# Blow for pension savers as bank imposes charges on holding cash



## azerogo (31 Jul 2020)

Crazy decision to punish people looking to put their pension in the safe haven of cash during this uncertain time









						Pensions Ireland: Blow for pension savers as bank imposes charges on holding cash
					

Bank of Ireland is to impose negative interest rates on cash held in pensions, in a move that will hit people saving for their retirement hard.




					www.independent.ie


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## Brendan Burgess (31 Jul 2020)

What?  If BoI has to pay to put its surplus money somewhere, of course, they should pass on the cost.

If they don't like the rates on offer or being charged by one bank, go to another. 

Complain to the ECB who have created negative savings rates. 



Brendan


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## Bronte (31 Jul 2020)

Here's the article not behind a paywall. 









						BoI set to charge negative interest on pension cash
					

Bank of Ireland is to impose negative interest rates on cash held in pensions, in a move that will hit hard people saving for their retirement.




					www.herald.ie
				




I see our own Liam Ferguson was interviewed on it.


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## Thirsty (31 Jul 2020)

I'm not following the pensions / cash charge here.

Are they saying that anyone on a pension who has cash savings will be charged?

Are they saying that working people who are contributing to a pension fund will be charged?

Can someone set it out in a 'Pensions for Dummies' fashion?


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## Purple (31 Jul 2020)

Thirsty said:


> I'm not following the pensions / cash charge here.
> 
> Are they saying that anyone on a pension who has cash savings will be charged?
> 
> ...


It's a charge for the cash deposits element of pension funds.


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## EmmDee (31 Jul 2020)

Thirsty said:


> I'm not following the pensions / cash charge here.
> 
> Are they saying that anyone on a pension who has cash savings will be charged?
> 
> ...



It is negative interest to be charged on cash deposits held by pension funds at BoI. It is the same thing that is happening for large corporate cash or cash held by a lot of other fund structures.

It's not really that new or even unusual for funds.

It's not a charge on individuals. It's not a charge on the cash you receive from a pension.


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## Saavy99 (31 Jul 2020)

Quite a high interest rate they charging too, if you have few hundred thousand in cash deposits within a pension fund, it adds up to a tidy sum.


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## Sarenco (31 Jul 2020)

Saavy99 said:


> Quite a high interest rate they charging too, if you have few hundred thousand in cash deposits within a pension fund, it adds up to a tidy sum.


Not really - it's roughly the same as the 30-day (negative) yield on Euro money market funds.


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## Saavy99 (31 Jul 2020)

There's no bank offering .65% interest rates on ordinary bank deposits in Ireland maybe State savings, so bit of cheek they are well able to load negative interest on the cash reserves in the pension funds.


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## Sarenco (31 Jul 2020)

Saavy99 said:


> There's no bank offering .65% interest rates on ordinary bank deposits in Ireland maybe State savings, so bit of cheek they are well able to load negative interest on the cash reserves in the pension funds.


Why?

Deposits cost the bank money.  Why should large corporate deposits (including pension trustees) get a free lunch?


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## Saavy99 (31 Jul 2020)

Very true, they will just have to look elsewhere to stash their cash.


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## LDFerguson (31 Jul 2020)

G123 said:


> Cash funds in "ordinary" pensions have been giving negative returns for some years now. My understanding is that this only applies to "self-administered" pension funds deposited in BOI - which very few people can avail of.



Yes the article is about self-administered pension funds with cash in Bank of Ireland.  I would disagree with your claim that very few people can avail of self-administered funds.  

Lots of people can avail of self-administered pension plans - personal pensions and PRSAs for the self-employed and anyone in non-pensionable employment, occupational pension schemes for employees and directors (provided that the employer is willing to facilitate), buy-out-bonds for funds from previous employments, AMRFs and ARFs for those post-retirement - all can be set up as self-administered arrangements.  ITC is just one provider and they have over 4,000.


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## LDFerguson (31 Jul 2020)

Sarenco said:


> Absolutely.  So why is Charlie Weston saying this is a first?



Pooled Cash Funds from pension providers have been in negative territory for some years.  Large corporate deposits have also been charging negative interest before now.  But this will apply to individual accounts within self-administered pension schemes.  If the Joe Bloggs self-administered pension fund's operating bank account is with Bank of Ireland, it might only hold a small amount of cash.  Now that's going to incur negative interest charges.  That's a first.  It's one step closer to retail bank account holders being charged.


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## Sarenco (31 Jul 2020)

Bank of Ireland statement:-

“European Central Bank interest rates have been negative since 2014,” the bank said in a statement.

“Since then banks have been subject to negative interest rates for holding funds overnight and market indications are that rates will remain low for some time.

“As a result we have applied negative rates on deposits for large institutional and corporate customers since 2016.

“We recently wrote to 14 investment and pension trustee firms to inform them about a rate change to their accounts, which is reflective of the negative interest rate environment.”

Bank of Ireland said average amount held on deposit by these firms is in excess of €100 million.

“Therefore it is no longer sustainable for the bank to continue with the current rate of interest,” it said.

“We provided three months’ advance notification of this rate change to our investment and pension trustee firm customers.”









						Pensions to be hit as Bank of Ireland charges negative interest on cash
					

Bank has written to 14 investment and pension trustee firms to inform them




					www.irishtimes.com


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## LDFerguson (31 Jul 2020)

Sarenco said:


> ITC (the pension trustee referenced in the article) would have cash on deposit that is substantially in excess of €2.5m.
> 
> The trustee/pension provider is charged negative interest and that impacts their underlying customers.



With self-administered arrangements, each arrangement has its own bank account.  So the John Sarenco self-administered pension arrangement has its own bank account.  In many cases the amount held in the bank account can be quite small.


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## Sarenco (31 Jul 2020)

LDFerguson said:


> But this will apply to individual accounts within self-administered pension schemes. If the Joe Bloggs self-administered pension fund's operating bank account is with Bank of Ireland, it might only hold a small amount of cash


Not according to the statement -

A spokesman for the bank later said it was not targeting individual pension-holders and pointed out that it will be up to the companies to decide whether to pass the charge on to consumers or absorb it themselves.

“Our customers are the large trustee funds,” he said. “It’s up to the trustee and investment firms to decide if they absorb that or pass it on to consumers. They have fees and charges that they charge anyway.


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## LDFerguson (31 Jul 2020)

Sarenco said:


> Not according to the statement -
> 
> A spokesman for the bank later said it was not targeting individual pension-holders and pointed out that it will be up to the companies to decide whether to pass the charge on to consumers or absorb it themselves.
> 
> “Our customers are the large trustee funds,” he said. “It’s up to the trustee and investment firms to decide if they absorb that or pass it on to consumers. They have fees and charges that they charge anyway.



Each self-administered arrangement has its own bank account.  Because the accounts will all have ITC (or one of the other trustee companies) as trustee, it's a neat defence for the bank to refer to them as "large trustee funds".  Collectively they would have large amounts on deposit.  But this is still being applied to individual accounts, which are often modest amounts of a pension fund of an individual.  The whole idea of a self-administered arrangement is that it's run differently to a pooled fund from one of the insurance companies.


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## Sarenco (31 Jul 2020)

LDFerguson said:


> Each self-administered arrangement has its own bank account.


Or to put it another way - the pension trustee will set up a separate account for each scheme.  

But this is simply a matter of administrative convenience.  The pension trustee - not the underlying beneficiary - is still the depositor in each case.  

It would be very odd if banks charged life companies negative rates but didn't similarly charge pension trustees.

I still think the original article is completely misleading.  

The application of negative rates to institutional deposits of this nature is not a "first" in any meaningful sense.


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## LDFerguson (31 Jul 2020)

Sarenco said:


> Or to put it another way - the pension trustee will set up a separate account for each scheme.
> 
> But this is simply a matter of administrative convenience.  The pension trustee - not the underlying beneficiary - is still the depositor in each case.



If the Joe Bloggs Self-Administered Pension Scheme bank account has €10,000 on deposit with Bank of Ireland, it was most likely put there from Joe's earnings and Joe is the only beneficiary.  So while what you say is technically correct, I don't think Joe would be terribly happy about the fact that his SSAS bank account is being categorised as an "institutional investor".  For all practical intents and purposes, that's Joe's bank account.


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## Brendan Burgess (31 Jul 2020)

Guys

I have deleted some of the off topic and factually wrong posts as they are taking from the serious underlying issue.

Liam - can you clarify this please:

If a person has €50,000 cash in their Self Administered Pension Fund account with Bank of Ireland , will it reduce by 0.65% a year?

If so, they might want to consider switching their account to another bank.

Brendan


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## Brendan Burgess (31 Jul 2020)

Sarenco said:


> I still think the original article is completely misleading.



Sarenco 

I can't access the original article. Can you quote the bit which is misleading? 

Brendan


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## LDFerguson (31 Jul 2020)

Brendan Burgess said:


> If a person has €50,000 cash in their Self Administered Pension Fund account with Bank of Ireland , will it reduce by 0.65% a year?



Yes.  

If other banks follow Bank of Ireland on this, the person may find it difficult to find any bank that won't charge them for holding their money.


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## Saavy99 (31 Jul 2020)

LDFerguson said:


> Yes.
> 
> If other banks follow Bank of Ireland on this, the person may find it difficult to find any bank that won't charge them for holding their money.



Thank you for clarifying


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## Sarenco (31 Jul 2020)

Brendan Burgess said:


> I can't access the original article. Can you quote the bit which is misleading?


The opening lines of the article are as follows:

"Bank of Ireland is to impose negative interest rates on cash held in pensions, in a move that will hit hard people saving for their retirement.

It is the first time negative rates will have been charged to consumers."

BoI have not announced that they are going to start charging negative rates to consumers - they will start charging negative rates to pension trustees.

BoI have applied negative rates on deposits for large institutional and corporate customers (including life companies and investment funds) since 2016 so this is not a "first" in any meaningful sense.


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## Brendan Burgess (31 Jul 2020)

Sarenco

Liam has explained exactly what is happening. 

People with Small Self Administered Pension Funds will be charged 0.65% on their deposits. 

This is the first time that this has happened, as far as I am aware.

Your legalistic "The charge is on the trustees" position ignores the impact on the owners of the Small Self Administered Pension Funds. 

I agree fully with you that the Bank is right to impose this charge. The surprise is that they have not done it before now.

Brendan


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## Sarenco (31 Jul 2020)

Brendan Burgess said:


> Your legalistic "The charge is on the trustees" position ignores the impact on the owners of the Small Self Administered Pension Funds.


Well, my pension provider is a life company.  If the bank charges a life company negative interest rates (which they do) that directly impacts my pension fund.

So I don't think I'm being legalistic.  

Negative interest rates have been a reality for pension savers for quite some time.  

All BoI are doing is bringing trustees of self-administered pension schemes in line with other institutional investors (including trustees of occupational pension schemes, life companies and other PRSA providers).

The article suggests that this is the first time that pension savers have been charged negative interest rates.  That is simply untrue.


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## Brendan Burgess (31 Jul 2020)

Hi Sarenco

Do you agree with the following:

People with small self-administered pension funds are going to be charged interest on their bank deposits with Bank of Ireland for the first time. 

Brendan


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## Sarenco (31 Jul 2020)

Brendan Burgess said:


> Do you agree with the following:
> 
> People with small self-administered pension funds are going to be charged interest on their bank deposits with Bank of Ireland for the first time.


I agree that people with self-administered pension funds are going to be impacted by negative interest deposit rates for the first time.

But the article states that "it is the first time negative rates will have been charged to consumers".

That is technically incorrect.  

But more importantly it is not the first time that retirement savers will be (indirectly) impacted by negative deposit rates.


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## Brendan Burgess (31 Jul 2020)

Sarenco said:


> I agree that people with self-administered pension funds are going to be impacted by negative interest deposit rates for the first time.



Thank you.

And to those impacted people that certainly is news.  News that they need to know so that they can manage affairs accordingly.

If they had put in the word  directly "it is the first time negative rates will have been charged *directly* to consumers".  would it be technically and practically correct? 

Agreed that retirement savers are being hit hard by negative deposit rates without knowing it.

Brendan


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## Gordon Gekko (1 Aug 2020)

There are other options...not all banks provide trustee bank accounts, but PTSB do and they’re not charging negative rates. Or alternatively clients just send all of the money to their investment manager and, for discretionary accounts at least, there’s no charge for cash.


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## Brendan Burgess (1 Aug 2020)

The Irish Times covers it today in an opinion piece 









						Pension savers pay the price for banks being uncompetitive
					

Cantillon: Bank of Ireland to levy a charge on cash reserves deposited by pension funds




					www.irishtimes.com
				




_ First, the obvious: Bank of Ireland has decided to levy a 0.65 per cent charge: the ECB deposit facility rate is currently 0.5 per cent. So the bank is not simply recouping its costs, it is making a profit of 15 basis points by doing nothing. _

It doesn't strike me as unreasonable that the bank is charging a margin for this? 

Brendan


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## Gordon Gekko (1 Aug 2020)

They’re entitled to make a profit. And this is rubbish business which BOI don’t really want. It’s not as if they’re getting a slice of the investment business through New Ireland either. They’re dealing with bitty little stuff like taking in monthly payments, sending payments out, and simply holding cash. And for hundreds or even thousands of accounts through the likes of ITC.


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## RedOnion (1 Aug 2020)

Irish times said:
			
		

> "So the bank is not simply recouping its costs, it is making a profit of 15 basis points by doing nothing."


So the cost of placing money with ECB is their only cost? No capital required, no overheads?


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## Gordon Gekko (1 Aug 2020)

elacsaplau said:


> "Having money in cash is never good for [broken link removed]"
> 
> Gimme a break...........like everyone was delighted to have money in equities when covid landed?



elacsaplau,

The answer to success with one’s pension is to pick an approach that works from a volatility and behavioural perspectiveand to then stick to it religiously.

The volatility point just revolves around the amount one can tolerate it going down during times of weakness and market stress.

You have to tune out things like Covid. I adopt a 100% equity approach so I know that it WILL fall in value by big percentages over the decades. But it will recover and I’m okay with that.

But here’s the thing; I don’t know what it’s worth today. Do you know why? Because I haven’t looked at it this year. Best guess, I last checked it in or around March or April 2019.

On our (hopefully) 70 year pension fund journey, Covid, whilst sad on a human level, is not relevant.


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## roker (1 Aug 2020)

As a pensioner does this include my savings in BOI ? Is this I considered a pension fund,


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## RedOnion (1 Aug 2020)

roker said:


> As a pensioner does this include my savings in BOI ?


No. It's got nothing to do with money that you personally hold with the Bank.


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## Saavy99 (2 Aug 2020)

For how long though.....


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## Jim2007 (2 Aug 2020)

LDFerguson said:


> Yes.
> 
> If other banks follow Bank of Ireland on this, the person may find it difficult to find any bank that won't charge them for holding their money.



I guess we will have to wait and see.  Here in Switzerland they have walked up to the line, but not crossed it - personal accounts (deposit and current) are not subject to negative interest yet.  All other types of account are subject to negative interest - companies, government, pension funds etc...

The bad news is that they have instead started to terminate unprofitable relationships, so if all you do is keep money on deposit and they make no other fees from you... your 'invited' to leave!


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