Brewin Dolphin Welcomes Campaigns to end the 'Pensions rip off'

Discrepancies between the best and worst annuity deals on offer could cost you as much as £100k.

Following Pensions Minister Steve Webb’s recent suggestion that pensioners should be given the power to switch annuities and the campaigns launched recently by the Financial Services Consumer Panel and The Sunday Times – to name only two, wealth manager Brewin Dolphin hugely welcomes all initiatives to find a better deal for savers.

Brewin has underlined the importance of shopping around and seeking professional advice when choosing your annuity. Having spoken to four of the major pension providers, Brewin Dolphin has found considerable disparities between the best and worst annuities quoted for the same typical 65 year old single male.

We surveyed the following Life companies: Canada Life; Legal & General; Standard Life and Prudential, for this study and they all quoted for the same client (see table at the foot of this article). 

Life companies rates do change almost daily – hence the need to get good professional advice with deep industry knowledge.

Nicholas Fitzgerald, Head of Financial Planning at Brewin Dolphin, commented: "Anything and everything should be considered in the quest to improve the returns from Annuities or to find an alternative. Since the banking crisis and the advent of QE – Annuity rates have dropped to pitiful levels – and we have advised very few clients to purchase annuities in the last few years, instead recommending drawdown.

"So Steve Webb's idea of a secondary market should not be dismissed out of hand. We must all think hard about improving returns from pensions for an ageing population, and his innovative idea is full of good intentions. Deciding whether to buy an annuity is one of the biggest financial decisions most of us will ever make, and in the meantime it is essential to get professional advice and to shop around, since your annual income from your annuity could vary hugely depending on which provider you choose. The real tragedy in the example above is that you could be over £100k worse off just by accepting the first offer and not seeking advice, which of course is something we can all do something about…”

With regard to the Annuity Directory concept as a way to avoid the cost advice; looking at the differential quotes above from three major annuity providers for the same client – we can’t stress enough the false economy this would be and the need for professional guidance – even if it is the only time you ever pay for it. ‘You wouldn’t perform open heart surgery yourself, and this could be a life and death decision – or certainly the difference between a comfortable or a miserable retirement.”

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Pension Minister’s idea should not be dismissed out of hand as Brewin Dolphin highlights the importance of shopping around for your annuity

Discrepancies between the best and worst annuity deals on offer could cost you as much as £100k

8.1.14: Following Pensions Minister Steve Webb’s recent suggestion that pensioners should be given the power to switch annuities, wealth manager Brewin Dolphin has underlined the importance of shopping around and seeking professional advice when choosing your annuity.

Having spoken to four of the major pension providers, Brewin Dolphin has found considerable disparities between the best and worst annuities quoted for a typical 65 year old single male.

For example, the difference between the best and worst annuities available to a 65 year old single male with a £300k pension pot and a further 18.3 years to live is £3391 p.a. (£17,769 vs. £14,378), which equates to £62k in total.

The difference between the best and worst annuities available to the same male with a £500k pension pot is £5652 p.a. (£29,638 vs. £23,986), which equates to £103k in total.

Note that no special circumstances have been considered, which could make this difference considerably greater.

Nicholas Fitzgerald, Head of Financial Planning for Brewin Dolphin, commented:

"Steve Webb's idea should not be dismissed out of hand. We must all think hard about improving returns from pensions for an ageing population, and his innovative idea is full of good intentions. Deciding whether to buy an annuity is one of the biggest financial decisions most of us will ever make, and in the meantime it is essential to get professional advice and to shop around, since your annual income from your annuity could vary hugely depending on which provider you choose. The real tragedy in the example above is that you could be over £100k worse off just by accepting the first offer and not seeking advice, which of course is something we can all do something about…”.


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Brewin Dolphin reaction to the Autumn Statement

Economic overview: Iain Armstrong, director of equity research, comments: ³Chancellor has under promised and over delivered ­ a great trick if one can pull it off. He has had help from higher tax receipts and lower unemployment and better export performance ­ but he did start from an even lower base than understood in 2010. The recession was actually as deep as 7.2% in 2008/09 ­ the deepest in the developed world. And now he has an £11 billion surplus but has certainly not given it away ­ this was a disciplined budget. So he could make his budget surplus 2 years ahead of 2020 as previously forecast. Despite all this the market is not moving as waiting for US tomorrow and QE signals².

Stamp duty/ETFs: Ben Gutteridge, head of fund research, said, ³The abolition of stamp duty on the purchase of shares in Exchange Traded Funds (ETFs) is as a positive development for the UK¹s budding ETF industry. However, given product providers domiciled in Ireland or Luxembourg are already structured to avoid Stamp Duty, the change is probably insufficient to entice major ETF providers out of their existing locations. This is due to a combination of factors including a well established, and successful, financial infrastructure, prohibitive relocation costs, the double tax deal with US on dividends, and more favourable corporate tax rates.

These issues aside, the passive industry is a rapidly growing arm of global financial services. The UK is doing entirely the right thing by recognising this fact, and improving the competitiveness of its offering. New entrants, providing they are of sufficient scale, may decide the City provides them with a compelling opportunity. In fact, an ETF provider with a UK domicile may use this feature as their Œmarketing edge¹.

Pensions: John Fletcher, financial planning director, comments: ³The increase in state pension age serves to highlight the importance of saving early to provide an income in retirement. The emphasis is now on the individual, not the state, and early planning to ensure sufficient funds for retirement is essential. We¹re please, though, that the Chancellor has not restricted pension savings further².

ISAs: John Fletcher, financial planning director, comments: ³As predicted, no cap has been proposed which is clearly positive news for savers, and the maximum allowance has risen in line with CPI².

Housing: Stephen Williams, director of equity research, comments: ³The Introduction of Capital Gains Tax on foreign-owned residential property will have a negative impact on Berkeley Group, which produces and sells the highest proportion of top-end apartments in London. It could also be negative for Capital & Counties in the Real Estate sector, which has a high proportion of top-end residential development planned at Earls Court and Covent Garden. Any reduction in demand could have an impact on sales and hence earnings. Currently 70% of houses and apartments valued at over £3m are acquired by overseas purchasers.²

Bank levy: Ed Salvesen, deputy head of equity research, comments: ³The Chancellor announced that the Bank Levy would be increased, the third rise in three years. The large banks anticipated this measure and hence the lack of rapid change in the share prices this afternoon. From the 1st January 2014, the Bank Levy will increase to 0.156% from the prior estimate of 0.142% of the size of the banks¹ the total chargeable equity and liabilities which, according to the Government, will help to ensure that the banking sector makes a fair contribution. This will raise £2.7bn in 2014-15 and £2.9bn each year from 2015-16. This will further hurt bank profitability and is a further headwind at a time when management is trying to increase capital headroom and reduce volatility. The cost of the levy to Royal Bank of Scotland, for example, in 2012 was £175 million compared with £300 million in 2011. The focus for investors is currently on capital build and litigation ­ today¹s news is not a surprise given the misdemeanours of the past.²

The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents

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