"Six in every ten euro in a pension pot being consumed by charges"

Brendan Burgess

Brendan Burgess

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www.independent.ie

Six in every ten euro in a pension pot being consumed by charges

Thousands of euros of pension savings are being consumed by high charges.
www.independent.ie www.independent.ie

A report has found that up to €6 out of every €10 of the final pension pot is being eaten up by fees paid to finance firms.

Its findings are broadly in line with a 2012 report on pension charges compiled by the Department of Social Protection, assisted by the Pensions Board, the Central Bank and PwC, which found that average fees were at least 2.18pc.
 
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If you properly account for transaction costs within a pension fund, such as brokerage commission, bid offer spreads, stamp duty etc then an actively managed fund with average turnover can double the disclosed ongoing charges figure of a fund.

so a managed Irish equity fund with stamp duty of 1% turnover of 80% could easily get to 3%pa
 
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MugsGame said:
This is for the worst case of a full term pension with 3%+ annual fees.

I wonder how many pensions actually fall into this category?
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The only pension product that I know that is capable of those charges is a self directed PRSA that buys gold and that's if the fund is relatively small as the charges are on a sliding scale and get cheaper as more gold is bought. I do not know of any pension available through an insurance company that charges that much. 30 years ago, there were plenty of contracts like that but they're well gone.

I think it's bad form to publish an article like this without being able to scruntise the data ourselves.

Steven
www.bluewaterfp.ie
 
It's a grossly irresponsible poor piece of work, by an annonymous public servant, put forward by Labour on the eve (?) of proposed pension legislation by them.

They're basically calling for more transparency on the back of a report that has zero transparency.

It assumes that the "typical" annual charge is circa 3% without having any evidence to back it up, at all. How helpful is that for pension coverage?

Great headlines for the unquestioning media though.

Gerard

www.prsa.ie
 
Sarenco said:
[broken link removed]
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From the report:
In reality fees on a pension are charged on the size of the existing pension pot. When you start saving your pension pot is almost empty, so you pay low fees. As the pot fills, the annual fees mount up, and very soon they outstrip the annual tax relief on pension contributions.
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This is not wrong, but it's an odd framing of the issue. The tax-relieved contributions are flows and the pension pot is the stock. A hot bath will lose heat if you only have a trickle of an inflow from the hot tap, but that's not a reason to turn off the tap.

Further on there is just a fundamental understanding again of what tax relief is:

Given that the State, through tax relief, funds up to 40% of the value of pension contributions
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Everyone talks about "relief" as if you don't pay tax but it is really a deferral of tax until drawdown. The whole point is that pensions are "EET" - contributions exempt, returns exempt, drawdown taxed. Tax relief is not a state contribution. It is just a tax deferral.

Then the author confuses public service with civil service, and doesn't seem to be aware that post-1995 public servants pay PRSI and receive the state pension contributory like everyone else, with the public service pension component on top.


I'm on page 9. Should I read on?
 
Be fascinating to get to the bottom of this in simple laymans lingo.I have ebs summit growth funds for many years and i and im sure thousands of others always believed that the fee in total was between one and one and a half percent annually.Surely our investment companies must have total honesty and integrity with us and not be hideing and "spinning" things.!!
 
I saw the headline and read the article in the indo, common practice for the headline writer to differ from the author. Did they make clear what 'pensions' were moot in this case...

I was told that my fees went down as l am in my AVC for 15 years and in one of those IRIS products,

Agree that pensions seem to be a linguistic minefield, AVC, ARF, etc why can there not be a simplified system like the SSIA that would encourage more savers
 
GSheehy said:
It's a grossly irresponsible poor piece of work, by an annonymous public servant, put forward by Labour on the eve (?) of proposed pension legislation by them.

They're basically calling for more transparency on the back of a report that has zero transparency.

It assumes that the "typical" annual charge is circa 3% without having any evidence to back it up, at all. How helpful is that for pension coverage?

Great headlines for the unquestioning media though.

Gerard

www.prsa.ie
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They aren't saying a typical fund has an annual charge of 3%. They point out that when you take the annual charge and all the other charges a fund can impose, it starts reaching 3%. The AMC doesn't include things like transaction fees, or other internal management fees imposed on a fund and those do drag on the return of the fund.
 
Marc said:
If you properly account for transaction costs within a pension fund, such as brokerage commission, bid offer spreads, stamp duty etc then an actively managed fund with average turnover can double the disclosed ongoing charges figure of a fund.

so a managed Irish equity fund with stamp duty of 1% turnover of 80% could easily get to 3%pa
Click to expand...

I'm no fan of Irish providers and have always been suspicious that the declared AMC and TER isn't comprehensive and I think fees need to be more transparent. But are most people really in actively managed funds with high declared AMCs?

How can an ordinary punter get better visibility? Does MiFID II help at all? Will future EU-wide pension offerings help drive down costs?

What would you expect the true annual cost to be for a passive index tracking global equity pension fund with a declared AMC of say 0.65%? (assume 100% allocation and any advice fees are paid by employer). I guess I could compare actual performance with the benchmark index, although that ignores the thorny issue of index tracking errors ...
 
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MugsGame said:
What would you expect the true annual cost to be for a passive index tracking global equity fund with a declared AMC of say 0.65%? (assume 100% allocation and any advice fees are paid by employer). I guess I could compare with the benchmark index, although that ignores the thorny issue of index tracking errors ...
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0.66% to 0.67%

Gerard

www.prsa.ie
 
Sarenco said:
Still working for me.
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I've just tried the link with two browsers and am getting either

You don't have permission to access this resource. or The requested URL was not found on this server.

Perhaps it's been removed and you're getting it from your browser cache?
 
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ryaner said:
They aren't saying a typical fund has an annual charge of 3%. They point out that when you take the annual charge and all the other charges a fund can impose, it starts reaching 3%. The AMC doesn't include things like transaction fees, or other internal management fees imposed on a fund and those do drag on the return of the fund.
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If you wanted to invest in a global index tracker fund in your pension (most people don't do that, they choose multi-asset type funds), your AMC would have to be circa 2.8%.

Show me the pension product you can buy in Ireland with an AMC of 2.8%.

The document says typically 3% four times.

Gerard

www.prsa.ie
 
GSheehy said:
If you wanted to invest in a global index tracker fund in your pension (most people don't do that, they choose multi-asset type funds), your AMC would have to be circa 2.8%.

Show me the pension product you can buy in Ireland with an AMC of 2.8%.

The document says typically 3% four times.

Gerard

www.prsa.ie
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I can't find any KIDs for pensions funds, but I'm going to assume that the similarly named investment funds from the same company apply similar fees. So lets use Zurich Life.
Their monthly saver type product lists Other on going charges on a range from 1.72% to 2.86%. This isn't the AMC.

If you go for fund specific information
Indexed Eurozone Equity (BlackRock) - "The fund currently invests in the iShares EMU Index Fund managed by BlackRock"
This is which has an ongoing fund charge of 0.30%.
The Zurich document lists 1.86%. Even if you take this figure as the worst case, and that they are putting the entire AMC into this figure and that the Entry Costs listed will be zero and not the 1.53% listed, there is a still a substantial mark up on top of the underlying asset for on going charges for a passively managed product.
 
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