# Allocation Rate - 100.50% What does this mean?



## TurningGreen (13 Oct 2009)

Hi,

I requested info on my pension plan bond and it has the following text for allocation rates

_*The allocation rates for regular and single premiums will be reduced if the term to retirement is less than 10 years. The reduction is 1% for regular premiums for every year that the term is less than 10*_

_*The allocation rate on this policy is 100.50%*_


Just wondering what above means in simple terms!!!

I understand a 97% allocation rate would be €97 invested and €3 in charges of a €100 but don't understand above. Any help appreciated.


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## patftrears (13 Oct 2009)

TurningGreen said:


> Hi,
> 
> I requested info on my pension plan bond and it has the following text for allocation rates
> 
> ...


If you understand 97% allocation how can you not understand 100.50% allocation, it's works the same way.


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## Brendan Burgess (13 Oct 2009)

I must say I think that it is a very reasonable question and has confused a lot of people. It is not clear than 100.5% can be compared to 97%. 

The charging systems of some life companies is deliberately complicated to confuse customers. 

They invest the extra .5% in your units. But you pay for this in terms of early exit penalties and high ongoing annual charges. 

Brendan


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## GSheehy (13 Oct 2009)

It looks like a Hibernian/Aviva product structure and you have invested a single premium that has more than 10 years to go to normal retirement age. 

If you invested €10,000, the amount applied to your policy is €10,050. Sound great, but if you tried to transfer your fund to some other provider in the first 5 years you would probably get hit with an exit penalty of between 1% + 5% of your original investment.

If you were paying a regular/single contribution to this type of pension product and you had just 5 years to go to retirement, your allocation rate would be 95% for each contribution + perhaps an exit penalty also, if you wanted to move it.

As Brendan says, the charging structures can be complicated and IMHO are not designed with the end consumer in mind. 

One of these days the product providers will wake up to the realisation that these charging structures do not make for a profitable + sustainable business model, as money is moved around from Billy to Jack to 'get' higher allocation rates every few years. This will lead to higher management charges or else they they will just 'cannibalise' themselves.

These structures also encourage intermediaries to move the business around the market and get paid (again)for doing it.


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## TurningGreen (14 Oct 2009)

Thanks Brendan, GSHeehy for quick reply.

Yes GSheehy its an Hib/Aviva product single premium. The Fund Management Charge is .75% p/year. Would this be a high/low charge for such a product. I am not looking to exit at the moment so not too worried about exit charges. Just trying to get a handle on costs & charges (as economy and finances tighten) to see who is hiving off my cash!!!.

Just an aside, I have started using Askaboutmoney as the great economic slide took hold and the level of advice offered by users is just great.
Thanks to all and keep up the good work.


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