# Is your pension fund a dog?



## Marc (11 Oct 2020)

I was reviewing a pension statement for a client recently and it occurred to me that there is no immediate way to see if any action needs to be taken with the fund choices.

All the client received was like a bank statement showing value at a point in time compared to the value previously like this



She had no real way of knowing if she should have received more return than she did, no real benchmark to make a comparison against.

So I've built a very short (and very unscientific) list of funds which have consistently under performed in recent years (typically over the last 5 years where data is available)









						Is your investment fund a dog? - Everlake
					

We are frequently asked to comment on a client's existing investments only to discover that they hold an absolute dogs-dinner of investment funds.The following is by no means a comprehensive study but simply a list of some of the more common offenders.Typically, highly concentrated and thematic...




					globalwealth.ie
				





If you have a fund on the list you might want to think about taking some action.

Its a good idea to reflect on the process that led you to hold a relatively poor performing fund in the first place. For example, was it based or some marketing claims by the fund manager that sounded good?

Having a process for selecting an investment portfolio can help you to avoid making further costly mistakes. Of course it doesn't assure a better outcome but if you have a good process then you should at least expect a better outcome.

Remember that there are really only a few "levers" that anyone can pull when it comes to retirement planning


Save more and spend less
Start saving as soon as possible
Retire later or sooner
Take more or less investment risk

That's it. Everything else is probably just marketing fluff. And of these, overwhelming the the first combined with the second have the biggest impact over time.


Some suggested considerations in no particular order

1) Obtain a list of alternative funds for your current contract. You need to know what your alternatives are. Generally passive, multi-asset portfolios should be available and preferred as a default option
2) What are the costs of switching to another fund? This is often a cheap option within the existing contract
3) Are you still subject to contractual early surrender penalties? Typically early surrender penalties will apply for the first 5 years. This needs to be factored into your decision process.
4) What are your objectives for this product? For example is this an AVC to a Defined Benefit Scheme or is this your only source of retirement funds? That will have a bearing on how much risk you can afford to take. See our DB estimation micro-site to estimate the "commercial" value of an existing Defined Benefit scheme.
5) Your financial circumstances, are you saving into (pre-retirement) or drawing down (ARF or vested PRSA) from the product?
If you are still saving what is your term to anticipated retirement, how much and how frequently are you making contributions. What is your capacity to bear investment risk (other assets,income, age etc)
If you are retired are you in good health? For example a male aged 67 in excellent health should plan for the income to last at least 25 years. Are you being excessively conservative?


6) Your attitude to and understanding of investment risk should be a factor but this is much less significant than having a good asset allocation over the right time horizon especially when working with a good adviser to help you to cope with the inevitable emotional roller coaster of investing.
7) Are you confident your existing contract meets your needs?
8) Should you consider obtaining a second opinion?

www.globalwealth.ie


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## Suitability (12 Oct 2020)

Interesting thought provoking comment.  In lockdown mk2 maybe forget the sourdough recipe and go through the process outlined above, not rocket science and a good discipline to do, surprisingly maybe it can actually be INTERESTING.


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## joe sod (12 Oct 2020)

But it also could be the case that the underperforming funds may have a low component of us tech stocks and vica versa with the outperforming funds they have a high proportion of us technology. You could be switching out of the underperforming funds at the wrong time if for example us tech hit a road block with increased taxes and regulation and the US dollar also depreciates , both have increased substantially in value since the financial crash. Therefore in my opinion be wary of funds with a very high proportion of us tech.


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## Slippers (13 Oct 2020)

@Marc 

I am sure there are several metrics that should be reviewed but out of curiosity - 

What is the minimum annualised performance percentage needed from a fund so it is not to be seen as a dog?


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## GSheehy (14 Oct 2020)

I'm a tad confused here.

Is it correct to say that no one was invested in the PortfolioMetrix portfolios used to savage/compare the other funds? 

The disclosure states that : "_Back-tested performance is hypothetical (it does not reflect trading in actual accounts)....."_

Were the 'benchmarks' created with hindsight?

I just can't see how, for example, the 5*5 Europe is on the list when you compare it to the MSCI Europe or average Eurozone Equity fund.


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## Sarenco (14 Oct 2020)

GSheehy said:


> I just can't see how, for example, the 5*5 Europe is on the list when you compare it to the MSCI Europe or average Eurozone Equity fund.


That's a fair point.

5*5 Europe appears to have actually outperformed the Indexed Eurozone Fund offered by Zurich over the last 5 years.





						Fund Performance Calculator | Zurich Life
					

Discover Zurich funds performances using the fund performance calculator by selecting a fund category, a performance type, and a date range. Learn more.




					www.zurich.ie
				



So how is 5*5 Europe a "dog" of a fund based on that rather arbitrary criteria?


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## ArthurMcB (14 Oct 2020)

Looks more like a cow


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## Marc (8 Aug 2021)

Updated with data through to end of June

One finding was that over the 15 years ending June 2021 a typical property fund underperformed the market by a staggering 10%pa














						Is your investment fund a dog? - Everlake
					

We are frequently asked to comment on a client's existing investments only to discover that they hold an absolute dogs-dinner of investment funds.The following is by no means a comprehensive study but simply a list of some of the more common offenders.Typically, highly concentrated and thematic...




					globalwealth.ie


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## bankrupt (4 Sep 2021)

Hello, I thought this thread might be appropriate to ask how I can transfer my pension to a passive index tracker in Ireland?  I have some small pension money tied up in an Irish pension that seems to perform incredibly badly vs a simple passive index strategy (currently Irish Life Empower bond).  Ideally I would like to find a low-cost index tracking pension option - is that possible with a PRSA?  I am based outside Ireland so I am unlikely to contribute anything further to the Irish pension in the short term, my current ongoing investments are simple low-cost ETF index trackers through a broker account, ideally I would like something comparable for the pension fund but it seems to be very hard to escape the high-cost active funds which have pretty poor performance.


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## Dave Vanian (5 Sep 2021)

bankrupt said:


> Hello, I thought this thread might be appropriate to ask how I can transfer my pension to a passive index tracker in Ireland?  I have some small pension money tied up in an Irish pension that seems to perform incredibly badly vs a simple passive index strategy (currently Irish Life Empower bond).  Ideally I would like to find a low-cost index tracking pension option - is that possible with a PRSA?  I am based outside Ireland so I am unlikely to contribute anything further to the Irish pension in the short term, my current ongoing investments are simple low-cost ETF index trackers through a broker account, ideally I would like something comparable for the pension fund but it seems to be very hard to escape the high-cost active funds which have pretty poor performance.



Is your current fund in a Buy-Out Bond , a.k.a. Personal Retirement Bond?  If so, it is possible to transfer to another Buy-Out Bond investing in index-tracking funds, for an annual charge of around 0.5%.  That said, you may have difficulty doing this as you are outside Ireland, due to regulatory issues.  My suggestion would be to contact one of the brokers that post here regularly.


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## bankrupt (5 Sep 2021)

Dave Vanian said:


> Is your current fund in a Buy-Out Bond , a.k.a. Personal Retirement Bond?  If so, it is possible to transfer to another Buy-Out Bond investing in index-tracking funds, for an annual charge of around 0.5%.  That said, you may have difficulty doing this as you are outside Ireland, due to regulatory issues.  My suggestion would be to contact one of the brokers that post here regularly.


Hi Dave, yes it seems it is a  PRB/Buy-Out Bond.  I fear that between fees and commissions paid (and underperforming the market most likely) this will be an absolutely woeful investment vehicle, there is a surrender charge also for any changes within the first 5 years.  I'll try to get to the bottom of exactly what the Ts&Cs but it seems the annual management charge is at least %0.75 and as much as %1.5.  As I won't touch it for at least another 15 years these exorbitant fees will really dent the final value (more fool me for not properly understanding this at the time these old pensions were moved to this PRB).

I would be happy just to put the whole amount into the equivalent of a couple of ETFs (e.g. an all-world tracker like VWRL along with some % allocation to a government bond ETF) and just forget about it for the next decade.  Is there some way to do something like that in Ireland without being screwed by management fees?  Any equivalent of a UK SIPP/ISA ?

[Or failing that option, are there any recommendations for compliant low-cost passive index tracking options in Ireland?].


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## Marc (5 Sep 2021)

It’s actually worse than you think.

When you come to retire as a non-resident with an insurance company you will be offered an annuity. The ARF option is generally not being offered to non-residents.

if you had stayed in the occupational scheme we could have got you out by way of an Iorps transfer to another EU pension but you really are backed into a corner here.

where are you living now? It might be possible to transfer to your new employer’s pension rather than leave it in Ireland.


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## bankrupt (5 Sep 2021)

Hi Marc, it's possible (fairly likely) that I will be resident again by the time I come to retire so I would just like to set this up now in a way that maximises the potential return - it's not a huge amount (< EUR100k) but as you know a fraction of a % here and there over 15 years can make a big difference.  I'm in the Middle East without any tax to worry about so no formal pension scheme at the moment to transfer it to.


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## Marc (5 Sep 2021)

Then you should probably sit it out until the contractual commission payment penalty reclaim fees have fallen off and then shift it.

In the meantime you should be able to switch to a more favourable fund within the existing contract. There is usually at least one fund that isn’t too hideous.


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## bankrupt (5 Sep 2021)

Thanks Marc, yes this seems like the likely best course of action, I'll do a bit more research (the words "gate" "horse" and "bolted" come to mind for some reason but I guess better late than never  )

Can this bond theoretically be transferred into any pension compliant scheme?  Any suggestions for low cost passive options on the market to look at?  Is Vanguard going to offer an Irish pension compliant scheme for example?


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## Marc (5 Sep 2021)

Not any scheme, no but it’s not complicated.The tricky bit will be getting out of the current contract but we do this all the time. As you say, it’s like the old joke about how to get to Limerick, you wouldn’t want to start from here.

you also need to be extremely careful of your money while you are in the Middle East. Its the Wild West.

we are currently unwinding some contracts a client has been sold while he was out there and they are an absolute shambles.

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie


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## bankrupt (5 Sep 2021)

Marc said:


> Not any scheme, no but it’s not complicated.The tricky but will be getting out of the current contract but we do this all the time. As you say, it’s like the old joke about how to get to Limerick, you wouldn’t want to start from here.


Thanks a lot Marc, I'll do some more digging and report back here what I find.  I hesitate to say that the Irish pension broker that advised me about this scammed me as it's really my own fault for not paying proper attention but let's just say that they could definitely have advised me much better.  To some extent I wonder why these terrible retirement products are even allowed to be sold to an unsuspecting public, I guess we could all do with better financial education to help us avoid them.



Marc said:


> you also need to be extremely careful of your money while you are in the Middle East. Its the Wild West.
> 
> we are currently unwinding some contracts a client has been sold while he was out there and they are an absolute shambles.


Oh yes that is %100 true and very good advice, I wasted some time listening to some of these snake-oil salesmen years ago and luckily did do some proper research at that time.  I have heard horror stories about people buying entirely worthless products here.


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