from investment returns, for long term insurance these are much more significant than general insurance which tends to be short tail and so needs to be highly liquid funds with a good amount in nothing more than basic money market funds. 

There is also the difference between expected longevity and experienced longevity. How much prudence is built into their longevity risk models. Add to that in recent years we've had pandemics, austerity, cost of living crisis etc all of while have helped annuity providers books. Obviously you need to look at the book as a whole though as many in the annuity space are also in the life space and those events have had the opposite effect there... the two diversify well in capital modelling for obvious reasons. Were we to have a realistic disaster scenario come into play in annuities (eg a cure for cancer) their fortunes could turn quickly. 

The FSCS stands being annuity payments in the same way as it does all insurance. To date no annuity insurer has actually failed. 

snowlaser said:

dunstonh said:

 I have asked my own scheme twice and got generic non-answers like "you should seek financial advice at retirement".

They are not authorised to give advice.  The staff members are disciplined if they try and firms can face regulatory action if they act outside of their authorisations.

I understand they can't give advice, but I have literally twice asked "is it POSSIBLE (not ADVISABLE) to do 50:50 annuity:drawdown" and just been told to seek advice.

Your forgetting how tight people are on "giving advice"... I recall a guy getting a final gross misconduct warning when he worked on the Motor Insurance Quote line because a customer called up saying he'd come into money and wanted to lease a ferrari 612 as his dream car for a couple of years but wanted to know how much the insurance would be before he does. The Agent said "nice car" and Compliance deemed he'd given professional advice because he worked in Motor insurance. 

Thankfully HR was told to remove the warning because the MD decided it was a statement of fact not a piece of professional advice but when you can be frog marched out the building for a relatively minor comment you can understand why agents are so cautious in what they say. 

A bit off piste but what you are alluding is extremely harsh and misguided. Would have been a good ER case if they had dismissed him. From what you stated I am assuming it went to appeal and the MD overruled it, probably after some legal advice! You would have hoped the disciplining manager had taken some counsel ahead of the hearing.
HR wouldn't be removing warnings on the word of anyone but god knows what goes on at some dodgy companies.

The essence is right though. Any professional organisation not in the business of giving financial advice are usually very careful with their words.

They didnt dismiss him, they initially gave him a final written warning for gross misconduct as he had a reasonable length of service and previously good record. Had they been a new recruite or someone with a checkered past then things may have been different. 

It didnt go to appeal, we were a relatively small business unit in a much larger organisation. The MD became aware of it the next day or so and stepped in before any formal response from the agent in question and almost certainly without seeking legal advice. 

Totally agree it was harsh and as far as most of us were concerned simply wrong which is why the MD decided to act. 

Ah, so they probably didn't follow the due process to issue the warning in the first place, without the appropriate investigation etc. Almost certainly unduly "frog marched" him off site and then wiped the warning off without following the due process. You could have a field day with how some of these tin pot organisations misapply employment law. I'm surprised they didn't sack him on the spot.   
It is easy to offload a newbie though.

Its been many years and can't remember the exact flow chart any more but the fact he wasnt a newbie did save him and he probably would have been dismissed on the spot had he been out of the nursery team but under 6 months in his proper team. 

Advice was very binary, if you gave advice its gross misconduct, there wasnt a consideration of how wide the advice was, its accuracy or anything else. We weren't licensed to give advice so simply can't give it even if well intentioned, 100% accurate etc 

gm0

There was a time.....long ago and not far away......when it was a free for all.....and providers of existing....or selling new....product.....could "help" their customers choose the *best* option which surprise surprise was the one which generated the most profit.....but sounded good.    They behaved so badly.  The government took the ball away

People are "in want of" advice and guidance. The current system prevents product providers doing some sensible things that are helpful.  And punishes them for straying....lest bad practices reappear.

Compliance teams need to apply strong and consistent pressure to operations and on to staff. To ensure this is. In the wild. Followed.

It is.  What it is.

Pat38493

If you are not retiring for 10-15 years, whether you want to buy an annuity or not is not that relevant to your accumulation strategy since you have no idea whether annuities will be good value in 10 years from now.

As of today, annuities seem to be worth considering in the situation you describe - cover basic expenses for the long term.

From what I've seen from modelling this a bit using historical data, buying an annuity will get you something that is not much better than the worst case you would have historically ended up with if you have a good flexi drawdown strategy.  In other words, you are sacrificing the 90% chance of ending up significantly better off, in order to cover the 10% of worst case scenarios.  Therefore it depends on your attitude to risk and how much you are interested in having more money than planned, and whether you are prepared to reduce spending in the Armageddon situation like 1970s or Great Depression.

Also by using annuities you are reducing flexibility for having significantly different spending levels in different years, deciding to go back to work etc, paying too much tax if you receive a large inheritance etc.

Some places (e.g. Boggleheads VPW strategy) recommends buying an annuity but not till later when you are in your 70s.