Question
Thank you for providing such a great site! My question concerns Fixed Term Annuities.Is there any financial advantage to an annuity broker or financial adviser to promote this type of annuity against a traditional life time annuity? I am suspicious that there will be another fee to pay when the fixed term is up and another review is required.Answer
Fixed term annuities can be used in some pensions as a way to avoid locking into low current lifetime annuity rates. The fixed term annuity provides income for a set number of years after which you receive a guaranteed maturity payout, which can either be invested in your pension (if you opt for the income drawdown route) or a lifetime annuity (i.e. income for life).
As the rates offered by fixed term annuities are usually worse than lifetime annuities, you're only likely to benefit if lifetime annuity rates show a healthy increase (compared to the present) or your health deteriorates (probably increasing your lifetime annuity rate) by the time the fixed term annuity matures.
In my view fixed term annuities are generally not a good idea, unless you're confident either of the above will apply.
You're right to be suspicious. While the sales commissions paid on fixed term annuities tend to be similar to lifetime annuities, less scrupulous financial advisers may prefer them as they'll try and take another bite of your pie when the annuity matures, by selling you another (advisers will have to be fee-based from 31 December this year, but instead of commission they'll likely try and pocket a fee on maturity for further 'advice').
Thank you for providing such a great site! My question concerns Fixed Term Annuities.Is there any financial advantage to an annuity broker or financial adviser to promote this type of annuity against a traditional life time annuity? I am suspicious that there will be another fee to pay when the fixed term is up and another review is required.Answer
Fixed term annuities can be used in some pensions as a way to avoid locking into low current lifetime annuity rates. The fixed term annuity provides income for a set number of years after which you receive a guaranteed maturity payout, which can either be invested in your pension (if you opt for the income drawdown route) or a lifetime annuity (i.e. income for life).
As the rates offered by fixed term annuities are usually worse than lifetime annuities, you're only likely to benefit if lifetime annuity rates show a healthy increase (compared to the present) or your health deteriorates (probably increasing your lifetime annuity rate) by the time the fixed term annuity matures.
In my view fixed term annuities are generally not a good idea, unless you're confident either of the above will apply.
You're right to be suspicious. While the sales commissions paid on fixed term annuities tend to be similar to lifetime annuities, less scrupulous financial advisers may prefer them as they'll try and take another bite of your pie when the annuity matures, by selling you another (advisers will have to be fee-based from 31 December this year, but instead of commission they'll likely try and pocket a fee on maturity for further 'advice').
Read this Q and A at http://www.candidmoney.com/askjustin/773/advisers-incentivised-to-sell-fixed-term-annuities
But Candid am happy with my fixed term annuity.
ReplyDelete