Pension allocation rate?

00dec

Today I set up a pension with a broker through my work.
I'm 27 and I've recently started as a trainee accountant with one of the firms.
I wont be earning a lot and have Dublin living costs while I'm training but thought I should at least try and start putting something towards a pension.

The company will facilitate a pension with Zurich but do not contribute to it.

I've invested in a PRSA with Zurich Life
There is an annual management fee of 1% and an allocation rate of 96.5%.
I will be investing 100% of my contributions into Zurich's Balanced fund.

Regarding the allocation rate? Is that standard? The idea of losing 3.5% of the little contributions I'm able to make before its even invested isn't sitting well with me.

Also regarding the management fee, is 1% ok?


Cheers for any advice.

phantom_lord

An allocation rate of 96.5% is essentially theft. If your employer isn't contributing then you're much better off setting up your own PRSA with labrokers, they offer the same Zurich funds with a 100% allocation rate

http://www.labrokers.ie/pensions/zurichPRSA.aspx


Also the main benefit with a pension is the tax relief, if you're not paying tax at the higher rate you may be better off waiting before locking your money away.

Merowig

I would cancel immediately the PRSA you have opened today via work - and if going for a PRSA going with one who is not having a contribution charge as advised by phantom lord.
You have a cooling off period of 30 days so no problem to fix this.


The 1% fee is the legal maximum for a standard PRSA (Davy is charging 0.75 + x for a self directed non-standard PRSA) .

tomfoolery60

As a trainee you'll probably be earning low enough to avoid higher rate of tax - i personally would not bother with a pension until I was paying the higher rate. If I was determined to save for a pension I would save in cash deposits until salary is high enough to be paying higher rate - then I could get 40% tax relief I instead of 20% or so through a lump sum contribution.

00dec

Thanks for the input guys.

I'm going to get on to the broker tomorrow and see if there is wiggle room on the fee.
Realistically I'll be canceling the pension.

If I seek out a private PRSA instead of the one my employer facilitates, can I still benefit from the tax relief?

Have any of ye actually gone into one of the execution only schemes like ladbroks, I'm assuming the likes of that would be execution only?

Merowig

00dec wrote: »

Thanks for the input guys.

I'm going to get on to the broker tomorrow and see if there is wiggle room on the fee.
Realistically I'll be canceling the pension.

Right choice imho to cancel it

If I seek out a private PRSA instead of the one my employer facilitates, can I still benefit from the tax relief?

Yes - letter to revenue with confirmation from the fund in regards to your contribution and it took a week for a friend of mine.

Have any of ye actually gone into one of the execution only schemes like ladbroks, I'm assuming the likes of that would be execution only?

I'm still looking for a PRSA for my fiancee - though am still investigating for cheaper options than the execution only ones I know / self directed via Davy.
I have the paperwork for the Zurich PRSA at home already. It looks fine

PaulM1977

That 3.5% is paid to the broker as commission, so you would be funding their lifestyle through your salary. 100% allocation is the minimum you should expect for your contributions.
If you take out your own one, you will still be eligible for the tax relief.

thomasm

How do Labrokers get paid. Is it a fee?

Merowig

thomasm wrote: »

How do Labrokers get paid. Is it a fee?

From their website: *Out of this 1% annual management charge LABrokers are paid a commission of 0.25% by Zurich.

00dec

I got back on to the broker again, voiced my grievances.
The employer scheme is as it is and can't be altered.

He offered me a personal pension. I would have to sort out the tax myself. Hardly a problem really.
The charging structure on the personal pension is as follows:
100% allocation,
1% annual management charge,
Early surrender penalties in 1st five years apply, 5% in year 1, 4% in year 2, 3% in year 3, 2% in year 4 and 1% in year 5.
€3 per month policy fee.

Better but, I'm sure I can still do cheaper.

I've applied for the ladbrokes packs. Should have have it by the end of the week hopefully.

Merowig

00dec wrote: »

I got back on to the broker again, voiced my grievances.
The employer scheme is as it is and can't be altered.

He offered me a personal pension. I would have to sort out the tax myself. Hardly a problem really.
The charging structure on the personal pension is as follows:
100% allocation,
1% annual management charge,
Early surrender penalties in 1st five years apply, 5% in year 1, 4% in year 2, 3% in year 3, 2% in year 4 and 1% in year 5.
€3 per month policy fee.

Better but, I'm sure I can still do cheaper.

I've applied for the ladbrokes packs. Should have have it by the end of the week hopefully.

The PRSA Zurich via LA Brockers doesn't have a policy fee - most likely because it is a PRSA and not a personal pension
Early surrender penalties? You don't have that problem with a PRSA either as you can just stop any time.

Hope you didn't forget to cancel the work PRSA

Henry Ford III

No such thing as a free lunch folks. Managing funds costs money, as does compliance, as does advice.

LABrokers or other discount brokers aren't volunteers either don't forget. They are cheap because they are execution only Brokers. Ask them to review your policy or policies, or review your personal financial circumstances and make recommendations and see how that goes. The most clued in member of the public is unlikely guess the optimal financial solutions. They won't have the training nor the necesssary experience to do so.

Good advice is always worth paying for.

Allocation rates are certainly important and competitive ones are available, together with a decent level of advice and service.

Merowig

We are speaking here about opening a simple PRSA to save a bit for a private pension. Not investing millions and trying to minimise the tax through complicated schemes in Panama.

No rocket science in my opinion - Zurich is providing a leaflet which has enough of information and you get a lot as well online.
You put in your money in - and select the fund or funds you want in accordance to your risk appetite. To quote Patton: “Take calculated risks. That is quite different from being rash.”

If anyone has generally some interest in investing - "The Boglehead's Guide to Investing" could be a good start.
Many (but not all) "advisors" - have a conflict of interest as they are selling investment products for which they will get comission.


The Pensions Authority have on their website a pension calculator which shows how much you should put aside in order to achieve your financial goals. Sure you need to review this from time to time to check if you are on track.


For me paying for advise to open a PRSA is the same as with my experience here with the Irish health care system - I knew what vaccinations I wanted and needed - still I had to pay 60 Euro for "5 minutes" of consultation. Didn't change a thing nor did I hear anything new.


I am only willing to pay for value adding services. Because of the compound effect over the long time periods here involved even small differences in cost can accumulate to significant differences towards the final pension pot.
I am securing my retirement - not the retirement of a broker of financial advisor.

Henry Ford III

Merowig wrote: »

We are speaking here about opening a simple PRSA to save a bit for a private pension. Not investing millions and trying to minimise the tax through complicated schemes in Panama.

No rocket science in my opinion - Zurich is providing a leaflet which has enough of information and you get a lot as well online.
You put in your money in - and select the fund or funds you want in accordance to your risk appetite. To quote Patton: “Take calculated risks. That is quite different from being rash.”

If anyone has generally some interest in investing - "The Boglehead's Guide to Investing" could be a good start.
Many (but not all) "advisors" - have a conflict of interest as they are selling investment products for which they will get comission.


The Pensions Authority have on their website a pension calculator which shows how much you should put aside in order to achieve your financial goals. Sure you need to review this from time to time to check if you are on track.


For me paying for advise to open a PRSA is the same as with my experience here with the Irish health care system - I knew what vaccinations I wanted and needed - still I had to pay 60 Euro for "5 minutes" of consultation. Didn't change a thing nor did I hear anything new.


I am only willing to pay for value adding services. Because of the compound effect over the long time periods here involved even small differences in cost can accumulate to significant differences towards the final pension pot.
I am securing my retirement - not the retirement of a broker of financial advisor.

Why Zurich? How do their funds compare to their competitiors? What about risk and reward?

Open it up a bit wider - Why a PRSA and not perhaps a Personal Pension?

Are there other more important things you are overlooking? Life assurance, or serious illness cover, or income protection, or health insurance?

As I said even the most clued in member of the public won't get those calls right most of the time.

I agree about value added btw. A financial advisor has to come up with optimal solutions at a reasonable cost.

I'd argue that a wrong call on the choice of investment area would be considerably more expensive than a small variance in costs in the longer term.

There's nothing wrong with fees/commissions as long as they are indentified and agreed. In all businesses a mark up is essential to make profit. Brokers fees/commissions are somehow viewed as being "dirty" for some reason, whereas markups in other areas of business aren't.

Having said all that some Brokers are good, and others aren't.

Henry Ford III

This also springs to mind......

Merowig

Henry Ford III wrote: »

Why Zurich? How do their funds compare to their competitiors? What about risk and reward?

Zurich was only one example - could had been Irish Life (didn't receive the paperwork for that one yet) or Davy as a self directed option.

With Irish Life and Zurich you can chose the funds according to your risk appetite as already said.
Zurich has active managed funds - Irish Life passively managed funds (though in many instances active managed funds don't beat passively managed funds)
For fund comparison I would recommend http://ratings.moneymate.ie/

Though past performance is no indicator of future performance

Open it up a bit wider - Why a PRSA and not perhaps a Personal Pension?

Portability, transparency, flexibility and costs speak for a PRSA with no contribution charges and the lowest AMC available. I can transfer a PRSA to a pension vehicle in Malta or of another EU country - there was a court ruling for that - it was not a general ruling though I doubt that a PRSA provider will make much troubles after that one...
No policy fee, no early surrender penalties for PRSAs - but possible for Personal Pension Plans
An employer can later contribute to your PRSA - but he cannot contribute to your personal pension plan.

With a personal pension plan there are no statutory maximum charges - for a Standard PRSA there is legislation which limits the fees (1 % AMC - 5% contribution charges).
Personal Pension Plan might be in some cases of better value / have lower costs if you have to invest a bigger sums (and so also to minimise your taxes)
The only "advantage" with a pension plan is that more choices are possible - though if you go with e.g. a Davys non Standard Self directed PRSA you have as well plenty of choices.

Are there other more important things you are overlooking? Life assurance, or serious illness cover, or income protection, or health insurance?

Personally I don't like it when people try to cross-sell and upsell me - this speaks at least for me again against a FA.
Btw I have a heavily subsidised health insurance via my employer.
In case someone wants to compare health insurances http://www.hia.ie/ci/health-insurance-comparison .
I was many years without health insurance and I only started one when I started to train Krav Maga. One additional reason now for the health insurance is the late entry health insurance levy. For some people a health insurance makes sense - for some less.

I have free Life insurance (though no need for it) and I could get disability benefits as well via my employer....

As I said even the most clued in member of the public won't get those calls right most of the time.

I agree about value added btw. A financial advisor has to come up with optimal solutions at a reasonable cost.

I'd argue that a wrong call on the choice of investment area would be considerably more expensive than a small variance in costs in the longer term.

There's nothing wrong with fees/commissions as long as they are indentified and agreed. In all businesses a mark up is essential to make profit. Brokers fees/commissions are somehow viewed as being "dirty" for some reason, whereas markups in other areas of business aren't.

Having said all that some Brokers are good, and others aren't.

If people who don't want to take the time to inform themselves - or are unsure or don't understand everything and don't dare to ask - they can go to a financial advisor. But many will not realise that an additional 0.5%, 1% or 2% will accumulate to very significant amounts - and opportunity costs - as these amounts would be otherwise in the pension and not in the bank account of a broker or financial advisor and would become because of compounding substantial as well.

As said I don't see any added value - therefor I am looking for the most cost effective solution.


http://www.thejournal.ie/pension-charges-ireland-880663-Apr2013/

(...)
John Martin, who was behind the major OECD study published yesterday into Ireland’s pensions timebomb, said many people don’t realise just how much pension charges can mount up.
He said that charges which may seem small when people first sign up can end up making a ‘huge difference’ to the final pension pot.
(...)

http://www.independent.ie/business/personal-finance/you-could-pay-40k-in-fund-fees-even-if-you-lose-money-30354473.html

You could pay €40k in fund fees - even if you lose money
(...)
You could easily pay €40,000 in charges over 20 years after investing €100,000 – even if your fund loses money. Those investing for longer can expect to pay more. You could lose as much as €120,000 of a €400,000 pension pot to charges, according to a report recently published by the Social Protection Minister, Joan Burton.
(...)

http://financialmentor.com/retirement-planning/mistakes/18212?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Financialmentorcom+%28FinancialMentor.Com%29
Point 12


What springs in my mind is this http://dilbert.com/search_results?terms=Dogbert+Financial+Planner+advisor&=&=

phantom_lord

Henry Ford III wrote: »

No such thing as a free lunch folks. Managing funds costs money, as does compliance, as does advice.

LABrokers or other discount brokers aren't volunteers either don't forget. They are cheap because they are execution only Brokers. Ask them to review your policy or policies, or review your personal financial circumstances and make recommendations and see how that goes. The most clued in member of the public is unlikely guess the optimal financial solutions. They won't have the training nor the necesssary experience to do so.

Good advice is always worth paying for.

Allocation rates are certainly important and competitive ones are available, together with a decent level of advice and service.

The vast majority of people would be better off just sticking to low cost trackers and moving into cash or cash equivalent as they get old; and avoiding any extra costs. Compounding even a fraction of percent of extra costs is huge over someone's lifetime.

00dec

@Merowig yes I have instructed the broker that I wont be taking up the pension plan.


@Henry Ford III I don't really need the services of a advisor.
Prior to this I have worked with a pensions company. While I mainly worked with CAR compliance, I would consider myself a lot more tuned in than most.
Just not with regard to fees as I would never have interacted with them.
I'm already sorted for life cover through work and I have health insurance.

I take it you work in the area. you seem a tad offended by all this trying to circumvent financial advisors fees?

All I need right now is a cheap method to allow me to make some contributions to a pension, take advantage of the tax credits and enable me to build up a pot to transfer later on.

Henry Ford III

00dec wrote: »

@Merowig yes I have instructed the broker that I wont be taking up the pension plan.


@Henry Ford III I don't really need the services of a advisor.
Prior to this I have worked with a pensions company. While I mainly worked with CAR compliance, I would consider myself a lot more tuned in than most.
Just not with regard to fees as I would never have interacted with them.
I'm already sorted for life cover through work and I have health insurance.

I take it you work in the area. you seem a tad offended by all this trying to circumvent financial advisors fees?

All I need right now is a cheap method to allow me to make some contributions to a pension, take advantage of the tax credits and enable me to build up a pot to transfer later on.

Fair enough and best of luck.

I'm not offended at all, just trying to point out that sometimes good advice is well worth paying for.

It's like the difference between flying Ryanair (until fairly recently) and say Aer Lingus. They'll both get you to your destination safely, but Ryanair will normally be cheaper and slightly less comfortable.

I fly Ryanair short haul, normally driven by low fares, but I wouldn't fancy a long haul trip with them.