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

GSheehy said:
It assumes that the "typical" annual charge is circa 3% without having any evidence to back it up, at all.
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They reference the Report on Pension Charges in Ireland 2012 by Dept Social Protection which mentions an average figure of 2.18% and then reference a note to this Dept Social Protection document by the Trinity School of Business which claims the 2.18% figure underestimates the total fees significantly and provides some detail of where the original document went wrong. The Trinity note doesn't come to a firm number, but it does reference studies in the UK which saw figures of 3.2%.

I suspect the author of this new paper took 3% as a round number somewhere between the low 2.18% from Social Protection and the high 3.2% mentioned in the Trinity note. Considering they went on to reference 3% nearly 90 times in the document, it seems quite sloppy not to have provided a clear statement as to why they chose that figure.

It's a strange document. Some significant effort clearly went into writing it, but some of the language is very casual and neglecting to provide more context for that 3% figure seems like an obvious error. I guess it wasn't ready for publishing yet.


Bit of a missed opportunity because the substantive point that "Under the current system, the individual pension investor is encouraged to play a role in making important decisions which affect their pension. In practice, once the individual has signed up they are substantially at the mercy of an industry that is primarily interested in its own welfare rather than the outcome of the investors." is entirely valid and needs to be dealt with.
 
ryaner said:
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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The purpose of the KID is to provide generic information, address the market in general & highlight the worst case scenario to the investor. For this reason companies are obliged to use the worst available charging structures in order to determine the RIY.

The charging structure used to determine the RIY for the product you referenced might be a 95% allocation, 1.75% AMC contract.

Therefore the RIYs shown demonstrate the worst case scenario for the client & will in practice illustrate a much higher RIY than those actually applying to the client specific policy as typically the modern charging structures are much more client favourable.

In short, KIDs are useless and totally irrrelevant if you're buying a regular savings contract with 101% allocation, no entry/exit charges and a quoted AMC of 1%.

If you wanted to invest in a eurozone equity tracker fund you'd probably add about 0.1% to that AMC and that 0.1% includes ongoing charges figures and portfolio tranasaction costs (if the latter apply). If they're not disclosed, all you have to do is ask. If you don't get them, walk away.

Gerard

www.prsa.ie
 
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Zenith63 said:
I suspect the author of this new paper took 3% as a round number somewhere between the low 2.18% from Social Protection and the high 3.2% mentioned in the Trinity note. Considering they went on to reference 3% nearly 90 times in the document, it seems quite sloppy not to have provided a clear statement as to why they chose that figure.
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The author spends a lot of time explaining how small changes in fees make big differences to net returns over the long run. Then he or she runs with 3% despite the fact that a slightly lower choice (say 2.8%) would have given a materially different set of results.

It's a bit of an own goal.
 
ryaner said:
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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As has been explained many times on this site already, these KID documents assume that you choose a savings or investment plan which incur higher charges than a pension plan. So using a KID document to display charges on a pension fund is invalid.

As as also been explained many times on this site, these KID documents assumes that the consumer chooses the option that incurs the highest charges and commission available. The reality is that people have far lower-cost options to choose from, even from the same provider.

This report's use of a figure of 3% per year is unsubstantiated rubbish, designed to generate headlines and publicity. If it was a legitimate document, it would have included a reference as to where they came up with this 3% figure. Without such references, one must assume that they plucked it out of the sky and then printed it as if it was fact.
 
NoRegretsCoyote said:
The author spends a lot of time explaining how small changes in fees make big differences to net returns over the long run. Then he or she runs with 3% despite the fact that a slightly lower choice (say 2.8%) would have given a materially different set of results.

It's a bit of an own goal.
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Not only that, but the "average fees" of 2.18% referred to in the 2012 Report comes from "maximum commmission" RIY RAC or EPP contracts.

So, that 2.18% 'average' doesn't include RACs and EPPs with better pricing structures and totally excludes PRSAs and Occupational Pension Schemes as well.


Gerard

www.prsa.ie
 
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GSheehy said:
The purpose of the KID is to provide generic information, address the market in general & highlight the worst case scenario to the investor. For this reason companies are obliged to use the worst available charging structures in order to determine the RIY.

The charging structure used to determine the RIY for the product you referenced might be a 95% allocation, 1.75% AMC contract.

Therefore the RIYs shown demonstrate the worst case scenario for the client & will in practice illustrate a much higher RIY than those actually applying to the client specific policy as typically the modern charging structures are much more client favourable.

In short, KIDs are useless and totally irrrelevant if you're buying a regular savings contract with 101% allocation, no entry/exit charges and a quoted AMC of 1%.

If you wanted to invest in a eurozone equity tracker fund you'd probably add about 0.1% to that AMC and that 0.1% includes ongoing charges figures and portfolio tranasaction costs (if the latter apply). If they're not disclosed, all you have to do is ask. If you don't get them, walk away.

Gerard

www.prsa.ie
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The figures I posted were not the RIY figures, but the composition of costs ones. On the example I gave, even taking a worse case of 1.75% AMC, adding on the ETF charges of 0.3%, you are still seeing 0.15% in fund charges in this scenario. 2.2% - 1.75%(AMC) - 0.3%(ETF - in reality this just lowers yield so it being here feels, wrong but for arguments sake) = leaving the 0.15% of charges to the fund.
 
This article is yet another example of how low the journalistic standards have fallen at the Irish Independent. A sensationalist headline based on an unsubstantiated assumption in a poorly researched and badly written report. Complete and absolute cobblers.
 
Homer said:
This article is yet another example of how low the journalistic standards have fallen at the Irish Independent. A sensationalist headline based on an unsubstantiated assumption in a poorly researched and badly written report. Complete and absolute cobblers.
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What are they even trying to achieve I wonder - put people off sorting their own pensions altogether? A headline like that certainly would as it pretty much insinuates your hard-earned cash will be just gobbled up by the moneymen.
 
Aladdin said:
What are they even trying to achieve I wonder - put people off sorting their own pensions altogether? A headline like that certainly would as it pretty much insinuates your hard-earned cash will be just gobbled up by the moneymen.
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The Labour bill is [broken link removed]

Looks like they're just concerned with Occupational Pension Schemes (where AMCs are traditionally the lowest).


Gerard

www.prsa.ie
 
Aladdin said:
What are they even trying to achieve I wonder - put people off sorting their own pensions altogether? A headline like that certainly would as it pretty much insinuates your hard-earned cash will be just gobbled up by the moneymen.
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A careless journalist has no motivation other than to write articles which will be widely-read. Any of the journalists who wrote uncritical pieces about this report and its fictional 3% figures have achieved just that. It's an attention-grabbing headline.
 
@GSheehy thanks for your analysis, just out of curiosity and to make it simple, if I open a prsa with 1% annual management charge and I just have one fund in it for example Zurich eurozone equity fund, 100% allocation, what are the total charges for that prsa?
Thanks
 
GSheehy said:
Not only that, but the "average fees" of 2.18% referred to in the 2012 Report comes from "maximum commmission" RIY RAC or EPP contracts.

So, that 2.18% 'average' doesn't include RACs and EPPs with better pricing structures and totally excludes PRSAs and Occupational Pension Schemes as well.
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I only understand one of those acronyms :) Could you explain a bit for the slow learners?
 
GSheehy said:
The Labour bill is [broken link removed]

Looks like they're just concerned with Occupational Pension Schemes (where AMCs are traditionally the lowest).
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Pity. That draft Bill really misses the mark.

The Bill should simply oblige life assurance companies to publish a comprehensive ongoing charge figure (OCF) for all unit linked policies. UCITS funds are already required to publish this information.
 
Sarenco said:
Pity. That draft Bill really misses the mark.

The Bill should simply oblige life assurance companies to publish a comprehensive ongoing charge figure (OCF) for all unit linked policies. UCITS funds are already required to publish this information.
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Agree 100%. How difficult would it be to agree a common standard of expressing ALL charges that is comprehensive and reliable? And then oblige all providers of investments or pensions to publish using this standardised form? Joe Bloggs might not understand how all stakeholders get paid or the mathematics of the calculation but if the Total Charge figure on Product A is 2% per year and on Product B it's 1% per year, it makes real comparison easy.
 
joe sod said:
@GSheehy thanks for your analysis, just out of curiosity and to make it simple, if I open a prsa with 1% annual management charge and I just have one fund in it for example Zurich eurozone equity fund, 100% allocation, what are the total charges for that prsa?
Thanks
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Going back to my college days here where we had a finance / economics lecturer point out to us about the fact that management fees are low, but the funds your pension invests in may also have management fees themselves, which you have no sight of.

I looked up that Zurich fund you referenced - "The Eurozone Equity Fund is an actively managed fund which aims to achieve growth through capital gains and income from a well- diversified portfolio of eurozone equities and equity-based financial instrument" Might some of these "financial instruments" have their own charges / fees, that you don't have any awareness of as the end customer?
 
Where does the Total Expense Ratio fit into this?

My DC pension fund's TER is 0.19%. It's a passive global equity index tracking fund.
I'm starting to think it may be naive to think that's all I'm paying fee-wise.

If there are fees not included in the TER, where would one find them? Are the pension providers obliged to tell us?
 
I have got up to page 17 of this paper and and the first indication of where this 3% comes from:

1% to fund managers
1.25% for service provider - platform, trustee, custodian
1% - advisors

This is absolute nonesense.

On a self administered pension, you can get all of that for about 1.1%. A long way from 3.25%

Reading this anonymous paper, you read things that makes you think that someone in the industry wrote it but some of the things are so off the wall, that I can't believe what was written. What is more shocking is that it was published as fact.

Steven
www.bluewaterfp.ie
 
Steven Barrett said:
On a self administered pension, you can get all of that for about 1.1%. A long way from 3.25%
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To be fair I think they're talking about the average pension Joe Public have, no doubt cheaper is available but most people just take what is given when they move to a new job. Somebody sophisticated enough to be building a self administered pension is probably able to look after themselves on fees.

Steven Barrett said:
Reading this anonymous paper
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Not really sure what the outrage is about the person being anonymous, the report is either relevant or it isn't, knowing who it was written about won't change that.
 
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