The Great Annuity Rate Con

The Great Annuity Rate Con.

The Financial Services Consumer Panel, a group of appointed members of the public organised by the financial industry regulator, the Financial Conduct Authority (FCA), has issued a report suggesting that pensions and insurance companies are serving a huge injustice on the population by taking huge commissions and fees when arranging annuities for pensioners when they retire.

The report suggests that sometimes, commissions and charges can be as much as 6-7% when an annuity is arranged.  Given that annuity rates are at an all-time low at the moment, this means that people are locking into lower pension incomes for life when they retire.

The report suggest that up to 400,000 annuitants are affected each year and pension and insurance companies are making money when people need it most.

Comment

We have seen all too often insurance companies quote directly when a client is coming to retirement, often at lower rates than available in the open market and indeed, some pension companies have arrangements with other insurance companies where they then get paid huge commissions but with no advice given and no liability taken i.e. no Financial Ombudsman rights.

Fixed Fees:  We have always charged a fixed fee for searching the whole market to find and arrange the most suitable, highest paying annuity for clients.  Even when clients wish our fees to be paid from the pension fund itself, usually this will be no more than 1% of the residual pension fund.

There is some sympathy though here for pension annuity companies.  Never forget that they arrange the annuity, they secure the funding to guarantee your income for life and then they have the banking expenses of paying your income each month, probably issuing monthly “payslips” and then issue a p60 each year (just like when you are working and paid).  This administration burden could be in place for 20/30 years +.