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April 12, 2013 7:36 pm
Customers looking to buy an enhanced annuity directly from the comfort of their laptop are seeing their retirement funds hit by commission of up to 3.5 per cent.
This week saw the launch of new online direct shopping services which will open the market for “enhanced” or impaired life annuities, which pay higher income to those in poorer health or who smoke.
Currently, there is low uptake of these annuities, even though they pay up to 40 per cent more income, largely because people don’t know they are available or can’t afford upfront fees to pay an adviser to search the market.
Hargreaves Lansdown, one of the country’s biggest brokers, this week launched the new web search engine which will deliver guaranteed, enhanced annuity quotes within minutes.
But Hargreaves has come under fire for levelling commission of 1.5-3.5 per cent on sales, which are automated and unadvised.
“Commission of 3.5 per cent could cut the spending power of an average-sized £30,000 pot by just over £1,000 . . . this is a high sum,” said Dr Ros Altmann, an independent pensions expert.
“Surely after a lifetime of hard saving you would want the best outcome for yourself, especially if you have a smaller fund. To get the best enhanced rate, you can’t do that in four minutes.”
Enhanced annuity provider Just Retirement confirmed that commission was a “charge” to the customer’s annuity account “therefore it impacts the return or income they receive like any other charge”. Charges would be deducted for adviser fees, which can amount to hundreds of pounds an hour.
“In our experience the fee (adviser) is usually less than the commission being taken,” said Phillip Bray of Investment Sense, the independent financial adviser.
“The HL system is certainly slick, looks great and if it helps people shop around and get a better rate then that’s good outcome. But 3.5 per cent commission is above the market average. Our mystery shopping exercise indicated that the average commission or fee is circa 1.6 per cent.”
Hargreaves said that its new service was already boosting clients’ annual retirement income by nearly 30 per cent.
“We have capped our commission rates below the maximum we could take,” said Tom McPhail, head of pensions research with Hargreaves.
“The key is the rate the consumer is offered. If we get them a better deal then we’ve still done a good job and unlike with these other sites, you can see our actual guaranteed rate up front. Many companies who charge lower commission rates still can’t match the annuity terms we offer.”
Hargreaves said the average take-up of enhanced annuities in the non-advised market was about 4 per cent but with its clients it was 48 per cent.
“We are delivering higher incomes to more people than is currently the case in the market,” added McPhail
Meanwhile, rival websites are set to spur competition for the hundreds of thousands of people retiring each year.
Payingtoomuch.com, run by Eclipse Financial Systems, was this weekend set to launch an enhanced annuity comparison service with lower commission charges than Hargreaves.
“A £1,000 commission payment on a £30,000 pension fund without advice seems extreme,” said Michael Ward, managing director of PayingTooMuch.com, which caps annuity commissions at £1,000 (standard) and £1,666) enhanced and 1.35 per cent (standard) and 2.24 per cent (enhanced), whichever is the lower.
“The commission payments which can be received for non-advised business seem much higher than a negotiated fee for advice would be and this could distort the market.”
The Payingtoomuch.com service does not offer guaranteed quotes or its own advice, unlike the Hargreaves service.
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