Competitive Personal Pension ?

hamster

I renegotiated my Personal pension lately. The following applies:

For new monthly contributions....

The allocation rate is: 101.5% and the effective net allocation is 96.425% (101.5% x 0.95)
The 0.95 is the 5% bid offer upon withdrawal upon retirement.

The annual management charge is 0.75%. This seems great and more than off-sets the 5% bid/offer spread. A 1% Annual charge would be more destructive than with no bid/offer spread.

There is no monthly policy fee (2.5 Euro typically) but I'm verifying this.

Does anyone know or wish to compare their own charges??
Or are not happy with their own setup??
Or are waiting the PRSAs to arrive this year??

hamster

Oops! I forgot to add that before I negotiated I had only 91.2% (96% x 0.95) net allocation.

RainyDay

A 5% bid/offer spread is very punitive and not competitive in this day & age. Just to make sure you're clear on this, this means they take 5% of every penny you give them & run away with it! The 101.5% allocation rate compensates you for approx 1/3 of this, but it's still very high.

more than off-sets the 5% bid/offer spread. A 1% Annual charge would be more destructive than with no bid/offer spread.

Where did you get this from - the salesman, by chance? OK, so the bid-offer spread is a once-off charge whereas the management fee is recurring, but the bid/offer spread comes straight off your contributions - without any opportunity for growing the fund. The management fee will be deducted each year, so if you get any kind of growth in the market at all, you won't be losing cash here - but the bid/offer spread takes 5% of your money straight off.

Did the agent declare what commission he was getting? Did you look for a 'nil-commission' deal? This means that you pay a flat fee to the agent to set up your pension at the start, but he doesn't take any ongoing commission. This can often work out better for you in the long run.

Check out discount brokers like Liam Ferguson , My Adviser.ie , or LABrokers for some competitive options.

hamster

RainyDay,

Thanks for your suggestions. I realise the bid/offer spread system these days are not on and I pointed that out to the representative. I'm really looking at the annual management charge which is 0.75% which looks pretty good against 1% annual charges. At least the spread will only affect new contributions every year (a once-off hit) and leaves the more continual damaging annual charge low.

In the meantime I requested further clarification:

1) With regards to the allocation rate: After the bid offer is the effective net allocation 96.425% (101.5% x 0.95) ? And the annual management charge is 0.75% ?

1) Is there a monthly policy fee?

2) With each incremental increase I make with my contribution level, is there no longer a commision charge of 50% ? (I thought this was outrageous!)

3) Any other charges?

5) Is the single premium policy treated the same with the same charges?


Once I get the 96.425% net offer and the .75% annual charge with no other charges I'll be happy. I doubt I'd get 0.75% annual charge with no bid/offer.

RainyDay

Hi Hamster - You might also want to ask the agent;

- How much initial commission will you be making from this transaction?

- How much ongoing commission will you be making from this transaction?

- Do you have any 'override' commission arrangements with the financial instution?

- Will you be getting any 'perks' from the financial institution (e.g. holidays, freebies, bonuses) to which this transaction may contribute in part?

- Would you be better off investing in one of the institutions that don't deal through intermediaries, e.g. Quinn Life


& watch the drops of sweat appear on his forehead.

hamster

Ta RainyDay. If it works out I'll let you know.

Would anyone like to complain or point out their charges on their Pension?

RainyDay

Just saw this quotation from an Askaboutmoney.com thread

for €500-€1,000 per month you could get rates at least as good as,

100% of your money invested (no entry charges)
0.75% annual management charge
€4.44 policy fee per month.

You fund at retirement at the above rates is compared below to the full commission version (8% commission assumed).

The contribution level is assumed to be €1000, inflating at 5%. The assumed growth rate is 6% , which is not guaranteed.

Nil Commission Rates = €1,703,905
8% Commission Rates = €1,568,362

I hope this helps.

Regards Michael
Authorised Advisor and Discount Broker
www.myadviser.ie

Victor

Hamster, how has the fund performed? BoI charge a bit more, but also have better performance (but not the best). No use in getting cheaper fees if you don't get the performance.

RainyDay

BoI charge a bit more, but also have better performance (but not the best). No use in getting cheaper fees if you don't get the performance.

Hi Guys - The stats show that past performance has no relationship to future returns, i.e. the fund manager that did well for the last year/5 years/10 years will not be the one who does well next year. The stat's also show no relationship between fund management fees and fund performance, so don't pay higher fees with the expectation of getting higher returns.

In fact, there is no evidence to show that active fund management (stock-picking) beats index-tracking funds, which generally have lower charges.

Cheers - RainyDay

hamster

Hi Victor,

The performance really depends on what fund type it's in. I have mine 100% (100%, becuase I'm young and can wait 'til hell freezes over) in a dynamic fund. The dynamic fund this year so far is down -5.52%. Last year it was down -17.20%, in 2001 it was down -7.80 and in 2000 it was down -0.87.

The absolute value different from 2000 to now is -31.96%.

Warning off topic here... with a reason:
The standard 5 year average performance column is... -11.43%. This happened for 1st time last october and has occurred every week since 27th Dec 2002. If you look at the attached graph for the FTSE (just a loose example).. in 1998, you will see that world markets will need to grow 15% this year just to stay level at the current 5yr negative value. It won't (crazy)... 1998 was a dot.com year with a Russian crisis dive in it. Look at the steep climb early in the year. Pheez! It even hung on 80% of that by the end of the year. Look at FTSE then... 6100+ (now 3600).

The point of the above, I can't predict future performance as RainyDay has pointed out, but I can see a good fall in the market. Now each monthly payment is 31% cheaper that it was 3 years ago. That means more units per payments... and units that are cheaper. By "cheaper" I mean that they are for the longer term.

Some good points:
a) The fall of -32% is just an absolute value, ie difference from start to finish in unit price. Like most pensions, I'm buying units every month. Cost averaging down the absolute unit value to -17%
b) The cost in units have come down rather fast since 24/05/2002.
c) In long term, will reduce the cost average. But need to continue investing in the bad times as well as the good times.
d) Better to have a sharp fall rather than have a Japanese style gradual fall over 10-15 years... bad even for monthly contributions.
e) Imagine if the markets HAD continued to grow at 15+ pa for 10 years and THEN crashed? Imagine buying units at those prices for years. You'd (might/not) spent the remaining years cost averaging downwards

But seriously though I can't see that much of a fall to go. We could go sideways for a few years.. who knows? I'm leaving it sit and <trying> to enjoy the ride!

hamster

Thanks RainyDay for the info.

I sorted out the personal pension and these are the final charges:

* 0.75% flat annual charge
* net allocation 96.425% (101.5% x 0.95).. ok so that a 3.575%
bid/offer spread

* 3.49 policy fee (ok so that's like a 1% charge on every 349 euro)

I'm currently putting in 325 euro/month but I don't think I'll be putting in 500/month for awhile. 325 (with AVCs) did meet my 15% target (on the 42% rate).

No other tricks or charges. I can reduce contribution this to 30 euro/month if necessary. I'm happy with the annual charge as that concerned me. I can't believe that some life assurance companies are still charge 1.5%/year!

Victor

Originally posted by hamster
The point of the above, I can't predict future performance as RainyDay has pointed out, but I can see a good fall in the market. Now each monthly payment is 31% cheaper that it was 3 years ago. That means more units per payments... and units that are cheaper. By "cheaper" I mean that they are for the longer term.

Sorry, my point was (a) good past performance relative to it's peers is indicative (only) of the skill of an investment company (b) sometimes it is worth paying the extra fee for a better services.

hamster

Victor,

I fully agree with you that some funds need to charge more than others depending on what there are doing, ie Hedge funds or very active/specialized funds...

But too many managers here take the view that a 5% bid and a 1.5% charge is fine. They might have got away with that for the last 10 years when growth rates were good and were easily hidden... but dare them to justify that now... 1.5% versus a 6% growth for example. Not much of a risk premium/reward for the investor there (and a 25% fix for the manager).
A lot of these managed funds are doing pretty much as bad as a simple tracker in some cases. Some of them behave exactly like a tracker fund. Glance managers. :rolleyes:

In the States tracker fund charges are awwway below 1%. Here, they really need to justify these charges. Since the fund usually absorbs internally all other charges (stamp, commission...) anyway.