Charges Query on Irish Life Fund

[aidan119]

Hi


Can someone help me to check the charges figure provided by Irish Life for this fund below. They state that the charges are 1.75% pa plus additional setup charges of €1176 in year 1. When I work it out I can't agree it to their brochure example. Year 1 is ok, but after that I come up with higher charges for each year than they actually publish. They publish a table on page 30 with the charges. I estimate total charges at €4520, not €3262 as they state.
This same product is sold through TSB/Irish Permanent also.

 

[montano]

From reading the brochure that you linked.

The charge is just 1.75% per year.
The €1,176 "sales remuneration" is not in addition to this.
I guess it has been paid (by Irish Life to EBS, most likely), but won't be directly charged to your policy.
Have a look at column C on page 28 of the booklet.
Those charges include the two charges listed on page 20. These are the 1.75% per year fund charge, and the early exit charge.
The year one charge is made up of one year of the fund charge, and a 5% deduction if you were to cash in that year.
The year two charge is made up of two years of the fund charge, and a 4% deduction if you were to cash in that year.
The year three charge is made up of three years of the fund charge, and 3% deduction if you were to cash in that year.
..... and so on.
By the end of the 6 years, if you stay the course, the only charge you will have suffered is 6 years of the 1.75% per year fund charge.

If you can't follow all that, just think of it as €1,176 being "bundled" into the total charges shown on page 28. Take away the €1,176 from your own estimate of the total charges, and you'll see that it comes out pretty close to the total year 6 charges figure from the booklet.

Ridiculously hard to explain, hope that makes sense.

 

[aidan119]

Ok, I didn't think the table was showing the effect of early exit charges.
I calculated year 1 charge as 30,000 x.0175 +1176 = 1700. May be a coincidence but this agrees to the table. That is why I think the 1176 is extra.

I can't come up with 1700 by applying the exit charge in year 1.
If they were showing the exit charges would it not be

30000 x 1.75% = 525
plus
(30000+1585-525) x 5% = 1553, giving total charges of 2078.

Also if I read the bottom of the page 28 it states the "the effect of the expenses and charges shown is to reduce the assumed return on your investment by 1.8% per annum". This indicates to me that the table is not about exit charges.

 

[montano]

Also if I read the bottom of the page 28 it states the "the effect of the expenses and charges shown is to reduce the assumed return on your investment by 1.8% per annum". This indicates to me that the table is not about exit charges.

The table is about all charges. By law it has to be. In this case 1.8% ~= 1.75%. Because if you stay until the end, exit charge is zero.
(I don't know why it states 1.8% rather than 1.75%. Could be something to do with compunding of the charge, could be just that this particular figure must be shown to one decimal place).

I can't come up with 1700 by applying the exit charge in year 1.

Speculation on my part: Year one on the table is the position on day 366 of the plan. At that point, if you cashed it in, you would suffer the 4% charge, rather than 5% charge. So the page 28 table assumes the following exit charges:
Y1 4%
Y2 3%
Y3 2%
Y4 1%
Y5 1%
Y6 0%

I can't justify the exact figures. I'm guessing how they are calculated. I do know that there is no extra lump sum charge. How do I know? Two reasons. First, it's not listed on page 20 of the booklet. There are two charges on page 20 - the fund charge and the exit fee. Nothing else. Second, I know that the table on page 28 must, by law, include all of the charges. If there is some charge that they are taking that is not part of that illustration, that would be a very serious matter - you could refer to the Financial Regulator.