Company Pension Plan - Penny Wise, Pound foolish?

Recondite49

Last year I signed up with my employer's Pension Plan which is managed by Irish Life. The fund into which our contributions are paid is called the Consensus Plus Fund.

To cut a long story short this is an index fund which represents equities held by the Irish fund industry in general.

There's an annual management charge of 0.65% (which I think is a little high for an index fund) and the fund's been around for all of one year producing a ROI of roughly 10% thus far.

I've gone along with this as my employer has said they'll match whatever I pay in Euro for Euro up to X%. There's also some excellent tax relief available on pension contributions as you all know, depending on your age.

However, I've been looking at this pension plan and the type of assets it manages and see that it has been heavily outperformed by this iShares ETF which likewise represents the top earning Irish companies and has an annual management charge of just 0.5%.

I'm already paying the maximum X% whereby my employer matches contributions and am wondering now instead of increasing the contributions over time whether it wouldn't be better simply to sign up with a broker and buy into an index fund myself?

My only concerns about doing so is that of course you can't claim tax relief on contributions you make for so doing. Also with an approved pension scheme you can withdraw a certain sum tax free whereas if you sold your shares on retirement you'd presumably be liable for full Capital Gains tax.

All thoughts are appreciated on this.

TLDR : Is it better to invest in a company pension plan or sign up with a broker and buy shares in diversified index funds yourself?

FernandoTorres

You're not comparing similar things. The consensus fund invests in global assets, with 6.3% Irish allocation. The ETF invests in 99% Irish assets. Yes it's performed better this year but that's because it's coming off a very low base after the crash. I wouldn't worry too much about the 0.25% management fee difference (remember the Govt are also taking 0.75% p.a for nothing!).

If you're happy to put the funds away til you're 65 then I'd certainly put it in pension given the relief available but it's always good to have investments outside of pension too for liquidity reasons. I wouldn't be investing in an Irish ETF though!

Recondite49

FernandoTorres wrote: »

You're not comparing similar things. The consensus fund invests in global assets, with 6.3% Irish allocation. The ETF invests in 99% Irish assets. Yes it's performed better this year but that's because it's coming off a very low base after the crash. I wouldn't worry too much about the 0.25% management fee difference (remember the Govt are also taking 0.75% p.a for nothing!).

If you're happy to put the funds away til you're 65 then I'd certainly put it in pension given the relief available but it's always good to have investments outside of pension too for liquidity reasons. I wouldn't be investing in an Irish ETF though!

Hi Fernando,

Thank you for sharing your thoughts. I agree about the government taking the 0.75% - one of the many reasons I think we're better off taking matters into our own hands!

My current plan is to invest in several ETF which track the S&P 500, the spot price of Gold and also world shares less the USA respectively which will hopefully make for a slow but steady rise (more so than an Irish index fund as you say).

Having had a look at the fund it does seem to have invested heavily in local companies like Ryanair which gave me cause for worry unlike the iShares ETF but I appreciate that there's a point beyond which you can't diversify away the risk, especially if you're going to sink your money into Ireland only.

The Pension retirement age is also something to mull over. According to this article, those people who retire after 2044 will have to wait until they're 68. Of course the longer you wait the more your nest egg grows but wouldn't it be better to retire at 60? :-D

FernandoTorres

Yeah the way I see it is you probably have enough exposure to Irish assets already given that your income is from Ireland and if you have property then even more so. For that reason I prefer to make my investments outside of Ireland.

S&P 500 ETF is a solid low-cost investment. I'd invest it in batches over time though as I think it's a bit overvalued at the moment.

Recondite49

FernandoTorres wrote: »

Yeah the way I see it is you probably have enough exposure to Irish assets already given that your income is from Ireland and if you have property then even more so. For that reason I prefer to make my investments outside of Ireland.

S&P 500 ETF is a solid low-cost investment. I'd invest it in batches over time though as I think it's a bit overvalued at the moment.

Hi Fernando,

I've just been chatting with a user about this on another thread who thinks we're in for a 3 or 4% dip of the S&P 500, so good to hear you're thinking along the same lines.

Another advantage of doing this is that your shares are denominated in dollars. Do you agree this is safer bet than the Euro?

Naturally I am getting crucified by wire transfer fees each time I send money to a US bank account but what can you do?