We are told IFAs want to sell more annuities. All well and good. But are they up to speed with this most complex of products?
You are a busy IFA, but you want to get into the annuities market to help bump up business volumes.
Here are a few things to ask yourself.
Is there a GMP within your EPP or is it a 226 or even a Section 32? What was the GMP revaluation rate and are there sufficient fund in the Section 32 to cover the GMP or was the GMP converted to protected rights?
More? Ok. It's a 226 not a Section 32 - but is there a GAR in your 226? Well actually, it's not a 226 or a Section 32 it's an EPP, currently contracted out under RST but it does have a legacy GMP.
Still with me?
You get the picture. This is just a fraction of what IFAs need to know to be effective and give best advice in the retirement income market.
The complexities of legacy pension accumulation product are vast and wide ranging but to be able to give best device all these idiosyncrasies need to be known, understood and applied in the appropriate way.
But that's just one side, the individual's provenance of pension fund accumulation; deccumulation can be just as daunting.
Should GMP be converted to protected rights? If buying an annuity GMP can stay as GMP but if funds are going into drawdown they MUST be transferred where the GMP is converted into Protected Rights.
So, what type of conventional annuity? Single Life, Joint life, level or escalating and if escalating at what rate? 3% fixed, 5% fixed, RPI, LPI. Do you include a guarantee if so 5 year or 10 year? In advance or in arrear, with proportion or without, with overlap or without? If including a 5 or 10 year guarantee how does that apply? Is it taxed? Does it affect IHT? Then of course there are enhanced or impaired annuities. There are now 13 impaired / enhanced providers, do all IFA's know who they all are and the information they all need?
But what about with-profit annuities? Are they any good? How do they work? What ABR should I apply? What is an ABR? How does the new Prudential Income Choice Annuity work compared to a traditional WPA? Oh, and don't forget impaired / enhanced WPA's!
Take Mr Smith, with his £10,000 fund goes to his IFA who, to comply with 'know your client, know your product', has to be an expert on all of the above.
The IFA puts Mr. Smith into a conventional annuity but overlooks the fact it was a 226 policy with a GAR or 11%. He spends several hours setting up the annuity. It takes him several MONTHS to have the funds transferred from Windsor Life, for which Mr. Smith blames him for the delay as he was not chasing Windsor Life every week. And the IFA receives for all this time money and effort £100 commission! Mr. Smith later finds out that he had this GAR and sues his IFA for £3,000 compensation! Any wonder IFA's are not very enthusiastic about retirement income aspects of their business.
Enter The Annuity Clearing House www.TheACH.co.uk . This has been set up with several objectives. First, to help IFA's earn an income from their own clients without all the specialist knowledge being required as ACH will pay IFA's actually MORE COMMISSION than if they had written the business themselves. Second, take the liability away from the IFA as this will be taken over by the ACH who will have expert retirement income specialists to give best advice or write direct offer business. And, possibly most important of all give ALL IFA clients the service only usually available to clients with hundreds of thousands in pension funds. The minimum fund size for the ACH to work is just £500.00.
The ACH will go live on 1st September 2009 and will complete a full broker service to three impaired / enhanced providers, two leading conventional annuity providers, two with-profit annuity providers and one specialist retirement income provider offering a drawdown / third way option.
Steve Hunt is managing director of annuity specialist broker Rockingham RetirementIFAonline
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