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



## Brendan Burgess (20 Apr 2021)

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
				




_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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## Steven Barrett (20 Apr 2021)

Read that yesterday. I would like to see the report which they don't provide a link to. 

And what is the most expensive pension? The PRSA. The pension introduced by government and written in legislation.


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## MugsGame (20 Apr 2021)

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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## Marc (20 Apr 2021)

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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## Steven Barrett (20 Apr 2021)

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?


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


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## Sarenco (20 Apr 2021)

Steven Barrett said:


> I would like to see the report which they don't provide a link to.


[broken link removed]


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## GSheehy (20 Apr 2021)

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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## NoRegretsCoyote (20 Apr 2021)

Sarenco said:


> [broken link removed]



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.



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


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?


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## DazedInPontoon (20 Apr 2021)

pension /ˈpɛnʃ(ə)n/ _noun: _A scheme by which tax breaks are over time transferred to financial firms via opaque fees.


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## DK123 (20 Apr 2021)

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.!!


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## Marco 1972 (20 Apr 2021)

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


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## ryaner (20 Apr 2021)

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.
> 
> ...


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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## MugsGame (20 Apr 2021)

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



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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## Shirazman (20 Apr 2021)

Sarenco said:


> [broken link removed]



There's nothing at the end of that link for me!  Has it been removed?


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## Sarenco (20 Apr 2021)

Shirazman said:


> There's nothing at the end of that link for me!  Has it been removed?


Still working for me.


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## GSheehy (20 Apr 2021)

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 ...



0.66% to 0.67%

Gerard

www.prsa.ie


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## Shirazman (20 Apr 2021)

Sarenco said:


> Still working for me.



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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## GSheehy (20 Apr 2021)

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.



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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## NoRegretsCoyote (20 Apr 2021)

It's been taken down from the Labour website

There is an archived version here.


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## ryaner (20 Apr 2021)

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%.
> 
> ...


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.


			https://www.zurichlife.ie/static/documents/DOC_14781/Key_Information_Document.PDF
		

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


			https://www.zurichlife.ie/static/documents/DOC_14784/Fund_Specific_Information_Booklet.PDF?_ga=2.163289468.113165170.1564576642-2015842416.1551885777
		

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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## Zenith63 (20 Apr 2021)

GSheehy said:


> It assumes that the "typical" annual charge is circa 3% without having any evidence to back it up, at all.


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.


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## GSheehy (20 Apr 2021)

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.
> 
> 
> https://www.zurichlife.ie/static/documents/DOC_14781/Key_Information_Document.PDF
> ...



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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## NoRegretsCoyote (20 Apr 2021)

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.



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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## Dave Vanian (20 Apr 2021)

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.
> 
> 
> https://www.zurichlife.ie/static/documents/DOC_14781/Key_Information_Document.PDF
> ...



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.


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## GSheehy (20 Apr 2021)

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.



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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## ryaner (20 Apr 2021)

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.
> 
> ...


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.


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## Homer (20 Apr 2021)

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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## Aladdin (20 Apr 2021)

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.


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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## GSheehy (20 Apr 2021)

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.



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


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## Dave Vanian (20 Apr 2021)

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.



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.


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## MugsGame (20 Apr 2021)

GSheehy said:


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


And where the compliance costs of increased regulation might actually drive up costs?


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## joe sod (20 Apr 2021)

@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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## NoRegretsCoyote (20 Apr 2021)

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.



I only understand one of those acronyms   Could you explain a bit for the slow learners?


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## GSheehy (20 Apr 2021)

NoRegretsCoyote said:


> I only understand one of those acronyms   Could you explain a bit for the slow learners?



Reduction In Yield
Retirement Annuity Contract (Personal Pension)
Executive Pension Plan


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## Sarenco (20 Apr 2021)

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).


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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## Dave Vanian (20 Apr 2021)

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.



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.


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## Alkers86 (20 Apr 2021)

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


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?


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## Green_Thirteen (20 Apr 2021)

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?


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## Steven Barrett (20 Apr 2021)

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


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## Zenith63 (20 Apr 2021)

Steven Barrett said:


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


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


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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## Sarenco (20 Apr 2021)

Green_Thirteen said:


> My DC pension fund's TER is 0.19%.


Are you sure that's not the annual management charge (AMC)?

It's unusual for pension providers to disclosure a fund's TER or OCF (pretty much the same thing as the TER).

The OCF includes the AMC, registration fees, custody safekeeping and transaction fees, audit fees and regulatory fees.

Here's further details on the methodology for calculating the OCF of UCITS funds -


			https://www.esma.europa.eu/sites/default/files/library/2015/11/09_1028_final_kid_ongoing_charges_methodology_for_publication_u_2_.pdf


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## Steven Barrett (20 Apr 2021)

Zenith63 said:


> 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.
> 
> 
> 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.



the structure they seem to be referencing is a self administered pension, talking about the cost of a trustee and custodian. for most insured schemes, the employer is the trustee, so the cost is zero. 

There is no way that Joe Public is paying 3% in charges for their pension. There is no source to where they got this information. 

It is wholly relevant who wrote the paper. It has got a lot of attention with articles written about it in national newspapers and on the RTE website. The headline charges of 3% is not sourced. There is reference to a 9 year old Pensions Authority paper alright but the industry has changed a lot over that time and a 9 year old report would be obsolete at this stage. Is this someone with experience in the industry? Or are they someone just making it up. Who they are adds to the creditability of the report.


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## Dave Vanian (20 Apr 2021)

Zenith63 said:


> 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.



A self-administered pension is often dearer than an insured scheme.  The figures Steven quoted are for self-administered.  The actual figures - breakdown of costs - are lower for an insured scheme.  If the scheme is large and has many members, the true figures are lower again.



Zenith63 said:


> 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.



True.  I suppose the outrage should be directed more at those who would publish or quote from this report as if it were fact, when the figures it uses to make its points are wildly exaggerated and simply fictitious.


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## Gordon Gekko (20 Apr 2021)

This reads like nonsense to me (the original piece). It’s a cousin of what’s been happening elsewhere on AAM. People taking the “worst case” disclosures produced by life companies and applying those universally.

I’ve some pension money in a life company equity fund. The AMC is 0.45%. Do I think that’s all I’m paying? Of course not. But I’m not paying much more than that.


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## Green_Thirteen (20 Apr 2021)

Sarenco said:


> Are you sure that's not the annual management charge (AMC)?


The AMC is defined as 0.17%.

Would 0.02% be considered a normal increase for a TER or OCF? 

Appreciate the link.


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## Sarenco (20 Apr 2021)

Green_Thirteen said:


> The AMC is defined as 0.17%.


That's exceptionally good value by Irish standards.  I assume it's a large occupational scheme?


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## Green_Thirteen (20 Apr 2021)

Sarenco said:


> That's exceptionally good value by Irish standards.  I assume it's a large occupational scheme?


It is. I take it occupational schemes have lower fees because the employer can cover some costs?


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## Dave Vanian (20 Apr 2021)

Green_Thirteen said:


> It is. I take it occupational schemes have lower fees because the employer can cover some costs?



Yes and the "bulk buying" discounts that can be negotiated.


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## MugsGame (20 Apr 2021)

Roughly how many members as a matter of interest? I've been encouraging our trustees to negotiate lower AMCs based on the significantly increased volumes in our scheme.


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## cremeegg (20 Apr 2021)

The problem is not the fees, a Mondeo is €30k a BMW €55k but people know what they are getting for their money and can make their choice

The problem is lack of transparency, and that is deliberately cultivated,  

In this thread alone we have in order from the beginning

PRSA, brokerage commission, bid offer spread, actively managed fund, turnover, AVC, IRIS, ARF, SSIA, annual charge, AMC, transaction fee, other internal management fees, TER, MiFID, passive index tracking, allocation, benchmark index, index tracker, KID, iShares, entry costs, worst available charging structure, exit charges, portfolio transaction costs, maximum commission, RIY, RAC, EPP, Occupational Pension, ETF charges, compliance costs, ongoing charging fee, unit linked policy, UCITS, DC Pension, service provider fees, registration fees, custody fees, safekeeping fees, audit fees, regulatory fees, trustee costs, insured schemes.


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## Green_Thirteen (20 Apr 2021)

MugsGame said:


> Roughly how many members as a matter of interest? I've been encouraging our trustees to negotiate lower AMCs based on the significantly increased volumes in our scheme.


A couple thousand


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## Steven Barrett (20 Apr 2021)

Right, I've read the whole report and everything in it is on the belief that the total charges of a pension is 3%. Anyone on here who has done business with me will know that I highlight all the fees charged under their pension and it comes nowhere near 3%. 

The basis of the 3% seems to be a Pensions Authority Report from 2012 which says the average charge is 2.18% (report is 290 pages) and a subsequent Trinity paper (9 pages thankfully) that says it is higher. 

When the fundamental assumption of the work is clearly wrong, everything else is also incorrect. 

the last thing in the paper was about the importance of owning your own home, which as we know is something the @Brendan Burgess likes to say on here   

It also says that people should have legal ownership of their own pension fund like a bank account. Good luck regulating that and watch the con men get to work on that! 

An in their example, they took auto enrollment where employer and employee pay 6% each and the State contributes 2%. The employee also got tax relief on the 6% contribution. Under auto enrollment, the 2% State contribution is the tax relief. 


Steven
www.bluewaterfp.ie


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## k06351000 (20 Apr 2021)

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



Would love to know this also


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## Gordon Gekko (20 Apr 2021)

k06351000 said:


> Would love to know this also


I would be shocked if it’s more than 1.1% to 1.2%.


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## nest egg (20 Apr 2021)

k06351000 said:


> Would love to know this also


This is exactly why the legislation is needed, there should be no guess work.

Just look at the UK where Vanguard doing the following:


> Investors with £50,000 or more will be able to access the financial planning service at an ‘all-in’ annual *0.79% *price tag, which will include fund charges, transaction costs and platform fees


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## bish123 (20 Apr 2021)

Okay, numbers may apply to a portion of pensions. As matter of fact, fees are not transparent and very difficult to understand for someone with no finance background. How do I compare plans if I don't fully understand the details. Documents provided by them makes hardly any sense to a common punter.


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## Marc (20 Apr 2021)

This is the 10 years ending March 2021.

The difference in reported performance between the MSCI EMU Index and the Pension fund is 0.74%pa
The disclosed charge is 0.40%pa

This is just *the fund* not the pension contract. Lots of brokers have been told that the additional cost over and above the quoted AMC is only 0.01% so don't worry about it, and of course its convenient to just accept, and repeat, that answer.

But in reality we need to separate out

What are you paying for a fund?
What are you paying for a pension?
What are you paying for distribution and advice?

Most pensions in Ireland are still arranged with Insurance companies where all of these costs are bundled together and you therefore simply can't work out what you are really paying.

Allocation rates and AMCs are simply a way of concealing the distribution costs

How much of this under performance is due to explicit charges ?
How much of this is due to transaction fees (brokerage commissions, bid offer spreads, stamp duty etc)?
How much of it is down to other factors such as dividend withholding tax?
If a fund is really made up of underlying securities, what is the stock lending policy?

I know all these answers with a UCITS fund, I genuinely have no idea for a unit-linked policy and we have an Actuary on staff!


The real culprit here are the contracts that are not required to fully disclose these charges and therefore just don't

Naturally this approach only works with a direct comparison with an index fund. Any actively managed fund will be either above or below an index and those that are above are typically guilty of bad bench marking since the "alpha" goes away when bench marked against a 5 factor beta model.

Not to labour the point but here is another example






In this example over 15 years we see underperformance aginst the benchmark QQQ ETF of 0.87%pa


The *QQQ* Trust *charges* an expense ratio of 0.20%


Here is another example this time from Irish Life vs the actual UCITS fund we use in our client's portfolios







I know that the ongoing charge for the Vanguard fund is 0.16%pa and I can see that over the last decade that the Irish Life Index has underperformed by an average annualised 0.74%pa.

I can therefore conclude that the *EFFECT of the ongoing charge* for the Irish Life Fund must be in or around 0.90%pa


We can test this by comparing the reported performance of the fund against the actual MSCI Index that it tracks






Now we can see that the real difference between the index and the fund is 1.42%pa

We can conclude that some of that underperformance is "tracking error" things like dividend withholding taxes, transaction costs etc which will impact on all funds

Note that they actually don't bother putting any information about charges on the fact sheet



			https://www.ilim.com/fund-fact-sheets/standard/01_Indexed_Fund_Fact_Sheets/+++-Indexed_Emerging_Market_Equity_Fund.pdf
		


You have to go digging through 40 pages of another document to find the disclosed charges







As we can see with a platform consumers can access an unbundled Emerging Markets equity index fund in an Irish pension on a like for like basis for a wholesale cost of

0.40 Pension trust (0.50% PRSA)
0.16% OCF
0.56% Total

Advice and investment management are costed separately unlike the case with a life company contract which pays for advice and distribution by manipulating allocation rates and AMCs and early surrender penalties.


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## Gordon Gekko (20 Apr 2021)

Marc said:


> This is the 10 years ending March 2021.
> 
> The difference in reported performance between the MSCI EMU Index and the Pension fund is 0.74%pa
> The disclosed charge is 0.40%pa
> ...



You’ve selected a different fund. That Eurozone fund you’ve used is a BlackRock fund and non-Zurich funds on the Zurich platform (naturally) attract additional charges.

The query relates to Zurich’s Eurozone Equity Fund.


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## ryaner (20 Apr 2021)

Marc said:


> The real culprit here are the contracts that are not required to fully disclose these charges and therefore just don't


That has been my main issue. All of the pension funds I have available through my occupational scheme don't list fees beyond the 1% AMC, and even that is buried in the initial documentation only. Zurich so far has been the most transparent with some of their index funds, and full disclosure, the application fees are here beside me for their savings product for my partner - the fees while high relative to my own self directed funds, are the cost of doing business.

Really I'd like to see an accurate RIY figure, against the funds benchmark. Or even as a direct example, if I took 1k a month and invested it into the Indexed fund, and another 1k an bought the ETF directly, after 7 years what would the balance difference be.


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## Steven Barrett (21 Apr 2021)

ryaner said:


> Really I'd like to see an accurate RIY figure, against the funds benchmark. Or even as a direct example, if I took 1k a month and invested it into the Indexed fund, and another 1k an bought the ETF directly, after 7 years what would the balance difference be.



It's not apples with apples. A pension fund is a highly regulated savings product with a lot more regulation and reporting requirements than an investment product, so the cost is obviously going to be higher (something completely ignored in that published paper who seemed to suggest that there is no terms and conditions to the management of a pension fund). The insurance company is usually the administrator of the pension, which they will also charge for (just a computer system in a back office that costs very little to run according to the paper).

Part of the opaqueness is that part of the cost of running the fund is included in the annual management fee that you pay. How much is it? With a self administered pension there is a clear separation of costs and you can clearly see what they are for each element of the pension, not so with insured products. Some insurance companies have shares the additional fees with me (don't ask me to disclose them) and they are not very high, so don't think that there is an additional 1% - 2% in fees being levied against your pension, it's simply not true. 

As Marc said above, a start would be abolishing the allocation rates. Seeing as you are paying for it anyway through higher management fees, it would be a start in making things clearer by reducing the amc from the getgo. 


Steven
www.bluewaterfp.ie


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## Steven Barrett (21 Apr 2021)

...Used the find function in Adobe to locate the 2.18% charge. It is the reduction in yield for a maximum commission pension. It has been discussed on here before that the RIY shows the highest charges that can be applied, so it is far from relevant from a lot of pension plans. 

The next bit is the Trinity paper that is referenced. This is more of a comment than an analysis and while it gives out about the opaqueness of pension charging structures, it says nothing more than the charges are likely higher than stated. 

How the writer of the Labour paper can then conclude that the charge is in fact 3% is nothing more than a guess! Which national publications have run with!!


Steven
www.bluewaterfp.ie


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## Marc (21 Apr 2021)

I think Stephen is right.

All that really needs to happen is for Financial Advisers to clearly set out the charges that actually apply to a pension to the highest possible standard available rather than the minimum regulatory standard - which in the case of pensions in Ireland is virtually non existent.

We have invested heavily in being able to set out all the real costs using very clear guidance from the UK regulator, the FCA, on what a gold standard disclosure should look like. This is informed by the EU MIFID II regulations which unfortunately don't currently apply to Irish Pensions.

So for example if you are a Company Director, like me and you want to establish a small-self administered scheme, have it professionally managed and invest in a portfolio of smart-beta funds (this is my pension by the way) then you should expect to receive something like this














So, that's ex-ante cost disclosure but how do real investors do compared to all the "traditional" fund offerings? Well, we track that too






Or over 9 years here which we believe clearly demonstrates that this approach is better value than life company unit-linked offerings.









						In Search of the Perfect Investment Portfolio - Everlake
					

Many investors find it difficult to achieve returns offered by the markets due to a misunderstanding of investment risk, costs and taxes.




					globalwealth.ie
				





If consumers demand this level of clarity then it is down to pension companies to provide it. If they can't or won't then consumers should vote with their feet.

As we can see consumers can access an unbundled Emerging Markets equity index fund in an Irish pension on a like for like basis for a wholesale cost of

0.40 Pension trust (0.50% PRSA)
0.16% OCF
0.56% Total

Advice and investment management are costed separately unlike the case with a life company contract which pays for distribution by manipulating allocation rates and AMCs and early surrender penalties.

In fact we have only just submitted a proposal for a client with a flat fee trustee of €2000pa and reduced fee custodian of 0.1% and a flat advice fee of €2,500pa. So on their €2m pension the whole package comes in at 0.325%pa.

So for investors with more than €100,000 we are clearly able to provide a more transparent and higher value advice service and my average client has over €1m to invest. But we don’t aim to provide an execution only discount brokerage for DIY investors. We are a Chartered financial planning firm.

We generally recommend that for smaller pension funds and small regular contributions a life company is the best option and my team can do that as well but it’s not our first choice.

Naturally we don’t set out to be the cheapest in the market as we don’t see our value as simply offering the cheapest solution but what we can say is that we are consistently more transparent which we believe is more important as this debate is showing.

The distinguishing features of our Wealth Management service are our expertise, transparency and willingness to challenge the status quo for the benefit of our client

As we say, “integrity is always doing the right thing, even when no one is watching”

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


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## ryaner (21 Apr 2021)

Steven Barrett said:


> It's not apples with apples. A pension fund is a highly regulated savings product with a lot more regulation and reporting requirements than an investment product, so the cost is obviously going to be higher



Other than the report, I don't think anyone really has much issue with the costs being higher. We are after all paying for a service.
It is more the level of costs + the way they aren't transparent. The repeated message is that the published figures are wrong, trust us, it'll actually be lower.

The breakdown @Marc has provided above would, imo, be perfect to highlight the fees. Sure it would need to be customised for different customers, but we are in the computerised world so I can't see any real blocker to a company filling in a template like that when producing the yearly report.


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## Sarenco (21 Apr 2021)

Marc said:


> Now we can see that the real difference between the index and the fund is 1.42%pa


So, 1.42% versus a disclosed cost of 1.00%, right?

That's still lower than accessing an EM tracker through your unbundled offering @1.61%.


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## nest egg (21 Apr 2021)

Marc said:


>


That's excellent Marc, easy to understand & completely transparent, no guess work.


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## Sarenco (21 Apr 2021)

Marc said:


> 0.40 Pension trust (0.50% PRSA)
> 0.16% OCF
> 0.56% Total


Which certainly seems competitive until you realise that you have pay a further 1.05% in advisory and investment management fees just to access that product.

While I genuinely applaud the transparency of your unbundled offering, I don’t think you have made out your case yet that your offering is better value than unit-linked pension products offered by life companies.  However, I would be happy to be convinced otherwise.


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## presidenttttt (20 May 2021)

Steven Barrett said:


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


Steven would this be best case? Been running some projections in recent days and obviously fees can change things massively. What % should I assume as someone only starting to build a pension. 1.5% of pot per annum all in?


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## Dave Vanian (1 Jun 2021)

Brokers Ireland have commissioned a report debunking many of the false claims that were reported last month.  It can be read here.


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## TheBig40 (1 Jun 2021)

There is a lot written in there about how clear the fee structures are from his members that does not marry with my experience of trying to get some fairly basic information over the last couple of years.


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## Dave Vanian (1 Jun 2021)

TheBig40 said:


> There is a lot written in there about how clear the fee structures are from his members that does not marry with my experience of trying to get some fairly basic information over the last couple of years.



Agreed.  The pensions industry here could do an awful lot more in terms of communicating charges in a transparent and jargon-free manner.  Some good suggestions in this thread on that subject.


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## Sarenco (1 Jun 2021)

Dave Vanian said:


> Brokers Ireland have commissioned a report debunking many of the false claims that were reported last month


This report is as bad as the original report it is trying to debunk.

The author states that there is full disclosure by life assurance companies of charges and the impact of those charges on the pension product. However, he then details the "additional charges" (ranging from 0.09% to 0.18%) that need to be added to the disclosed costs to arrive at a product's TER!

The solution to this issue is really very simple - life assurance companies should be required to disclose a complete and accurate ongoing charges figure (OCF) for all unit-linked contracts.

The ongoing failure of the Central Bank to insist on this very basic disclosure is a scandal IMO.


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## nest egg (22 Jan 2022)

After a bit of hounding, I eventually got TER figures from my occupational pension provider for their funds. The passive global equity fund is a very reasonable 0.21% (the AMC is 0.18%). Honestly I'm surprised it's that low, but the TER is just that, right?  Are there any other probing questions I should be asking?


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