Starting a pension. Are these fees reasonable ?

derdider

I've put off starting a pension for long enough so recently starting seriously looking at it.

I spoke to Irish Life first, just a very basic overview type chat, but didn't get any concrete answers on fees, just vague answers like "charges on regular contributions could be anywhere from 0-8%", "yearly plan charge could be up to 0.5%", "yearly fund charge will depend on the fund chosen" (from what i can see it will be about 0.75%), monthly contract charge will be €4.68 per month.

As you can see, it was a lot of "could be's" and "up to's" so i really have no idea.

I then spoke to a broker who was a lot more straight forward. He said for example if he invests with Zurich, the fees are €3.50 per month, then 1% of the total fund (Zurich take 0.75% and he takes 0.25%) charged as 0.00027% daily or whatever. No other fees.

Obviously this is a lot more straight forward. In a few years though as the fund grows, those fees could be €4000-5000 a year or more.

How are these fees in relation to whats out there ?

What the benefits/drawbacks of going with a small broker rather than a large organisation like Zurich, Aon, Irish Life etc.. ?

wolfeye

I'd go through a low cost broker like these.

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

No monthly charge,no bid spread offer,100% allocation,1% management charge.

derdider

wolfeye wrote: »

I'd go through a low cost broker like these.

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

No monthly charge,no bid spread offer,100% allocation,1% management charge.

Thanks for that. Ill look into them.

The broker i spoke to also had no bid dpread offer, 100% allocation and 1% management charge but did have a €3.50 monthly fee. Id get over that if the rest was deemed reasonable.

Im just worried that that 1% fee will soon mean paying a few thousand a year in fees which seems really high. But maybe thats the norm ?

Henry Ford III

wolfeye wrote: »

I'd go through a low cost broker like these.

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

No monthly charge,no bid spread offer,100% allocation,1% management charge.

Which is cheap, but what about getting advice?

Merowig

Most people don't need and won't get proper advise in my opinion.

Go the low cost option wolfeye posted. Everything else is rip off in most cases - especially in the long term.


1% AMC is the maximum a standard PRSA can charge as the annual fee.
You can go for a self administered PRSA via Davy which has I believe 0.75% AMC but trading fees come on top and you need to be a bit more financially savy.

Henry Ford III

Merowig wrote: »

Most people don't need and won't get proper advise in my opinion.

I'd disagree with you on that. It's not straightforward and making a mistake can be expensive.

Whilst you appear to be well clued in personally, the vast majority of the general public are the opposite.

nhunter100

derdider wrote:

I spoke to Irish Life first, just a very basic overview type chat, but didn't get any concrete answers on fees, just vague answers like "charges on regular contributions could be anywhere from 0-8%", "yearly plan charge could be up to 0.5%", "yearly fund charge will depend on the fund chosen" (from what i can see it will be about 0.75%), monthly contract charge will be €4.68 per month.

From personal experience, I'd stay well away from Irish life. Go to an independent financial advisor.

Merowig

I agree that a lot of people are unfortunately quite financially illiterate.
In regards to fees / advice the OP could check that thread starting at http://www.boards.ie/vbulletin/showthread.php?p=99377900


phantomlord summarized it correctly: "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. "

Carawaystick

Any pension in Ireland will be expensive, 1% fees are outrageously expensive compared to the 25 to 30 basis points you can get in the US for example.

Merowig

True - so thats why I feel it is important to minimise fees as much as possible.
You have to finance your pension - not the pension of your broker.

Henry Ford III

Merowig wrote: »

True - so thats why I feel it is important to minimise fees as much as possible.
You have to finance your pension - not the pension of your broker.

A good advisor will be well worth their cost.

lawred2

wolfeye wrote: »

I'd go through a low cost broker like these.

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

No monthly charge,no bid spread offer,100% allocation,1% management charge.

Are Davy Select PRSA fees higher in comparison?

lawred2

Do you have to pay stamp duty on share purchases within a prsa?

Merowig

Assumption - someone in their 30s - average Joe Doe - wants a PRSA

In option A - he goes through a broker - pays the 5% contribution fee with every contribution - the broker advises he should go for equities because there are 35 years till he retires and shares have the chance to get the highest return

Option B - he goes for a low cost prsa and choses the fund with equities. He saves on the contribution fee thousands and thousands of euros over the next 35 years and as he gets older he shifts his fund to a lower risk investment.
(And every PRSA (unless self directed) has as well a default investment strategy which is doing that automatically).

No added value from the broker.

Merowig

lawred2 wrote: »

Are Davy Select PRSA fees higher in comparison?

0.75% AMC + X charges for trading

If you go for ETFs - X can be 0.10
Which is lower than going with a PRSA from a low cost broker

http://www.davyselect.ie/binaries/content/assets/davyselect/pdfs/execution-only-fees-charges.pdf#page=5

Yes there is stamp duty for UKI shares you buy via Davy.

Henry Ford III

Merowig wrote: »

Assumption - someone in their 30s - average Joe Doe - wants a PRSA

In option A - he goes through a broker - pays the 5% contribution fee with every contribution - the broker advises he should go for equities because there are 35 years till he retires and shares have the chance to get the highest return

Option B - he goes for a low cost prsa and choses the fund with equities. He saves on the contribution fee thousands and thousands of euros over the next 35 years and as he gets older he shifts his fund to a lower risk investment.
(And every PRSA (unless self directed) has as well a default investment strategy which is doing that automatically).

No added value from the broker.

Why go for a PRSA in the first place? What are the differences between a PRSA and the alternatives?

What is the customers risk profile?

Which equities? Active or passive management?

There are huge gaps in that argument.

Merowig

If someone is not sure how much he should put into a pension - the pension authority, but also Aviva and other providers have calculators online...


Passive management (tracking an index) is beating in many cases actively managed funds
The higher the possible return the higher the risk - though studies have shown that long term equities are most preferential

Sorry forgot indeed risk assesment - in case anyone is not sure how risk averse he is - there are plenty of questionaires online which make suggestions

https://www.google.ie/search?q=risk+assesment&gws_rd=cr,ssl&ei=7toPWOPCDOydgAb04I7ADw#q=assessing+risk+tolerance
https://www.google.ie/search?q=questionaire+risk+profile&gws_rd=cr,ssl&ei=BeAPWMioL8mFgAariIeoDQ

Though the person who is risk averse complains then later on the radio that the fund hardly grow over 20 years because he didn't want to put money in equities.

For myself I would go for a PRSA because it gives me the most flexibility and I am not forced in the end to buy an annuity in Ireland and it is quite easy to transfer the PRSA to a pension vehicle abroad (even without leaving Ireland).
With a buy out bond you might run into problems if you left already Ireland but have to buy an Irish annuity as a non-resident...
On personal pensions the OECD stated that charges for personal pensions are expensive...
I trust the judgement of the OECD more on that than of an Irish "financial advisor".

Other arrangements than are often only cheaper if you put in yearly significant sums. With a PRSA you can stop contributions at any time without penalty and transfer the PRSA to another one without transfer charges...

A fee based advisor could make perhaps sense if you are a company director, mutiple income streams, income from abroad, having a ton of money etc - and you might need indeed more advice not just on pension, but on tax, investing etc - but that is not Joe Doe.

A simple PRSA where you put your money in international equity with the lowest cost fits the needs of most normal citizens. Everything else is milking people out of their money in my opinion.
Private pension arrangements are already expensive in Ireland - in Denmark or Sweden - total yearly management charges are below 0.5%.

http://www.irishtimes.com/business/personal-finance/prsas-what-you-need-to-know-as-the-portable-pension-is-set-for-renaissance-1.2431938

Going via a normal broker could mean that for the same product you have much higher costs...

Henry Ford III

Again that's patchy, simplistic, and flawed. Your pension is likely to be one of your life's biggest assets and your low cost above all other considerations approach is naive at best.

I havent the time nor inclination to disect and rebut your post but consider the analogy of Aer Lingus Vs Ryanair applied here.

Both will get you to where you are going, but with different levels of cost, convenience and comfort.

On a very important journey many should and do fly Aer Lingus.

Merowig

The service with Aerlingus is as well bad and you have as well to pay for any extras like with Ryanair - not to forget Ryanair owns a huge chunk of Aerlingus - your analogy still works though. It is the same product - you just pay a premium for more or less nothing of additional value.
E.g. you get the same PRSA with a 5% contribution charge or without that charge.
In the end you have the same funds available but you make alongside the journey someone else richer.

The services a broker is often providing is not justifying the costs at all for average Joe Doe.
As previously said - if you are a company director, have several multiple income streams (also from abroad), liquid assets of over 250k etc than a financial advisor could make sense.
Joe Doe will just waste his money on it.

http://financialmentor.com/retirement-planning/mistakes/18212

Only pay for value added services. Beware of hidden costs associated with certain investments. The rule is simple: only pay for value added services. If you hire a broker or manager who charges 1% per year then s/he must add more than 1% per year to your portfolio compared to passive index investing to justify the fees.
(...)
A percent or two over the course of a typical retiree’s lifetime is big bucks by anyone’s standard. Most retirement savings’ time-frames range between 30 and 60 years. A 1.5% difference in return due to expenses can double the value of your account because of the compound effect over that long period of time. We’re talking the difference between $500,000 in savings versus $1,000,000 – and that’s a big deal – all because of a paltry 1% to 2%.
(...)

You have to secure your pension - not to secure the pension of your broker.

Going back to Ryanair - you don't have a real Ryanair in Ireland for Pensions - as said in the US or also in Sweden and Denmark the costs for a private pension arrangement are significantly lower than here in Ireland.

On passive vs active managed funds
http://finance.yahoo.com/news/buffett-most-mportant-investment-lesson-211351601.html

(...)
Nearly a decade ago, Warren Buffett made a million-dollar bet: that by investing in a completely unmanaged, broad-market low-fee index fund, he could beat the gains earned by a high-powered hedge fund with a team of managers at the helm. His opponent was Protege Partners, LLC, a New York City hedge fund with $3.5 billion in assets under management.
(...)
Despite an initial stumble in 2008, when the index fund was down 37% vs. the hedge fund’s 23.9% loss, the former rebounded in astounding fashion. In its best year, 2013, the broad market index fund saw 32.3% gains vs. the hedge funds’ 11.8%. In fact, his index fund beat the hedge fund’s returns in 6 out of 8 years.

At the end of 2015, Buffett was up 65.7% vs. their 21.9%.
(...)
The performance of the Vanguard 500 – which simply tracks the performance of the S&P 500 index – backs up what research has shown in the years since the recession: that people who kept their money in the market have fared much better than those who cashed out and stood on the sidelines. He blasted investment advisors who try to convince clients otherwise.

“No consultant in the world is going to tell you just buy an S&P index fund and sit for the next 50 years,” he said. “You don't get to be a consultant that way and you certainly don’t get an annual fee that way.”

On Costs
http://www.finfacts.ie/irishfinancenews/article_1025080.shtml

Irish Economy: Pension fund charges are taking 17.4% of retirement savings in occupational schemes
(...)
The charges for pensions such as personal retirement savings accounts (PRSAs) and executive pensions incur an average cost of between 21 and 31%
(...)
The report provides the following example. If an individual age 35 saves €250 per month for a pension for 30 years, a fund of approximately €200,000 is created which results in a pension of about €10,000 per annum. Apply the average charge of 2.18% per annum to this fund and the final fund is reduced by 31% i.e. the fund is reduced by €62,000, resulting in a lower pension of €6,900 per annum. This impact would be significantly higher where the maximum charges apply.
(...)

http://www.irishtimes.com/business/pension-charges-punching-hole-in-retirement-funds-1.556616
Pension charges punching hole in retirement funds

http://www.independent.ie/business/personal-finance/six-of-the-priciest-pension-funds-34179302.html

Six of the priciest pension funds
(...)
"In the long run with pension products, it's the annual fund charge which does most damage to your ultimate retirement fund," said Tony Gilhawley, director of Technical Guidance, a financial consultancy based in Dublin. "Get the lowest annual fund charge you can find for the level of risk and return you are prepared to take."
(...)

http://www.irishtimes.com/business/pension-fees-can-leave-you-shortchanged-1.1251551
Pension fees can leave you shortchanged

(...)
Paul Delaney, senior financial planning consultant with IFG Private Clients, notes that trail commission, whereby an adviser receives commission on an annual basis years down the line from having sold the policy, is one charge of which people are often unaware.
(...)
In the UK, commission has been banned since the start of this year, In Ireland, however disclosing commission payments is as far as it has gone, which means that conflicts of interest can remain.
“Your adviser will only get paid if he sells you a product, so he will be motivated to do so, even if paying off some debt might be better for you,“ cautions Westlake.
(...)

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

Rip-off pension charges make a ‘huge difference’ to your pension pot, says OECD expert
(...)
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.
(...)

The OECD Report for Irelands Pension System can be found at http://cdn.thejournal.ie/media/2013/04/20130422oecdreport.pdf
From the Report

Finally, individual pension arrangements are generally expensive. Where maximum commission arrangements apply, the associated reduction in yields for Retirement Annuity Contracts and Executive Pension Plans are high relative to external benchmarks.
(...)
However, at 5% on contributions and 1% on assets, the ceiling, which appears to be very much the norm, is substantially above the charge levels observed in the best performing countries like Denmark or Sweden, where total management fees are below 0.5% of assets under
management. This is also the case of the default DC pension provider NEST in the United Kingdom’s recently launched auto-enrolment system. The difference between the maximum PRSA charge and the charge announced by NEST (about 50 basis points on average) translates into a cut in benefits of the order of 12%.
(...)

Henry Ford III

One last post here - there's no benefit in further responses.

Good advice is always a good thing and adds value. It might encourage someone start a pension earlier, fund it more adequately, or perhaps even concentrate on other financial areas established as more pressing at the time.

I understand that the way you've structured your pension arrangement suits you Merowig and fair play to you, but that absolutely doesn't mean it's best advise for everybody. It doesn't mean you are on top of the game either but just that you are happy as you are.

I see nothing wrong with the notion of mark ups on a product. We pay them every day on all sorts of things. They should represent value for money though. Many people aren't happy paying fees, and a tax deduction for them is another help.

Another analogy I'm reminded of is Equitable Life who made hay by proclaiming they dealt direct with enlightened members of the public, and paid no brokerage/commissions. It didn't end well however did it?

Lastly it's factually incorrect to claim the 5% premium charge and 1% AMC on a PRSA is standard. It isn't. Fees and charges are always negotiable.

I'll leave it at that I think.

Merowig

5% contribution charge are "standard" in a way that the huge majority of Standard PRSAs are priced that way.


A broker / financial adviser is basically a sales person and every year there is a list of wrong doings all over the world from them....
The reason for that is in the compensation incentives you guys get. A broker / financial adviser can't in my opinion give impartial financial advise when he is getting paid on selling product x.
It is like a doctor who also is selling drugs to his patients plus getting commissions on that. I wouldn't trust my health on a doctor who has that kind of financial incentives....

Being an adviser and a sales person the same time doesn't work. Either they are paid upfront a fully disclosed amount for the advice or they will be compensated for the "advise" the next 30-40 years via the commission they receive from the product they sold.
The huge majority of broker / financial advisers are paid by selling investment products or related services and are not paid for the ability to make money for the client. A clients best interest is not necessarily the brokers/advisers best interest. For me a financial adviser is in the same category as a car salesmen - the car salesmen doesn't represent my interests either.
Both make their money by selling products/services to a client.


P.S. I don't have a low cost PRSA - I have still one old PRSA I never contributed to it (because of the 5% contribution fee) but my employer paid into it (no match was required). The employer picked the PRSA...
Have now a very generous Occupational Scheme via the same employer.

Carawaystick

Henry Ford III wrote: »

One last post here - there's no benefit in further responses.

Good advice is always a good thing and adds value. It might encourage someone start a pension earlier, fund it more adequately, or perhaps even concentrate on other financial areas established as more pressing at the time.

How do you know the adviser is giving good advice? What recourse is there for getting bad advice?

Merowig

Carawaystick wrote: »

How do you know the adviser is giving good advice? What recourse is there for getting bad advice?

There is an ombudsman.
https://www.centralbank.ie/about-us/Pages/ComplaintsagainstFinancialServiceProviders.aspx

Henry Ford III

Carawaystick wrote: »

How do you know the adviser is giving good advice? What recourse is there for getting bad advice?

I'd seek a recommendation/referral or look the Central Bank register of Authorised Advisors I reckon.

The area is well regulated and all Brokers will carry P.I. cover.

There's always the Ombudsman too.

derdider

Thanks for all the information guys. Certainly some interesting reading.

The fees i was quoted of 100% allocation, and 1% fund management fee that i was worried was high (obviously when compounded over 30 years+) seems is actually reasonable by Irish standards, but is obviously high by international standards. The potentially huge fees over the life of the pension are eye watering though.

The active tracker fund is not something that i even knew existed before this thread but having read up on it a bit is certainly something id like to look more into before i go back to the broker.

Where can you invest in these in Ireland and what are the typical fees for these ?

lawred2

derdider wrote: »

Thanks for all the information guys. Certainly some interesting reading.

The fees i was quoted of 100% allocation, and 1% fund management fee that i was worried was high (obviously when compounded over 30 years+) seems is actually reasonable by Irish standards, but is obviously high by international standards. The potentially huge fees over the life of the pension are eye watering though.

The active tracker fund is not something that i even knew existed before this thread but having read up on it a bit is certainly something id like to look more into before i go back to the broker.

Where can you invest in these in Ireland and what are the typical fees for these ?

quelle surprise

Merowig

derdider wrote: »

Thanks for all the information guys. Certainly some interesting reading.

The fees i was quoted of 100% allocation, and 1% fund management fee that i was worried was high (obviously when compounded over 30 years+) seems is actually reasonable by Irish standards, but is obviously high by international standards. The potentially huge fees over the life of the pension are eye watering though.

The active tracker fund is not something that i even knew existed before this thread but having read up on it a bit is certainly something id like to look more into before i go back to the broker.

Where can you invest in these in Ireland and what are the typical fees for these ?

PRSA via Davy - 0.75% AMC + X for the ETF - (some UK traded are 0.10% I believe - if you buy something outside of UKI there is a 25 Euro transaction fee)


http://www.davyselect.ie/pensions/personal-retirement-savings-account-prsa.html
http://www.davyselect.ie/binaries/content/assets/davyselect/pdfs/execution-only-fees-charges.pdf#page=5

derdider

Merowig wrote: »

PRSA via Davy - 0.75% AMC + X for the ETF - (some are 0.10 I believe)
Though it is traded in London in Pounds

Thanks. Ill do a bit more reading on that.

The bits of reading i have done so far do sound promising though like this article http://www.irishtimes.com/business/personal-finance/investors-losing-faith-in-active-fund-managers-1.2071111

Merowig

derdider wrote: »

Thanks. Ill do a bit more reading on that.

The bits of reading i have done so far do sound promising though like this article http://www.irishtimes.com/business/personal-finance/investors-losing-faith-in-active-fund-managers-1.2071111

From your link:

In Ireland, financial advisers may be paid a commission if they persuade a customer to opt for a particular pension or investment.
However, the commission model has been banned in the UK since 2013, after a review of the industry by the Financial Services Authority. Other countries are conducting similar reviews; by 2020, according to accounting firm PricewaterhouseCoopers, most developed countries will likely have introduced similar rules and that will only accelerate the move towards the low-fee investing model.

About time