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Pension pot investment

  • 10-06-2019 7:49am
    #1
    Registered Users Posts: 477 ✭✭ blowin3


    I have been advised by a finical advisor to take my pension pot (500k) and invest it in Zurich Prisma Multi-Asset Funds.

    My DB pension has been underfunded the last 12 years but is presently fully funded and he has advised me to cash it in and take control of it myself. I won't need to start drawing down on it for a year or two but I am really worried that I am doing the right thing.

    He also informed me the managed fees would be 1% per annum and he would be paid a commission by Zurich. I have no experience in investments so this all new to me.


Comments

  • Registered Users Posts: 7,494 ✭✭✭ BrokenArrows


    Find yourself an independent financial advisor. Someone that you pay a fixed fee and they don't earn any comission based on what they advise you to do.

    Anyone working on comission will be biased to some extent.


  • Registered Users Posts: 1,968 ✭✭✭ blindside88


    If you’re a year or 2 out from retirement I wouldn’t be looking at switching unless there were major problems with your existing DB scheme as you say it is fully funded. As mentioned above speak to an independent financial advisor that is fee based rather than commission based for peace of mind


  • Registered Users Posts: 7,117 ✭✭✭ Chinese whospers


    Not to be taken as financial advice.

    If I were in a position where I would need to draw down in a year's time I would make sure my pension pot was in cash/very low risk and not invested in stocks.

    The stock market could be due a correction.

    Someone I used to work with had nearly 2/3rds of his pension wiped out in the last financial crisis just before retiring and had to keep on working past retirement age.

    As above talk to an independent financial advisor.

    I’m in love with him and I feel fine.



  • Registered Users Posts: 477 ✭✭ blowin3


    Not to be taken as financial advice.

    If I were in a position where I would need to draw down in a year's time I would make sure my pension pot was in cash/very low risk and not invested in stocks.

    The stock market could be due a correction.

    Someone I used to work with had nearly 2/3rds of his pension wiped out in the last financial crisis just before retiring and had to keep on working past retirement age.

    As above talk to an independent financial advisor.
    Firstly thanks for the advice. I was thinking of paying the guy and not commission based. But he told me he would be giving me the same advise low risk Zurich Prism fund. The company I worked for is majority owned by Mr W Buffet so I would be very nervous to what he might do.


  • Registered Users Posts: 480 ✭✭ FernandoTorres


    He'd want to be providing a pretty compelling reason to switch from DB to DC with only one year to retirement. You're effectively transferring all of the risk from your company to yourself and paying fees for the pleasure. It would be a nice chunk of commission for the adviser so I'd be making sure he's truly independent and getting all of his advice reasoning down on paper.


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  • Registered Users Posts: 7,494 ✭✭✭ BrokenArrows


    Ask yourself "how much are you set to gain by taking his advice?"

    And then ask yourself "how much are you set to lose and what are the consequences of that loss"?

    If the consequences of the loss outweigh the gain then it may not be worth it.


  • Registered Users Posts: 7,494 ✭✭✭ BrokenArrows


    The only benefit I see from cashing in a defined benefit pension is so that it will continue to grow throughout retirement.

    A DB pension payment will rise at a predefined amount per year.

    If he cashes out the pension and puts it into a safe low growth pension then his pension may last him longer if it outperforms the growth rate of the DB scheme.

    You would really need to get your financial advisor to explain all the numbers to you.

    The DB scheme is guaranteed. If you take the money out then the risk is on you and not guaranteed at all.


  • Registered Users Posts: 477 ✭✭ blowin3


    The only benefit I see from cashing in a defined benefit pension is so that it will continue to grow throughout retirement.

    A DB pension payment will rise at a predefined amount per year.

    If he cashes out the pension and puts it into a safe low growth pension then his pension may last him longer if it outperforms the growth rate of the DB scheme.

    You would really need to get your financial advisor to explain all the numbers to you.

    The DB scheme is guaranteed. If you take the money out then the risk is on you and not guaranteed at all.
    Sorry I did not say I have 7 years before I can draw off my DB pension. The reasons given that I can start taking money out straight away on death my wife will get the full amount that is left and her seat that our kids will have money available. My DB pension in 7 years will be 23k a year this way I have access to my money and he said I would be in control.


  • Registered Users Posts: 7,494 ✭✭✭ BrokenArrows


    So:
    1. You have 7 years left before you retire.
    2. In 7 years time you will get a DB pension of 23k per year.
    3. If you cash it out now you will get 500k where you can reinvest it wherever you want.
    4. If you were to unfortunately die you would rather your family had a "private" pension where they would inherit its full value. Rather than with a DB pension your family would only receive a certain amount based on your DB scheme rules.

    One big missing point is your age. How old are you when you will be retiring with a 23k a year pension? How is your health, family health history, expected life span. These are big considerations.

    If you are say retiring at 60 and in excellent health, with a family history of everyone living to 100+ then you might consider what happens if you reach 80 and your private pension runs out. If you still had the DB scheme then you would still be receiving a pension regardless of how long you live.

    If however you are retiring at 70 and in poor health. Unlikely to reach 80 then yes taking the private pension is a good move in my opinion.


  • Registered Users Posts: 477 ✭✭ blowin3


    So:
    1. You have 7 years left before you retire.
    2. In 7 years time you will get a DB pension of 23k per year.
    3. If you cash it out now you will get 500k where you can reinvest it wherever you want.
    4. If you were to unfortunately die you would rather your family had a "private" pension where they would inherit its full value. Rather than with a DB pension your family would only receive a certain amount based on your DB scheme rules.

    One big missing point is your age. How old are you when you will be retiring with a 23k a year pension? How is your health, family health history, expected life span. These are big considerations.

    If you are say retiring at 60 and in excellent health, with a family history of everyone living to 100+ then you might consider what happens if you reach 80 and your private pension runs out. If you still had the DB scheme then you would still be receiving a pension regardless of how long you live.

    If however you are retiring at 70 and in poor health. Unlikely to reach 80 then yes taking the private pension is a good move in my opinion.
    I am presently 58 and reasonably healthy. My Dad passed away at 62 and my mam at 86. I properly cant see myself making it pass my 80s but again who knows. But with the money invested I hope it will accumulate with interest in low risk investments. I plan to retire at 60 and immigrate to SE Asia and dont plan to touch my investment till maybe 63 and than at 68 I will have the state pension hopefully. I am mortgage free here and have a few Euros to live off of for the first few years. Thanks again for all the input .


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  • Moderators, Business & Finance Moderators Posts: 17,032 Mod ✭✭✭✭ Henry Ford III


    On the face of it this advice has no merit.


  • Registered Users Posts: 477 ✭✭ blowin3


    On the face of it this advice has no merit.

    Sorry Henry what do you mean.


  • Registered Users Posts: 1,205 ✭✭✭ kaymin


    blowin3 wrote: »
    Sorry I did not say I have 7 years before I can draw off my DB pension. The reasons given that I can start taking money out straight away on death my wife will get the full amount that is left and her seat that our kids will have money available. My DB pension in 7 years will be 23k a year this way I have access to my money and he said I would be in control.

    If you die will your wife not be entitled to the 23k p.a?

    I'd be very slow to give up a DB benefit. If your investments go awry you have no opportunity to make it back. Retirement is not the time to be taking risks.


  • Registered Users Posts: 477 ✭✭ blowin3


    kaymin wrote: »
    If you die will your wife not be entitled to the 23k p.a?

    I'd be very slow to give up a DB benefit. If your investments go awry you have no opportunity to make it back. Retirement is not the time to be taking risks.
    No my wife will get less than half of the 23k as she is a few years younger than me. I was also toying with the idea of buying a property and renting it out as an income stream. The investments with Zurich he recommended were very low risk. Thanks for the interest in this question.


  • Registered Users Posts: 17,970 ✭✭✭✭ Drumpot


    I’ve had two clients recently make the decision to take the cash from a DB arrangement. In both scenarios I have warned them repeatedly of the dangers of each option and the value the DB gives them. I am an independent broker and do get paid fees/commission. They are aware of my fees and how it affects their pensions and my advice.

    If you get the right adviser, commissions aren’t a problem if you understand how they work. I had one client ask to pay a fee and when they realized that to pay me a direct fee actually cost them nearly twice as much (after tax income) they asked me to revert back to commissions.

    In the two cases I am currently looking after my clients didn’t have spouses , this is one major benefit of DB. The tax free cash was a major incentive. In both cases, drawing down the money to a PRB meant they would get over Double the tax free cash they would get through the DB.

    One big equalizer with the TAx free cash was both my clients would be on the higher rate of tax once drawing down their pensions. So for example if they were paying 50% (usc+prsi+IT) on €10,000 then they would only be receiving €5k of that into their hands. If you are getting an extra 100k tax free into your hand that’s 20 years of €5k covered. People don’t always consider that when weighing up a DB.

    Then there was the lifestyle end of things. Both wanted to be able to enjoy the money while younger. This is a decision that’s different for each person but I see more and more go down this route. Having a guaranteed income versus less security but more scope to use the funds while you are younger is a consideration.

    In terms of the security of DB pensions , generally they are only offered by major companies that are very strong and can replenish the pensions. But that may not always be the case so there is always an element of risk on a DB. Like the banks that never fail it’s always possible.

    If you invest in an ARF, have a good investment strategy that suits you (risk profile) and you remain in that investment strategy through thick or thin you will more often then not be fine. It’s people who panic when the funds go down that lose out and make the wrong decisions. I’m preparing my clients for the worst and asking them to trust that the market is cyclical. I’m asking them if they can stomach a 40% drop in value and preparing them for the usual boom bust cycle.

    A good adviser goes through the pros and cons of each decision and helps clients make the right decision for them. I understand why some people don’t like commission based advice but it’s not bad or worse for the client by default. If you get a good person advising you it really shouldn’t matter.

    This post is not financial advise , this is just information from some meetings I’ve had with clients. If the OP is not sure what to do speak with friends and family you trust. Speak with work colleagues and ask them what they are doing or who they use for financial advice. Seriously, don’t take much advice from here because there are a lot of uninformed posters with shoddy advice based on their own experiences/prejudice that may not be relevant to you. This is your pension and will effect your retirement and your partner, if you aren’t sure of the currrnt financial adviser get some advice from somebody recommended to you by somebody you trust.


  • Registered Users Posts: 1,205 ✭✭✭ kaymin


    blowin3 wrote: »
    No my wife will get less than half of the 23k as she is a few years younger than me. I was also toying with the idea of buying a property and renting it out as an income stream. The investments with Zurich he recommended were very low risk. Thanks for the interest in this question.

    Personally I like the idea of an annuity and wouldn't be keen on having to worry about stock market performance in my retirement.

    Property is not diversified, is subject to too many anti landlord rules and would be difficult to manage if you lived overseas. Also would be considered high risk - imagine a tenant stopped paying the rent.


  • Registered Users Posts: 17,970 ✭✭✭✭ Drumpot


    Oh and the OP mentioned they are a low risk investor for their pension. 2 things in this.

    You said you wanted a rental income property, this is a high risk investment. I think a lot of people fall into the trap of thinking bricks and mortar are “lowish” risk when in fact it’s actually very high. Maybe an ESME 5 or 6 for investment comparison.

    Secondly you can use your pension to purchase property. There are companies that will facilitate you using a potion of your pension pot post or pre retirement, to buy a rental property and it’s a very tax efficient way of doing it. There are limitations , particularly with property liquidity and if trying to pass on property to family. But like I said above, if you are a low risk investor it’s not really something you should be doing unless you really think about all the risks and limitations of locking it up in property.

    House prices nearly went down 50% in 2007 (maybe more in some cases) And they can be very illiquid investments. Most managed funds that went down near that probably doubled in value since. People seem to forgive property bubble bursts quicker then they do market cycles/corrections. That’s more an observation then anything to be honest.

    Again, this is not advice, just train of thought comments. I really think anybody asking questions Or looking for important advice should always find a professional they trust before making any financial decisions.


  • Registered Users Posts: 477 ✭✭ blowin3


    Both Kaymin and Drumpot thank you both ever so much for your thoughts. I am indebted to both of you for taking time out to comment. I think I will explore more with this advisor before I make a decision. My pension is a deferred DB pension and the company I worked for nearly 30 years have basically refused to give information regarding my pension till this guy came on board. The pension is managed in house and it was taken out Mercer hands about 5 years ago hence another fear I have. Thanks again for your thoughts .


  • Registered Users Posts: 17,970 ✭✭✭✭ Drumpot


    blowin3 wrote: »
    Both Kaymin and Drumpot thank you both ever so much for your thoughts. I am indebted to both of you for taking time out to comment. I think I will explore more with this advisor before I make a decision. My pension is a deferred DB pension and the company I worked for nearly 30 years have basically refused to give information regarding my pension till this guy came on board. The pension is managed in house and it was taken out Mercer hands about 5 years ago hence another fear I have. Thanks again for your thoughts .

    Just one more suggestion, if you are comfortable doing so and think it will be beneficial (this is not for everybody) bring your wife along to your meeting. Whatever decision you make will also have a massive impact on her. She may not be interested but if something happens to you at least she has met your adviser.

    I do ask clients if I can meet their partners (if I haven’t initially) because I’ve dealt with more then one widow and I can tell you it’s far better when I’ve already met them and they have some idea who I am. Usually we can talk about their deceased partner fondly so it’s not just a death claim process and more personal.

    In terms of bringing your partner to the appointment sometimes at a meeting a partner can take in information that you might miss or see questions that might help. I bring my wife to important medical appointments because I miss some stuff and find she remembers things I miss. Same thing can apply when you meet to discuss pensions.

    Best of luck Blowin3.


  • Registered Users Posts: 477 ✭✭ blowin3


    Drumpot wrote: »
    Just one more suggestion, if you are comfortable doing so and think it will be beneficial (this is not for everybody) bring your wife along to your meeting. Whatever decision you make will also have a massive impact on her. She may not be interested but if something happens to you at least she has met your adviser.

    I do ask clients if I can meet their partners (if I haven’t initially) because I’ve dealt with more then one widow and I can tell you it’s far better when I’ve already met them and they have some idea who I am. Usually we can talk about their deceased partner fondly so it’s not just a death claim process and more personal.

    In terms of bringing your partner to the appointment sometimes at a meeting a partner can take in information that you might miss or see questions that might help. I bring my wife to important medical appointments because I miss some stuff and find she remembers things I miss. Same thing can apply when you meet to discuss pensions.

    Best of luck Blowin3.
    Thank you again Drumpot. I took your advice and phoned a guy that has done what I am planning to do. He concurred with all you said and he said you need to get your head around been in it for the long haul. He said some time you make gains some times losses and never panic.His investments are a mixed bag but he did warn against drawing down money while still working because you will be killed with tax.
    He also told to look into the tax implications me planning to live abroad.
    My wife is coming with me as she has sign documents etc.
    Thanks again your great for giving your time freely.


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  • Registered Users Posts: 5,227 ✭✭✭ The J Stands for Jay


    blowin3 wrote: »
    I have been advised by a finical advisor to take my pension pot (500k) and invest it in Zurich Prisma Multi-Asset Funds.

    My DB pension has been underfunded the last 12 years but is presently fully funded and he has advised me to cash it in and take control of it myself. I won't need to start drawing down on it for a year or two but I am really worried that I am doing the right thing.

    He also informed me the managed fees would be 1% per annum and he would be paid a commission by Zurich. I have no experience in investments so this all new to me.

    You have a large asset in a place that's really good for you to be in. The broker is getting you to move it to a vehicle from which he can get money from it


  • Registered Users Posts: 477 ✭✭ blowin3


    McGaggs wrote: »
    You have a large asset in a place that's really good for you to be in. The broker is getting you to move it to a vehicle from which he can get money from it

    Agreed but there are positives on both scenarios.
    DB pension guaranteed 23k for life but my wife will get 33% on my death my son zero on both our demise.
    Going the advisors route yes there is risk but I will have access to 500k right away and not wait till 65 I will have control of the money and the risk. My wife and son also have a better chance after I pass. The advisor making money is I suppose what he gets for giving advice on what to do. Maybe I am missing something.


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