Evaluating Pension Plans

Fergal C

My employer is offering to top up my salary by way of paying into a pension plan. Hence, I am currently shopping around for a pension.

Can anyone offer any suggestions as to what is available or as to how I can best make a decision as to the most appropriate plan for my needs?

Thanks,

Henri

De Rebel

That’s good to hear. Well done to your employer.

Be wary of anyone that offers you a quick and easy answer to this. Certainly it is not possible to give any advice without knowing a lot about your circumstances. Age, income level, other outgoings are critical factors, as are a number of factors.

For the majority of the workforce your pension is (or should be) by far and away the biggest investment you will ever make. People never have problems spending weeks and months selecting cars and houses prior to purchase. Your pension deserves every bit as much hard work in advance. And it will also repay regular reviews (every 5/10 years)

Spend time researching your options now, learn about the subject and some day you will benefit greatly. And the opposite is also true, especially in these days of personally managed pensions.... there are some pretty awful products out there.

Some general advice.

Start early, the returns are exponential
Understand the different asset classes, and when they are appropriate.
Understand management charges, commission rates and all the other things that will dilute your asset.
Get plenty of illustrations (examples of what a particular pension will yield). Vary these based on performance, retirement age etc, and see the difference. And talk to 3 or 4 different providers/brokers.
Read a selection of the bumph and booklets, and refer to the pension’s board website where there is some very good info. www.pensionsboard.ie
In your case, consider paying in yourself as well as your employer's contribution. For a top rate tax payer, the contribution is more or less doubled by the minister for finance because of the tax treatment.

best of luck, and remember, don’t be afraid to spend a bit of time doing the donkey work.

Fergal C

DeRebel,

Thanks for your response. To be honest it was not a decision I was taking that seriously, so your suggestions are welcomed. I'll start doing the "donkey work".

Henri

RainyDay

Three key things to remember - charges, charges, charges. Look out for bid/offer spreads, allocation units, management fees etc etc. See Askaboutmoney for more details.

Fergal C

An independent broker and my own bank recommend that a standard PRSA would be the best pension option for me, given my circumstances.

My understanding is that if I go for the standard version;

I don't have to consider fees, because they are the same across the board

If I'm not happy with the performance of my pension after a year I can move to another pension provider without any charges

The only way I can evaluate one standard PRSA against another is by looking at the past performance of the provider (I'm aware that this doesn't guarantee future performance).

Any suggestions, comments or corrections to my assumptions would be welcomed. As would any reasons as to why I should be wary of my broker's and banks recommendation re standard PRSA.

Thanks,

Henri

RainyDay

Originally posted by Henri
An independent broker

How independent is independent? Is the broker going to recieve any commission from the pension provider for putting your business their way? If so, they are really not independent.

Originally posted by Henri
I don't have to consider fees, because they are the same across the board

Not true - The fees for standard PRSA's are capped - they cannot exceed 5% of contributions paid and 1% per annum of the PRSA assets. So there is a maximum level of fees for a standard PRSA - but not all providers charge the maximum level.

Check out the Pensions Board list of PRSA's for full details of the products & charges.

Fergal C

Thanks for your advice RainDay, I have looked at the website you suggest. I will check out the lower cost options.

Victor

Why is your employer offering the top-up instead of cash?

Fergal C

I work for a government funded agency. Traditionally we did not have pensions, they are now being introduced and back dated.

Humphrey

Henri see below FYI. What I am saying is ensure your employer isn't just giving you the tax break they receive --> not really giving you a raise at all.



In the following example, an employees pays €200 a month into a PRSA and the employer pay €25 a month.

Employer Employee
Contribution €25.00 €200.00

Tax Relief* €3.13 €84.00

PRSI Relief** €21.50 €12.00

NET COST €0.37 €104

* Assumes a personal tax rate of 42% and a corporation tax rate of 12.5%

** Assumes employer’s PRSI relief of 10.75% and employee’s PRSI rate of 6%

Therefore, if a member of staff contributes €200 per month and the employer contribute €25, the net cost to the employer is a mere €0.37 after corporation tax and PRSI tax relief.

shoegirl

A PRSA would be a good option. It will also save you tax.

I would avoid staying away from a broker and dealing directly with the institution - also specify that you do not want to deal with a broker at any time - if they cannot guarantee you that tell them you do not want to do business with them. My father got screwed by his pension holder as they eventually bundled him off to a broker who charged him scandalous charges, and he is now left with a pension of a mere €50 per week.

slave1

Humphrey

Regarding your example, can you expand the employer PRSI saving that looks huge.

I'm not doubting you, just need to expand your assumptions/basis if you can

Tks

Humphrey

Hi Slave1,

I am sure you wouldn't doubt me. You will find this standard example on any prsa providers website.

IN the example if the employer contributes 25 euro there actual net cost is 34 cent.

This does not mean if they contribute 50 euro their net cost is 68 cent.

If they contribute 50 euro net cost would be 25.34.

Humphrey.