Is 47% of first year's contributions a reasonable fee?

case_sensitive

Hi all,

I signed up to a pension scheme with Zurich through a financial advisor recommended by the company. I contributed about 7% of my gross to this fund for the year. I got my first year financial health statement back from Zurich and was horrified to discover that a little over half remained, in what seemed like a good year, financially.

In the heal of the hunt, it turned out that there's a clause on the 4th paragraph of the 12th page of documentation he sent to me (after I signed up I might add) that says:

"Percentage of Premiums used to purchase units at the Ruling Offer price:
First 12 monthly premiums 53%
Subsequent Premiums 99%"

and the page after it has sliding scales of Special Unit Allocation rates; essentially any increases I make in terms of contributions will be devoured by pension fund, and not used to buy pension units. I've attached it here.

Is this even remotely usual? It seems excessive in the extreme. I feel like I've been scammed.

At current rate of growth, I won't break even on money I've put in for more than 4 years, and if I increase my contributions, they jack those too.

What's more, there's little to be gained from firing the crook either, he took 30 years commission up front, it saves him quite a bit of hassle not to have to answer my questions.

I've written to the Pensions Ombudsman (who said they deal with disputes around fees on Pensions..), and then sent the same email to the Financial Services Ombudsman, but I haven't heard back.

If this is common practice, it's no wonder people don't have pensions.

edit: should read "Is 47% of first year's contributions a reasonable fee?"

GerardKeating

Most schemes take fees (and Broker Commission) from the first years premium.

The rates seems reasonable, was your "Broker" a tied agent, or does/do they deal with a few companies.

(Just to avoid any claim of conflict of interest, about 25 years ago, I worked for them, when they were called Shield Life)

case_sensitive

Reasonable? I have to say, I find them both shocking and punitive. I could just be naive, which is why I came here before writing to the Ombudsman.
In order to break even on this exception level of tithe, I'll have to invest at this level for 4 more years; if I try to speed that up, say by doubling my contributions, my FA will take 47% of that too! He has nothing to lose if I want to fire him either, he's taken 32 years commission in 12 months, and reserved the ability to take his slice of every increase I make until I'm 64? When he's extremely unlikely to be in business.
As I asked him myself, who'll be earning this extraordinary commission in 2040?

coffee_cake

Well, if you weren't given the docs before you signed up, there's a problem there. They have to have full disclosure before you sign up. Are you sure you didn't get it before and just didn't read it?
Btw it seems the fee is 47% not 53%, for clarity

phoenix999

I've used LA Brokers in the past for life insurance policies in the past. And on a number of occasions they refunded the full 1st years commission if the policy was still in force. Got nearly €300 one year.

case_sensitive

bluewolf wrote: »

Well, if you weren't given the docs before you signed up, there's a problem there. They have to have full disclosure before you sign up. Are you sure you didn't get it before and just didn't read it?
Btw it seems the fee is 47% not 53%, for clarity

You're right, thanks, I'll change that now.
FA has sent through copies of the docs, trying to decipher them now. I recall meeting him at our workplace, and signing an 8 page doc (which I found yesterday), which doesn't mention the 47% at all. After this I was sent the policy documents from Zurich, which, being completely fair, I would have been able to back out of within 30 days.
My main complaint is that the FA is taking nearly half my premiums upfront for 30 years' work, and failing in the main area of responsibility to me as his client; informing me openly of how my money is going to be spent/invested.

GerardKeating

case_sensitive wrote: »

Reasonable? I have to say, I find them both shocking and punitive. I could just be naive, which is why I came here before writing to the Ombudsman.
In order to break even on this exception level of tithe, I'll have to invest at this level for 4 more years; if I try to speed that up, say by doubling my contributions, my FA will take 47% of that too! He has nothing to lose if I want to fire him either, he's taken 32 years commission in 12 months, and reserved the ability to take his slice of every increase I make until I'm 64? When he's extremely unlikely to be in business.
As I asked him myself, who'll be earning this extraordinary commission in 2040?

Pension Schemes and Life insurance products are not suitable for short to medium term investments, As you have seen, you lose in the first year or two, takes about five to seven years just to break even, then you start to reap some rewards, but you need to invest at least 15/20 years to get a decent return.

If you think 43% of first years premiums is high, it can be as high as 120% in Life Insurance products.

Most Policies have some form of buyers remorse clause, sometimes at short at 30 days, to allow you to cancel.

You should shop around, but Brokers are not free advice centres, they provide the service and expect to get paid for it.

The Indo had an article on this a year or so ago.