Friday, March 23, 2012

(Snap) Annuity Survey 21/03/2012

There are currently only three main players in the annuity market in Ireland. Irish Life, New Ireland and Zurich Life are the only companies that are actively competing for annuity business.

You may get a quote from Friends First, Standard Life or Canada Life and it may be worth bearing in mind that sometimes they might be competitive with their rates.

For the purpose of this post, I am limiting it to the three that are currently interested in doing business.

The maximum commission that can be paid to an advisor by Irish Life is 2% of the purchase price. New Ireland is 3% and Zurich Life is 2.5%.

Zurich Life €6,792.48 pa

New Ireland €6,774.60 pa

Irish Life €6,680.70 pa

Even though the commission rate on the Zurich & New Ireland annuities is assumed at 2.5% for the quote above, they are currently quoting higher rates than Irish Life with a max commission of 2%.

Buying the annuity directly from the pension provider will incur a commission charge. This will more than likely be 2%.

If you decided to buy the annuity on an ‘execution only’ basis (no advice) via a broker you could negotiate a lower commission or pay a fee to execute the transaction.

For the ‘execution only’ service available at the annuity payable per annum would be €6,938.52

Quote based on the following customer details:

Male 15/03/1947, Female 15/03/1952, €150,000, Guarantee period 5 years, Level annuity, Reversion rate 66.67%, Payable monthly in advance

Buying an Annuity - Options

If you have a pension fund maturing and you are in the market for an annuity, you should realise that there are options available in respect of how you buy the product.

The pension company that has been managing your fund will probably offer you an annuity rate but you are not restricted to taking this. You can shop around for the best rate that is available on the market.

If you need advice on the best annuity provider or on the options that may be available on the product, then you are going to have to pay for this advice. In the vast majority of cases this is paid for by commission from the annuity provider to the advisor. Commission rates vary in Ireland from 0% to 3% of the purchase price.

If the commission rate is 0% then you will obviously pay a fee to the advisor for his/her work on the advice you receive and in the placing of the product with the provider. The larger your pension pot, the more likely that the fee method of payment will suit and you should negotiate the fee with the advisor.

As an alternative, you can also buy an annuity via an ‘execution only’ service. You will not receive advice on which provider is the ‘best’ or on the options available under the contract but you will receive an annuity rate that will be enhanced because the cost associated with the ‘advice’ has been eliminated.

The ‘execution only’ service is suitable for retirees that have a good understanding of their financial needs and that can analyse the merits of a particular product or provider.

So, if you’re in the market to buy an annuity you should explore which purchase route suits you and how you are going to pay for the service provided. Remember, the annuity is for the rest of your life so any discount on charges will benefit you until your demise.

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Decumulation Strategy

We spend most of our working lives trying to accumulate pension assets that will generate an income for us when we stop working. We spend a lot of time thinking how best to do this. Unfortunately, for most of us, it is only when we are faced with a retirement date that we start to think about decumulation ie. converting pension assets into lifetime income.

In the pre Approved Retirement Fund (ARF) era this was pretty straightforward. You elected to take as much tax-free-cash as you could and bought an annuity with the balance. That didn’t really need a decumulation strategy if your pension fund was your only retirement asset.

Today, we have ARFs, Annuities and Vested PRSAs to choose from in the post-retirement pension product market. All of these products have their merits. Depending on your financial circumstances and attitude to risk, choosing a single product may offer the best solution for you.

However, the multiple-product solution is something that you should spend a bit of time researching. Rather than leave it till the week/month that you retire to devise a strategy, why not do it now.

Thursday, March 1, 2012

Current Annuity Rates

If you, or someone you know, has a pension maturing and they are in the market to buy an annuity then they should put a bit of effort into searching for the best rate currently available.

A quick survey today of the annuity rates available from the players in this market tells me that the best rate is 15.5%* higher than the lowest one. That adds up to a lot of money over the lifetime of the annuity payments.

(* Based on a joint life annuity for a male 65, female 60 incorporating a 5 year guarantee, level, payable monthly in advance with 2/3rds spouses pension.)

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