Lost my shirt on pension

pavb2

Hi All

My wife & I run a small business and rather than take big salary or profits we whacked as much as possible over 5 years into an Irish Life pension ,property fund series n.

Obviously we took advantage of tax allowances but now pension is worth less than half of what we paid in meaning if we had took money as dividend or salary we would have been better off.

I know nothing can be guaranteed but as a guideline is 6% growth likely in 15 years which leaves me not far off what I ,ve put in.

So my options are

1.Leave things as they are and hope in 15 years I break even

2.Transfer into a different fund with Irish Life (funds can't be transfered for 6 months, and which fund?)

3.Transfer funds into another pension ie Eagle Star with less volatile performance and lower management fees (There may be a charge for this)

I know it's a complex subject and we can't predict the future but has anyone got any advice or strategies

Thanks

Long Onion

There are a few issues here. Firstly, i realise that hindsight is 20:20 but that being said, the main mistake made here was the failure to diversify your pension fund. You have ended up with a large exposure to one specific asset class and are now suffering the downside.

Due to the tax reliefs, I do belive that pensions for the self employed are still an excellent overall investment, but diversification is key here. With regards the property fund, I don't know for definate which is the best way to proceed. There is a six month notice period to switch funds - research tells me that there could well be further falls in the commercial property sector with the post-NAMA fallout and even after this, returns are likely to be slow over the next few years, my insticts tell me that there are better opportunities in other areas so I would be tempted to switch.

With regards moving to another provider, bear in mind that there will be fess and charges applying to transfers, on top of this, it would not be wholly accrate to say that Eagle Star have less volatility (although they do have a good track record with regards to performance) had you invested in an Eagle Star property fund, you would likely be facing the same situation.

In short, I would continue the pension funding, meet up with an advisor and have a close look at all the fund options available, I would split my future contributions between equities, commodities and cash/gilts and transfer out of the property fund and into these other funds in a proportion that you are comfortable with. This should place you well to take advantage of future recoveries.

Most important of all, I would make it my business to review your pension performance every year and make sensible changes at this point. The monies in your fund are your financial future and deserve the relevant attention.

I agree that you should get an advisor (preferably one that will charge you a fee only for his/her time) to review your current predicament. Perhaps, even do an audit on the charging structure of the existing plan, as part of your problem with fund value may have to do with up to 5% of each, current & future, contribution you make going in advisor commissions.

If you elect to transfer your fund to another provider you can avoid the transfer fees/charges by going for an 'execution only' service. You choose the provider,product and funds with no advice from the advisor. There is a list of Discount Brokers here which should be of help in this regard.

The property funds available through Eagle Star do not invest directly in 'real' property so there would be no 'adjustment' (in value or time) in respect of exiting the funds such as the 6 months that exists with Irish Life.

pavb2

Thanks lads all advice helps I'm down about €100K (lost over 18 month period) at moment I appreciate other people are worse off negative equity,BOI shares etc so not too depressed also because investment was most tax efficient way of saving.

I have frozen (paid up) pension so there should be no charges. Problem with Irish Life was that being no expert myself, I.L.advisor just put money into property fund, no blame on him as no one could have foreseen crisis.
Also there are so many funds to choose from.

Where I am now is learning from this, thankfully I'm not retiring in the immediate future otherwise this would have been a sickener I feel so sorry for people whose retirement income has been wiped out in such a relatively short space of time.

So Eagle Star type scheme appeals to me because I don't want to "speculate" by moving funds on a full time basis (unless this is the way to do it). Also wih E.S. the closer you get to retirement the funds are automatcally switched into less risky investments.

I know converting to cash is safest at the end but where do equities,gilts, US,European markets and property come in terms of risk?

Any advice greatly appreciated and once again thanks for responses so far

pavb2,

What is the Irish Life Advisor advising you to do?

Long Onion

pavb2 wrote: »

Thanks lads all advice helps I'm down about €100K (lost over 18 month period) at moment I appreciate other people are worse off negative equity,BOI shares etc so not too depressed also because investment was most tax efficient way of saving.

I have frozen (paid up) pension so there should be no charges. Problem with Irish Life was that being no expert myself, I.L.advisor just put money into property fund, no blame on him as no one could have foreseen crisis.
Also there are so many funds to choose from.

Where I am now is learning from this, thankfully I'm not retiring in the immediate future otherwise this would have been a sickener I feel so sorry for people whose retirement income has been wiped out in such a relatively short space of time.

So Eagle Star type scheme appeals to me because I don't want to "speculate" by moving funds on a full time basis (unless this is the way to do it). Also wih E.S. the closer you get to retirement the funds are automatcally switched into less risky investments.

I know converting to cash is safest at the end but where do equities,gilts, US,European markets and property come in terms of risk?

Any advice greatly appreciated and once again thanks for responses so far

All pensions should have a default retirement option whereby your money is moved to less risky investments as you get closer to retirement age. ES will have a contribution charge on the transfer they recieve from IL so be sure to factor this into any calculations. Given the fact that you have a number of years to retirement, I would recommend getting some diversity into your pension.

The basic building block should be low risk, something like a bond or gilt fund, after this, look at equities and commodities in differing proportions. There has been a rally in equities over the past few months and this is likely to continue for the next year or so, commodities are tiped to surge in the near future as the trillions of bail out money begins to make its way out into the general public. Have a look at all options, bargain hard for reduced fees and charges (providers are very hungry for business at present) ask about the default strategy and be proactive - review your performance every 6 months or so. If your advisor is not willing to do this as part of aftersales service - dump them - it's your money and your pension advisor is working for you.

Whilst I agree that no-one could have forseen the depth of the crisis, I do not think that you were well served by being advised to invest all of your pension into one asset class - diversification is class 1 stuff.

pavb2

Irish Life broker no longer affiliated to them I agree that advice could have been better so will change anyway as I'm not knowledgeble enough do execute only and happy to pay for the right advice.

If I understand corrrectly what i need to look for in any new pension is % of money paid in EagleS quoted 97% of contributions paid in is this OK?

Also management fee I know this is critical but typically what should this be.

I know bid offer spread is mentioned but what is this again EagleS said there would be none ?

Are there are any more charges I should be aware of?

Good blog GerardS, very informative and easy to understand and thanks Longonion it seems that diversity is the name of the game I didn't realise they were that eager for business so that strengthens my hand.

Also longonion thought periodic table and Primo Levi's biography were excellent

pavb2

pavb2 wrote: »

I'm not knowledgeble enough do execute only

Not sure I agree with you here.

You have already selected a 'Product Provider' (pension company) + you know what type of pension product you should have. All that's left to do is choose the funds, which you now realise should be diversified.

Why pay the 3% charge on every contribution when you don't really need to?

Waynecarr

Are you a Ltd company

pavb2

Good point about execute only may be a question of spending time researching,

yes company is Ltd

Thanks for advice

Long Onion

pavb2 wrote: »

Good point about execute only may be a question of spending time researching,

yes company is Ltd

Thanks for advice

I presume that it is a directors pension that you have set up and not a personal pension?

pavb2

Yes directors pension

pavb2

Now being offered 100% contribution and 1% management fee by Eagle Star they also have a default scheme .

It's the many different funds in the other types of schemes that confuse the issue, trying to work out the best options such as gold accounts,renewable energies ,Asian markets,euro zone etc. Although some show good returns year to date I think the skill lies in identifying ones for medium long term.

My thinking is to pick 5 funds and put 20% in each,as previously advised diversify. What do people think?

Thanks

pavb2

pavb2 wrote: »

Now being offered 100% contribution and 1% management fee by Eagle Star they also have a default scheme .

Just curious if this is the Dual-Save product and if so, were you made aware that there are early exit penalties in the firt 5 years of the product.?

This might be relevant if you wanted to move it from them at a later date.

pavb2

In fairness he did mention exit charges but I'm trying to get sorted long term so assuming every thing else is OK in comparison this isn't an issue

pavb2

Thanks for all advice probably going to set up default medium risk strategy for myself,wife is 4 years younger so will look at mixing higher risk funds for herself.

Will probably transfer Irish Life pension to new pension as its invested in Irish Property fund which is still falling but have to give 6 months notice to transfer this. I'm kind of cutting my losses and starting afresh, if nothing else this recession has taught us a few painful lessons.

Will put wife's into high risk

Asia Pacific, Gold Fund,Green Resources 20% each
40% into Eagle Star dynamic fund (bias towards equities)

Myself dynamic fund and performance fund (bias cash and govt bonds)

What do people think?

hopie

Diversity is the name of the game