Pension charges on drawdown

DI Dwyer

My company pension administrators want to charge me for setting up an ARF . They want a setup lump sum and an annual standing charge. Seems I would end up paying these guys and paying charges to the ARF provider. Should I tell the administrators to get stuffed and approach the ARF providers my self?

coylemj

Yes, what they are saying is complete nonsense. You can move the money to any authorised ARF provider chosen by you which basically means any life assurance company operating in the Irish market. If the pensions administrators place your money with a particular insurance company, they will get a set % as commission, it sounds like they are not satisfied with this lump sum and want a steady income drawn from your cash as well which really shows a brass neck!

A lot of people get tricked into thinking that when you retire, you have to leave the tax-free money (now as an ARF) in the same company who invested your pension money, you do not. The same applies when purchasing an annuity.

You typically set up an ARF through a broker, he/she will get a kickback from the insurance company so negotiate for an 'uplift' on the amount, something of the order of 1% or possibly 2% should be doable. If the broker starts waffling about setup fees and all that mullarkey, just walk, there is no such thing.

Last week the FTSE-100 index was nearing an all-time high so I'd be careful about investing it in an equity-based fund as the markets are nearing a peak and there may be a bit of a 'correction' on the way so I'd invest it in something 'cautiously managed' for the moment.

DI Dwyer

Thanks for that MJ. You've confirmed my gut feeling.......

Henry Ford III

coylemj wrote: »

Yes, what they are saying is complete nonsense. You can move the money to any authorised ARF provider chosen by you which basically means any life assurance company operating in the Irish market. If the pensions administrators place your money with a particular insurance company, they will get a set % as commission, it sounds like they are not satisfied with this lump sum and want a steady income drawn from your cash as well which really shows a brass neck!

A lot of people get tricked into thinking that when you retire, you have to leave the tax-free money (now as an ARF) in the same company who invested your pension money, you do not. The same applies when purchasing an annuity.

You typically set up an ARF through a broker, he/she will get a kickback from the insurance company so negotiate for an 'uplift' on the amount, something of the order of 1% or possibly 2% should be doable. If the broker starts waffling about setup fees and all that mullarkey, just walk, there is no such thing.

Last week the FTSE-100 index was nearing an all-time high so I'd be careful about investing it in an equity-based fund as the markets are nearing a peak and there may be a bit of a 'correction' on the way so I'd invest it in something 'cautiously managed' for the moment.

Your post, although correct in advising of the open market option, is misleading when it comes to charges/commissions, and hopelessly simplistic when it comes to investment choice.

The proceeds of a pension tend to be reasonably large (frequently they represent an individuals 2nd most valuable lifetime asset behind property) and a great deal of thought should be given as to with whom and where this money should be invested. The average consumer simply isn't equipped to ascertain the most suitable product, so proper advice is paramount in my opinion.

If you chose to call an insurer directly you'll be advised by their direct sales arm. It's wholly incorrect to assume they'll give you a charge/commission free ARF. Equitable Life marketed themselves on that sort of pedestal - "we pay no 3rd party commissions". What they didn't mention was that they still charged plenty, and paid it to their own sales people and retained the balance. It didn't mean their advice was good, or even impartial. It wasn't.

"Commission" and "charges" seem to be dirty words. You referred to them as a "kickback". Under the current legislation consumers are well protected. All fees, commissions etc. must be identified and disclosed. There's nothing underhand about it at all.

There is however no such thing as a free lunch, and good advice always costs, but I'd argue truly good advice is well worth paying for.

A proper independent Broker will have access to the entire market, and an Authorised Advisor will be obliged provide the best advice regardless of their commission status.

Fee based advice is available too. On larger amounts this is preferable although on smaller amounts the opposite may be the case. Any fee structure can be negotiated too.

At the very least a comprehensive fact find and needs assessment should be carried out togther with a detailed discussion on risk and reward to ascertain the best provider, product, and fund(s).

Proper reviews are absolutely necessary too. Once a year is about right. Worth paying for too.

Yes it's possible to get limited advice from discount Brokers, and direct writers, but the value of one off partial rebated commission will be negated by lack of choice, and/or limited or poor advice. Go back to one of those after a year and you'll be told "you signed a disclaimer to entitle you to an uplift, so we can't help you now" or "XYZ doesn't work here anymore".

DI Dwyer

Thanks for your advice also HF3..... very helpful.