AVCs and Pensions for Teacher

D

Darkside

Guest
Hi Foks,

I have my sister (a 2nd-ry teacher) starting a pension including AVCs this year. She is 30 and will retire at 60. A company call Marsh is handling the AVCs for the TUI union. In this they sponser two companies: Irish Life and Friends First. She wishes to reduce the impact of charges and is willing to invest in high/med high risk for the long term.

Here's the two options: (these are not negiotable)

Irish Life:
Allocation Rate: 95% for 5 years, 99.5% thereafter
Bonus Allocation: Nil.
Bid/Offer spread: 5%
Policy Fee: 2.54 euro/month
Management Fee: 0.65% pa to 1% p.a

Friends First:
Allocation Rate: 93% for 5 years, 101% thereafter
Bonus Allocation: 0.5% pa of the fund value from yr 11
After year 10 a bonus equal to 1% of the fund is paid on retirement.
Bid/Offer spread: 5%
Policy Fee: 2.64 euro/month
Management Fee: 0.75% pa to 1.125% p.a

Now, which is better? The Allocation Rate is a mouthful with Friends first She wants to go full term with this and will be putting in about 300 Euro per month. She may maximize her input at 20% salary. The range in management fees is due to the choice of fund in each, eg concensus or managed etc.
 
I couldn't comment on the choice between the two funds - I'll leave that to the experts. However, I'm shocked at the extent of the charges in these funds. I work for a large multi-national company, and our pension fund offers both Irish Life & Friends First funds with NO bid offer spread & NO allocation rates. And I am damn sure that the size of our fund is dwarfed by the size of a fund covering secondary teachers across Ireland. Why are teachers getting such poor value for money?
 
amazing

Well, I'm not surprised any more... It's just a nightmare to work out how to figure out which is better because of the way the charges are all over the place.. eg 93% for the 1st 5 years but then a 101% rate.. and the bid/offer spreads I am disgusted with. blah blah. The spread of charges make it impossible to figure out... I basically send to her to check out the Reduction in Yield on the estimated growth and to pick the one with the lowest annual management charge (once it's invested in equities and not a bond/cash one)... but again all those other charges hit hard... 93% for 5 years!... *after* a 5% bid/offer spread. :( Sorry for the waffling but at least transparency rules make these visible but not easy to calculate ... sigh!

She is meeting the manager/seller of this later this week. Recommend any questions she should put to him?

I suggested to her to ask
i) What is actually invested with a theorical 200 euro/month?
ii) What is the reduction in yield per year?

The manager, she told me, recommends the Friends First one.... hmmm. :(
 
Re: amazing

Does she have the option of taking out a PRSA on the open market instead?
 
questions

Thanks for your comments Rainyday.

I'll ask her but I don't think she does. The school she works for will take 6% of her salary into her to-be-defined pension choosen by Marsh.

Gawd! I though my own was bad, at least my employeer matches my contributions but then again I'm in a shaky IT job. Take some, give some.

The best thing I guess is for her to find out what happens to a theorical 200 euro/month when it's invested each month and see what actually gets in? :|

Maybe some suitable questions too.....
 
Re: questions

There was an article in the Sunday Times saying that if you have access to an AVC then you can't open a PRSA. I have heard other AVC holders who deal with MArsh complain about high charges. I would suggest your sister complain to her union to see if a better deal can be struck. If enough teachers complain, prices may come down.
 
teachers and AVCs

I think this topic has started in the wrong place! You need to take one step back to consider all her options.

First of all she should only be considering AVCs if she has short service? Even if she has short service she has two options :

(1) Buy back service from Dept of Education. Effectively she can buy back the missing years at a fixed contribution level, which is very favourable. At 30 she can buy a missing year's service at a rate of 0.48% pa. Tax relief applies as for AVCs. Effectively she buys into a guaranteed 'real' investment return of about 2.5% pa and the State picks up the expenses...it's a very good deal. She would be buying a 'defined benefit' type AVC. She should ask Dept and Marsh about this first. Bear in mind Marsh get no financial reward in teacher signing up for buy back service with the Department, so their response to her will be interesting!

(2) Private Defined Contribution with AVCs. Here there are expense deductions borne by the teacher and there's no guaranteed investment return. This is the type of scheme being promoted by Marsh to TUI members.

You might be interested in looking at Commission On Pubic Service Pensions Report, November 2000, which (in Chapter 12 of Part IV) examines the public sector buy back option and the expenses involved in the alternative defined contribution private AVC schemes, such as the one being marketed by Marsh. The Consultants who did the analysis, on behalf of the commission, was Mercers who are part and parcel of the same group as Marsh! So their comments are interesting....their conclusion was ‘overall charges levied on public sector AVC schemes would appear to be higher than those charges in AVC schemes of typical private sector firms’ (Page 337 of Report)

You can download the part of the overall report which deals with public sector AVCs and service buy back from www.finance.gov.ie/public...part-4.pdf .

Suggest your sister have this section of the report printed out and in her paw when the Marsh consultant comes calling. His or her reaction should be 'priceless'.
 
Nurses Scheme

Hi

In a similar thought to the above, my wife has worked for a number of years in the Health Service as a nurse, but always on contracts (nurse shortage? what shortage??!), so has not actually been a member of the scheme. She may be made permanent sometime soon. I am having great difficulty finding information on the scheme for nurses and who to contact to see what the situation is in buying back years/payong AVCs. Cornmarket look after these AVCs and their bumpf states that the manager (Irish Life) do pay them intial commission on this scheme, but their fee is approx €795 which will be taken from you in instalments. The fee is justifed in that they offer a full service...but we don't need one...but doesn't seem to be a choice in the matter. I know she will need to buy back the years and am looking for the best mechanism to do this. Is there a similar provision as with the teachers scheme?
 
Correction

that should read Irish Life do NOT pay them intial commission...sorry!
 
Just a comment on the....

.... funds on offer.

Friends should work out cheaper over the long term due to the bonus units offseting some of the annual management charge.

However if I was your sis I would talk to Marsh about the funds on offer to make sure that they match her risk profile.
 
teachers , nurses , and AVCs

If I was your sis or anybody, I would buy back the past service from the public service pension scheme ..its guaranteed...by buying back year's service you are buying into pensioning future salary increases.

For example, anyone who had already bought back service will not benefit form hte Benchmarking increases in salary, which will flow in the future into increases in pensions.

So forget about Friends or Irish Life or whoever, teachers , nurses etc, should contact their own Personnel depart and enquire about how to buy back service.
 
Buying back service

Raipi, thanks for that very useful info. I'm a third-level lecturer, permanent for the last ten years, but facing a small shortfall in terms of qualifying for a full pension at retirement age. I had previous qualifying service in the shape of a series of full-time temporary contracts at UCD and I've asked the Personnel office at my current employers to arrange for me to buy back those years (about 36 months' worth), but the process has been dragging on for ages, due largely to mega-slow response times from the UCD personnel office...

My (rather 'green') question is this : does the recently-introduced Oct 31st deadline for tax relief on pension contributions affect my situation? i.e. do I stand to gain anything by chasing up this matter and arranging to have all the relevant contributions paid before the end of this month — which I think I could afford to do, at the moment, depending on the sums involved...

Thanks in advance for any advice you can offer,

Dr. M.
 
Oct 31st pension-tax deadline

Note that the 31st Oct deadline applied to non-PAYE income.

If you are a PAYE worker, then you can get the tax relief on pension payments anytime.

Oct 31st ads on TV, radio are aimed at self-employed, as their tax returns are due on this date.
 
teachers and AVCs

The 31st October deadline is relevant to you ...not as suggested confined only to self employed.

You may be able to make a lump sum contribution before 31st October and backdate to last year for tax relief.

Sorry ..have to suggest you go back to your Personnel Office...you can now threaten to bring a complaint to the Pensions Ombudsman if they are preventing you from getting tax relief due to administation inefficiency.
 
Re: Nurses Scheme

Westbound - try contacting supeannuation dept in the health board, they should be able to sort out getting those years bought back.
 
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