Annuity Charges

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Kev1964

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There is an interesting and currently active thread on here on what the best ARF charges could be for a new customer.

ARF charges

I will be retiring early (59 yrs) in the next 18 month's and plan to go down the ARF route and of course I will be getting professional advice. I plan to take 25% lump sum and go with a 75% passive global equity and 25% cash mix with the remainder. My question is which company has the lowest...
www.askaboutmoney.com

As annuities are becoming ever more attractive it would be very interesting to see some similar comment on what the most cost effective way to buy an annuity might be. In my case my fund is currently either €560k if I invest the lot or maybe less if I take a TFLS. I'm not assuming I will take a TFLS as Marc recently and successfully challenged my thinking that I would automatically do so. I don't need to release this cash. I can get 5%+ on an annuity so a lot better than in a bank and with no investment risk (compared with an ARF).

So now I'm thinking of buying an annuity with c€500k, no advice wanted. No escalation and single life. Guarantee of 10 years wanted if possible.

What's the cheapest and most effective way to buy this? And then are there any ongoing charges?
As an example I can see on the Zurich Drawdown Calculator that the quotes include 3% commission.

"The annuity rate is based on a single life annuity paid monthly and in arrears with escalation of 0.0% per annum and a guaranteed period of 5years. Commission of 3.0% is assumed in this rate".

Retirement Drawdown Calculator

Retirement Drawdown Calculator
www.zurichlife.ie
 
Firstly, if you take a TFLS you can still buy an Annuity with the balance. Any Annuity income will potentially be taxable (depending on your total income), so I would not dismiss taking a TFLS, even if the Annuity has a 10 year guarantee.
In terms of the Annuity, it generally is just down to getting the best rate. Once you purchase the Annuity, there are no ongoing costs. The Insurer will simply pay you the income (probably monthly) for as long as you live. So another factor you need to consider if buying an Annuity (rather than going the ARF route) is you state of health. If you health (and family history) is good, then an Annuity is probably the correct choice. If you health is poor, then don’t discount an ARF.
There are a limited number of Annuity providers - Zurich, Irish Life, New Ireland, Standard, Aviva (not sure if there are any others). If you are not seeking advice, then contact each provider and get a quote for the type of Annuity you want.
 
Thanks for your response Conan. I’m hoping to focus on charges and to understand better why Zurich might charge 3% commission on something that I may be able to buy direct from them (if that is actually the case). As I understand the term commission (of 3%) in this instance, 3% will come out of my fund before calculating my payout.

Maybe this commission rate is assuming that I will use a broker offering advice? And if yes is does “execution only” reduce this commission …..and therefore increase the pay out?

Or is there competition in the market that might result in a lower commission rate?

Your comment that I contact the providers direct is valid….does a customer still have to pay “commission” I wonder?
 
Insurance companies usually don't undercut their fees as a result of a customer dealing directly with them. You could get the information and fees directly from the company and then shop around various brokers for the best deal.
 
Thanks S Class. Three% of €500k is €15k which seems a lot of remuneration for an execution only, some might say form filling exercise (if indeed this is what is implied here by Zurich). It feels like the equivalent of a 97% allocation rate.

Perhaps there is an intermediary offering a zero commission, 100% allocation….. fee based service?
 
We were discussing just this in the office on Friday.

A nil commission annuity would have a higher rate but a separate fee would be liable to Vat so the ideal is to arrange on the basis of a reduced commission.

That said, there is a fair amount of messing about as the rates are only guaranteed for a few days and it can take weeks to extract the funds from the ceding scheme so you won’t get it done for free.

The hardest part of this is actually the administration dealing with understaffed life company admin.

If you are in below average health you should also get it medically underwritten as you may qualify for an enhancement and then it could hardly be classed as execution only.

Finally. the difference in rates on the market typically more than covers the payment for setting up as most people have no idea how to get a quote from all providers so would never be able to pick the best rate on their own.

The definition of execution only is that you must specify both product and provider.
 
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Thanks for contributing Marc. I value your opinions.

So my takeaways from your post include:

(1) Reduced commission arrangements are possible. Whether for execution only or market competition reasons?
(2) Fee based remuneration is subject to VAT but could still be cheaper than commission (depending on the figures).
(3) An Intermediary considering a fee basis should consider the work involved in releasing the current funds when calculating their fee.
(4) There is a customer demographic capable of getting their own quotes and doing this work may save an individual some money.

My questions are:

(1) What might a keen reduced commission rate for execution only be for the fund size quoted here?
(2) Are you saying that an underwritten quote (medical related) removes the option for execution only?
(3) Does the process require a customer to have chosen their annuity provider (eg Zurich) before applying to release funds?
(4) You said that the definition of EO is both product and provider. Is this the regulatory definition? If it is then what else does the customer have to use when choosing their provider other than the amount of payout…..? Customer service…?

Thanks in advance.
 
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Yes absolutely the regulatory definition of execution only has always been an exact specification of both product and provider.

As soon as an adviser gets drawn into the advice process either by way of medical underwriting for impaired life or simply by quoting an open market option it ceases to be execution only and sits on my PI policy which is a statutory requirement and costs me 30 grand a year
 
The current difference in annuity payments between a 3% & 0.5% commission contract, from one provider, is €744.36 per annum

Assumptions: Single life annuity, Female , 19/09/1958, €500K, payable monthly in advance, guaranteed for 10 years, no escalation.


Gerard
 
As I mentioned on the ARF thread and on numerous other threads, there is no wholesale price. If you go directly to the life company, you get their sales team and they will charge you as well as only advise you on that life company's rates. If you go to an advisor, they will look at the entire market for you and tell you the best rates. They will obviously charge you for it.

The commission charged will effect the rate you get. What the other charges are on an annuity, they are not disclosed, so there is no negotiation on this. The only way to get the best rate is to look at all the providers and the commission paid.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Summary:

(1) You won't get the best annuity rate by going directly to the product provider.

(2) Contact a few different financial brokers, ask them to confirm that they have agencies with the four annuity providers - Aviva, Irish Life, New Ireland and Zurich Life, tell them what your requirement is and ask them for written quotes, to include commission disclosure. The lower the commission a broker is taking, the better your annuity rate will be, even if the provider company is the same.
 
Standard Life do annuities too but don't have an online quote system. Their rates are quite good. I did one last year and it was better than Aviva's.
 
Steven Barrett said:
Standard Life do annuities too but don't have an online quote system. Their rates are quite good. I did one last year and it was better than Aviva's.
Click to expand...

Thanks. I didn't know that. If I remember right, they left the annuity market for a while (or were quoting rates that just weren't competitive at all). Evidently they're now back.
 
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