Friday, March 23, 2012

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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