# PRSA Performance



## Slim (6 Aug 2014)

PRSA statement came in today. After 8 years of annual contributions totalling €72,500, no commission and 1% annual management charge, the value is now just over €68.5k. I read regularly of the great performance of equity markets over the past 8 years or so. How come the PRSA has lost value? It is with Zurich and is invested in its Secure Pension & Investment Fund. Any views?


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## Squonk (6 Aug 2014)

Is this the fund: https://www.zurichlife.ie/static/documents/SI_SEC_FF/Secure_Fund_Factsheet.PDF?docTag=
Looks like 2.5% growth over 8 years minus the 1% annual charge per year equal -5.5%. 
which, very roughly, is not far from €69k.


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## dub_nerd (6 Aug 2014)

Well, there was the big dip in the market in 2008/09. But they rebounded back from that to better than before. For me -- and some of the financial people on here will jump down my neck for saying it -- the problem is it's a pension. They are still ridiculously opaque and a law unto themselves.  Mine made nothing beyond the contributions for *1*8 years! I stopped paying it a couple of years ago and am saving for retirement instead. I've given up caring about the tax relief -- I'd much prefer money in the hand to trusting the world of finance.


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## North Star (6 Aug 2014)

It really doesn't matter if its a pension an ARF or an Investment Bond product, its the performance after costs/charges which matter. This Secure fund isnt making enough to cover its annual 1% charge in a PRSA and on top of that it was hit by the Govt pension levy over the last number of years, which as we can all agree was/is grossly unfair. 

There seems to be a common mistake to just focus on the cost structure on pensions/investments and then ignore the fund choice/investment strategy. We think there is an 80/20 rule of thumb i.e.  cost structure will determine 20% of the final outcome but its investment performance aspect which delivers the 80%. There can be a tendency for individuals and advisers to ignore the investment performance based on either fear of the unknown or a benign belief that markets will go up in the long run. For an important and valuable personal asset such as this we all need to take personal responsibility for it and review performance regularly,  as advisors we have a responsibility to help individuals  make informed decisions as to the investment strategy that suits their risk return profile best. Where there is no risk then there is little prospect if any, of a reasonable return. This should have been explained to you when you selected this fund. Good advisers dont have a magic wand but they can dramatically improve the probability of you receiving a reasonable return experience within your given risk profile. I am sorry about your experience as it is no doubt very disheartening.


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## Marc (6 Aug 2014)

Investment Risk and expected returns are related 

This is a secure fund so it has no upside potential whatsoever. The return is linked to "real cash rates" rather than Irish Bank rates so you need to look up Libor in Euros as your reference rather than compare with Bank of Ireland or PTSB deposits. Secure return equals low return. Low interest rates equals low return. Less costs equals negative returns.

With all respect to Dub nerd it isn't the pension that is to blame here it's poor asset allocation decisions which have possibly been exacerbated by no advice.

The choices about where you invest account for more than 90% of your total investment returns. So making poor investment decisions will always cost you the most in the long run.

Cash, secure, or guaranteed investments might seem like a sensible choice but over time they rarely prove to be the best choices.

Your Reference to stockmarkets is also irrelevant. You have no exposure to equity or property or bonds all of which have done well in recent years and would have given you a positive return especially as you are paying in annually.

The most significant thing you can do right now is get some objective advice about the best asset allocation for you based on your need, willingness and capacity for investment risk.

Hope that helps


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## invest101 (6 Aug 2014)

Equity markets have performed very well over the last few years after a very bad period around 2008.

For you though that is not the real issue because if the above is the fund then you are not invested in equities!

"Fund invests in deposits, money market instruments and short-dated fixed income government securities"

The question for your adviser is how you lost money in a fund of risk rating 1 (in the scale of 1 to 5) and where "Unit prices in the Secure Fund are guaranteed never to fall". (The answer is because of fees and commissions)...  and then how this fund could possibly have a risk rating of 1 in these circumstances when it's pretty much guaranteed to loose money in the current environment and for as long as you leave the cash there. I guess its a bit like the European central bank with negative rates - charging people  to keep money safe.

The fund is probably invested in things like 2 year government bonds currently at 0.02% p.a. or 5 year German bonds at 0.31% p.a.

You should probably look to get some advice and possibly switch funds.


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## Slim (6 Aug 2014)

Thank you all for your comments. From what you seem to be saying, this pension 'fund' is really based on cash/bond rates, i.e. Close to ECB rates so very little return? We have let the provider set the default strategy since opening this. In all honesty, I was hoping to get my money back at retirement, having benefitted from the tax relief in the meantime. Time for a chat with the pension adviser, methinks.

On a related issue, as it seems we will be higher rate taxpayers on retirement, due to our occupational schemes, is there any point continuing to contribute to this fund?

Thanks,


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## Squonk (6 Aug 2014)

My understanding is that the default strategy offered by pension providers is dependant on your age. If you are aged very close to retirement than that might explain why your money was put into cash, and not equities?


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## Marc (7 Aug 2014)

It sounds like you have a PRSA AVC or additional voluntary contribution on top of membership of an occupational scheme?

All the more reason to go and get some objective planning advice from a suitably qualified Professional independently of the scheme pension adviser.

You need somone who is going to consider this decision holistically.

You need to consider if you are already in excess of your maximum tax free cash entitlement
You need to consider your health and likely life expectancy
You need to consider your overall net worth, future income, future expenditure requirements etc
You need to consider your preferences for Estate Planning and Charitable giving 
You need to weigh the net of tax investment alternatives and the tax treatment of those
These are just some of the considerations that might go into the decision process


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## Sunny (7 Aug 2014)

Out of curiosity, what is the management charge on that fund? Is it 1%? If so, that is why the pension industry has a bad name with certain people. I could put a monkey in charge of that fund and still make a 0.1% return.


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## Steven Barrett (7 Aug 2014)

Sunny, the 1% management charge isn't for running the cash fund. Those charges are deducted as well and are reflected in the unit price of the fund. Insurance companies do not disclose these charges but they are typically 0.4% - 0.8%. 

The 1% AMC is the cost of light & heat, staff wages etc and profit. 

Back to the OP, it is a clear case of someone investing in cash at a time when deposit returns are at a historic low. You would question why someone would advise an 8 year cash investment strategy. 

Steven
www.bluewaterfp.ie


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## Sunny (7 Aug 2014)

SBarrett said:


> Sunny, the 1% management charge isn't for running the cash fund. Those charges are deducted as well and are reflected in the unit price of the fund. Insurance companies do not disclose these charges but they are typically 0.4% - 0.8%.
> 
> The 1% AMC is the cost of light & heat, staff wages etc and profit.
> 
> ...


 
The 1% does include the cost of running the fund in that it includes the cost (wages) of the fund manager himself. The cost of managing a cash fund like this should be a lot less than managing an equity or bond fund. There is also less administrative and research work involved for both front and back office. The annual management charge on a fund like this should be no more than 0.5%.  

The only charges that ae usually not disclosed and are included in the unit price of the fund are things like custodian fees, trading costs, audit fees etc which in a money market fund should be minimal.


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## Slim (7 Aug 2014)

Thanks all for the replies. Yes, 1% annual management charge. When we took out the PRSA, it was to cover a 5 year gap in my wife's service. The pension advisers did a calculation and reckoned she could go with a PRSA and still fall under the 1.5 times salary maximum. My own calculations are that in 2020, with me retiring on full pension and Mrs. Slim retiring 3 years short of full service, our total pension would be €37k(me) + €20k(her). Am I correct in thinking that we will be taxed at 20% as we will be under €65,800? That would make a difference in my calculations.

I accept we need to meet the adviser. Thanks Again.


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