New research conducted by pensions expert Billy Burrows argues that those with above average pension funds (£50K +) should avoid defaulting to a conventional annuity. Because annuity rates have fallen so dramatically over the past three years, just to earn a modest annuity income of £5,000 per year now requires a pension fund of nearly £153,000, up from £118,000 in 2009. Mr Burrows says the market is now approaching a ‘tipping point’ where middle Britain savers must look to alternatives to the conventional annuity in order to provide themselves with a decent level of income in retirement. His report, which was sponsored by MGM Advantage and Prudential also reveals that in 2012 conventional annuities still made up 92% of the market.
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Ros Altmann, the over 50′s campaigner and former government adviser has this week criticised the IFA firm Hargreaves Lansdown over the level of commission it gains from its new enhanced annuity tool.
The tool, which was launched last week allows users to get real time quotes from the leading UK enhanced annuity providers. The company claims that the tool delivers an average increase in annuity income of £1,095 (27.08%). Given that research has shown that thousands of retirees still miss out on the highest annuity possible, this new tool will provide users with a quick and simple means of getting an enhanced quote. The tool delivers rates from nine providers which the company claims equates to 92% coverage of the market. However, despite the fact that the tool helps deliver a better incomes for retirees, the amount of commission taken by Hargreaves has been called into question by Ms Altmann. The amount of commission that is taken can vary from 1.5% to 3.5% of the fund value, which Ms Altmann claims is a ‘high sum’ and points to the fact that on an average £30,000 pot would equate to over a £1,000. She also appeared the criticise the premise of using an online tool to find an enhanced annuity arguing that “…to get the best enhanced rate, you can’t do that in four minutes.’ – according to reports in the Financial Times. Defending the tool, Hargreaves Head of Pensions said that the company had “…capped our commission rates below the maximum we could take.” He added that those companies who were offering a lower commission could not match the terms on offer from Hargreaves.
Other reactions to the new tool have been more positive. Stephen Lowe from enhanced provider Just Retirement described the tool as a ‘breakthrough development‘ adding that it would make getting an enhanced annuity quote ‘signficantly easier‘. Aston Goodey from MGM Advantage said offering guaranteed rates would..”…hopefully encourage many more people to consider enhancing their pension.”