# Pension risk question



## bonzos (10 Mar 2022)

Hi Folks, I current pay into a pension via my day job PAYE employment. I pay 5% of my salary matched by 5% from my employer, its with Irish life and is called Complete Solutions Company 1/fund name Multi Asset Portfolio 5 Series P. I also have a seperate pension which I pay a lump sum into yearly to offset tax from rental income with zurich called Balanced Pension & Invest. Both of these appear to have medium risk rating, combined I am contributing €9k approx. I was a bit of a late starter to the pension game and the current value of both is €32k (im 44 years of age). I understand the projections are to be taken with a pinch of salt but would it be ill advised to increase the risk rating on one pensio to high for a number of years as it appears ill have very little to loose?


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## Protocol (11 Mar 2022)

The consensus around here seems to be that a 44 years old should be in 100% equities, if they are saving for 20 years into a pension.


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## Steven Barrett (11 Mar 2022)

First of all, get out of MAPs. They are more expensive than other funds and don't produce the returns. If you want medium risk, the Consensus has a good track record. 

With Zurich, the Balanced is a good fund but medium risk. Other flagship funds are the Performance and Dynamic. They've all been around for years and invest in the same assets, just different percentages between bonds and stocks. 

What level of risk you take is a personal decision. If you can't handle the greater ups and downs of a higher risk portfolio, don't going into one. Risk and return are related, you don't get one without the other. If you are happy to invest in an equity fund and just let it do its thing without being too concerned, the Dynamic or the Blackrock Global Equity index are good funds. Irish Life also have index funds but I don't have a very high opinion of them. 


Steven
www.bluewaterfp.ie


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## Conan (11 Mar 2022)

bongos
I don't understand the status of the second pension plan.  It is not possible to establish a pension based on "rental income ". This deemed "unearned income " and not capable of being pensioned. 
What is the status of that Plan?


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## jpd (11 Mar 2022)

There is nothing to stop you putting money from rental income into an investment fund - but you clearly cannot claim tax relief on those earnings. If you have other earned income, it may be possible to claim tax relief basd on that

Money is fungible in that where it comes from doesn't matter to where you spend it


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## David_Dublin (11 Mar 2022)

Steven Barrett said:


> First of all, get out of MAPs. They are more expensive than other funds and don't produce the returns. If you want medium risk, the Consensus has a good track record.
> 
> With Zurich, the Balanced is a good fund but medium risk. Other flagship funds are the Performance and Dynamic. They've all been around for years and invest in the same assets, just different percentages between bonds and stocks.
> 
> ...



I've a prett ymuch 50/50 split in Irish Life between Setanta Equity Dividend Fund Series P and Multi Asset Portfolio 4 Series P. Should I look at other options in IL for Equity/Medium Risk?


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## bonzos (12 Mar 2022)

Conan said:


> bongos
> I don't understand the status of the second pension plan.  It is not possible to establish a pension based on "rental income ". This deemed "unearned income " and not capable of being pensioned.
> What is the status of that Plan?


I receive a few thousand euro every year from rental income. My accountant gives me an amount of tax I owe to revenue on this income. I either pay the tax to revenue or paid an amount onto the pension to "offset/neutralise" what I owe.


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## Conan (12 Mar 2022)

bonzos said:


> I receive a few thousand euro every year from rental income. My accountant gives me an amount of tax I owe to revenue on this income. I either pay the tax to revenue or paid an amount onto the pension to "offset/neutralise" what I owe.


What Pension Plan do you pay this contribution Into? Is it the Pension associated with your employment or is it a separate Pension? If the latter, what income is it based upon (because it can't be rental income)?


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## bonzos (12 Mar 2022)

Conan said:


> What Pension Plan do you pay this contribution Into? Is it the Pension associated with your employment or is it a separate Pension? If the latter, what income is it based upon (because it can't be rental income)?


Its the latter, PRSA from a former employer which was dormant for a few years. I was advised to do this as I'm diversifying between Irish life and Zurich, surely its normal practice to use pension contributions to offset against tax owed?


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## jpd (12 Mar 2022)

Yes, you can claim tax relief on pension conttibutions up to an age-related limit based on a % of *earned* income


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## Conan (12 Mar 2022)

bonzos said:


> Its the latter, PRSA from a former employer which was dormant for a few years. I was advised to do this as I'm diversifying between Irish life and Zurich, surely its normal practice to use pension contributions to offset against tax owed?


Not sure who advised you to do this, but based on the information you have supplied here I don’t think this is a qualifying (exempt approved) pension. If you only have one source of relevant earnings (from your employment) then this is the only pension on which you can base tax deductible pension contributions. You might be better converting the PRSA into an AVC PRSA linked to your occupational pension. Otherwise, the contributions are not tax deductible.


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## bonzos (12 Mar 2022)

Conan said:


> Not sure who advised you to do this, but based on the information you have supplied here I don’t think this is a qualifying (exempt approved) pension. If you only have one source of relevant earnings (from your employment) then this is the only pension on which you can base tax deductible pension contributions. You might be better converting the PRSA into an AVC PRSA linked to your occupational pension. Otherwise, the contributions are not tax deductible.


Thanks Conan, I will definitely look into this further, I wouldnt mind but my accountant is the ultra cautious type generally who is very solid with his advice ... Appreciate the your help


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## 3CC (14 Mar 2022)

Steven Barrett said:


> ....Irish Life also have index funds but I don't have a very high opinion of them.
> 
> 
> Steven
> www.bluewaterfp.ie



Hi Steven. I would be interested in your view on this. Would you be able to explain your opinion on Irish Life Index funds a little more? Thanks...


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## Steven Barrett (14 Mar 2022)

3CC said:


> Hi Steven. I would be interested in your view on this. Would you be able to explain your opinion on Irish Life Index funds a little more? Thanks...


This article is 4 years old now but captures the reasons for my low opinion on their index funds. Given they have such a large slice of the Irish pensions market, you would expect better. 









						Tracking Error - Bluewater Financial Planning
					

Passive Funds and ETFs are hugely more popular these days than in the past. People believe that markets in efficient and that news about a company is quickly reflected in its share price, whether the news is good or bad. When investing in a passive fund, although the fund manager doesn’t have to...




					www.bluewaterfp.ie


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## Sarenco (14 Mar 2022)

Steven Barrett said:


> Tracking Error - Bluewater Financial Planning
> 
> 
> Passive Funds and ETFs are hugely more popular these days than in the past. People believe that markets in efficient and that news about a company is quickly reflected in its share price, whether the news is good or bad. When investing in a passive fund, although the fund manager doesn’t have to...
> ...


Hi Steven

I don’t want to take away from your core point about Irish Life index trackers but AFAIK Vanguard don’t have any funds that track the MSCI World index.


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## Steven Barrett (15 Mar 2022)

Their Global Stock Index does


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## 3CC (15 Mar 2022)

Steven Barrett said:


> This article is 4 years old now but captures the reasons for my low opinion on their index funds. Given they have such a large slice of the Irish pensions market, you would expect better.
> 
> 
> 
> ...


Thanks for that Steven.

My company pension scheme is with Irish Life and I am a fan of passive investing so I picked their index funds but I have long suspected that their tracking error / implicit charges are not great.


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## Ndiddy (15 Mar 2022)

3CC said:


> Thanks for that Steven.
> 
> My company pension scheme is with Irish Life and I am a fan of passive investing so I picked their index funds but I have long suspected that their tracking error / implicit charges are not great.


Same for me, company defined contribution plan is with Irish LIfe.  In this case, there is nothing we can do about it but to pick simple index funds rather than MAPs?  We can't choose somewhere else to go while still working for them?


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## Steven Barrett (15 Mar 2022)

Ndiddy said:


> Same for me, company defined contribution plan is with Irish LIfe.  In this case, there is nothing we can do about it but to pick simple index funds rather than MAPs?  We can't choose somewhere else to go while still working for them?


They have other funds besides MAPS which is a more expensive fund. There is a list of index funds under their platform that should be available. 

The trustees pick the provider. Depending on the size of the scheme, the life company may just do investment only and the admin is done by Mercer, Aon etc or for smaller schemes, the life company does the admin. It is not my space, so I don't know what the charges etc are for these schemes and why Irish Life is the go to for schemes. 


Steven
www.bluewaterfp.ie


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## Sarenco (15 Mar 2022)

Steven Barrett said:


> Their Global Stock Index does


My apologies Steven - I thought Vanguard stopped using MSCI indices about 10 years ago.

I've just checked the latest financial statements for that fund and the tracking error (Institutional Plus EUR ACC class) was only 1bps last year and 4bps from inception.  That doesn't seem to tally with your figures so I wonder why is there such a difference?


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## AJAM (15 Mar 2022)

bonzos said:


> Hi Folks, I current pay into a pension via my day job PAYE employment. I pay 5% of my salary matched by 5% from my employer, its with Irish life.... I was a bit of a late starter to the pension game and the current value of both is €32k (im 44 years of age). I understand the projections are to be taken with a pinch of salt but would it be ill advised to increase the risk rating on one pensio to high for a number of years as it appears ill have very little to loose?



Hey Bonzos, I would echo Protocol above, given that you have 20+ years to retirement and a relatively modest starting position you should consider 100% equities. I would recommend Irish Life Indexed  World Equity fund.  You should also seriously consider upping your contribution from 5%. At 44 you can contribute up to 25% of you salary, and you should get as close to that as you can afford to.


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## Steven Barrett (15 Mar 2022)

Sarenco said:


> My apologies Steven - I thought Vanguard stopped using MSCI indices about 10 years ago.
> 
> I've just checked the latest financial statements for that fund and the tracking error (Institutional Plus EUR ACC class) was only 1bps last year and 4bps from inception.  That doesn't seem to tally with your figures so I wonder why is there such a difference?


That blog is 4 years old. While it not something I update regularly, I have at times looked at Irish Life's tracking error periodically and it's never close.


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## Sarenco (15 Mar 2022)

Steven Barrett said:


> That blog is 4 years old. While it not something I update regularly, I have at times looked at Irish Life's tracking error periodically and it's never close.


Absolutely agree - the Irish Life index trackers are fairly shocking.

I was just surprised that the Vanguard fund had such a material tracking error over the period.


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## Steven Barrett (15 Mar 2022)

Sarenco said:


> My apologies Steven - I thought Vanguard stopped using MSCI indices about 10 years ago.
> 
> I've just checked the latest financial statements for that fund and the tracking error (Institutional Plus EUR ACC class) was only 1bps last year and 4bps from inception.  That doesn't seem to tally with your figures so I wonder why is there such a difference?


I didn't look into it any further at the time. Looking back on the numbers in the article, there is quite a big difference between them and the other two.


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## Steven Barrett (23 Mar 2022)

Doing work for a client who is invested in the Irish Life Indexed World Equity fund. Look at the tracking error on the 10 year return. 1% per annum!!! If you invested €100,000, the fund would have underperformed its benchmark by €28,658. That is shocking. 

And given they make the benchmark themselves (independence?!) and don't use a globally recognised company like MSCI or FTSE, you wonder how they continue to get it so wrong for so long.


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## Slippers (23 Mar 2022)

> Look at the tracking error on the 10 year return. 1% per annum!!!



Just on that comment, what exactly do you mean when you say it is a tracking error?

I am in this fund through my company provided pension.  

I was reading these tables as - this is how the fund has actually performed versus the Irish Life forecasted performance benchmark.


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## Steven Barrett (23 Mar 2022)

The benchmark is the return of the fund that they are tracking. The passive fund manager has to try to replicate those returns as much as possible. the difference between the benchmark returns and the actual fund return is called the tracking error. 

For comparison, the Vanguard Global Equity Index had a tracking error of 0.11% per annum over 10 years. 


Steven
www.bluewaterfp.ie


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## AJAM (23 Mar 2022)

I asked Irish Life last year the following "We have noticed that the Irish Life funds are consistently underperforming their benchmarks. For example the Indexed World Equity Fund is consistently trailing it’s benchmark by more than one percent. How can this be possible on an index fund that has a fee of 0.65%?"

They responded with this 

“The benchmark is actually the index itself the difference is management fee , and there may be a difference due to tracking difference between the actual Index funds and the indices itself. we are required to show the benchmark as the actual index return v the net return on the fund. This is normal for index funds. “


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## Dave Vanian (23 Mar 2022)

AJAM said:


> I asked Irish Life last year the following "We have noticed that the Irish Life funds are consistently underperforming their benchmarks. For example the Indexed World Equity Fund is consistently trailing it’s benchmark by more than one percent. How can this be possible on an index fund that has a fee of 0.65%?"
> 
> They responded with this
> 
> “The benchmark is actually the index itself the difference is management fee , and there may be a difference due to tracking difference between the actual Index funds and the indices itself. we are required to show the benchmark as the actual index return v the net return on the fund. This is normal for index funds. “



So part of the tracking error is accounted for by the management fee but they evade the question of why they are lagging the benchmark by the other 0.35%.  Which is unimpressive considering that the benchmark is one they created themselves, rather than the more common approach of using an independent one like MSCI.


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## Slippers (23 Mar 2022)

> Which is unimpressive considering that the benchmark is one they created themselves



Is that correct?  How I read Steven's post (#27) was that the benchmark is the return of the fund.  Is it not the markets setting the benchmark as opposed to Irish Life?

Also here is a screenshot of my Indexed World Equity Fund, which I joined in 2020.  I was told by Irish Life that the annual charge is 0.36%.  The charge is less that what AJAM reported (#28), and from my screenshot, the difference between Fund and Benchmark is less than 0.36%, which does not align with the Irish Life explanation given to AJAM.


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## Sarenco (23 Mar 2022)

The industry convention is for index-tracking funds to show their performance net of all fees and costs, as compared with the net total return of the relevant benchmark index (MSCI World, etc.).

The net total return of an index includes all reinvested dividends after the deduction of withholding taxes, using (for international indexes) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties.

That is actually somewhat flattering to the fund managers as funds are typically domiciled in jurisdictions (such as Ireland) with a good double taxation treaty network, which reduces withholding taxes.  For example, the US/Ireland double taxation treaty reduces US withholding tax on dividends paid on US stocks held by an Irish fund from 30% to 15%.  Furthermore, funds can generate additional income by entering into securities lending transactions.

So, for example, the tracking error on the Vanguard Global Stock Index Fund (Institutional Plus EUR ACC class) was only 0.01% last year, even though it had an ongoing charges figure of 0.11%.  In fact, it's not at all uncommon for index funds to (modestly) outperform the net total return of their benchmark index!

I'm afraid I have no idea what bespoke index Irish Life are trying to track.  Without that information, the performance figures for the fund versus its benchmark are somewhat meaningless.

I'm afraid it's another example of the unfortunate opaqueness of Irish life company funds. Why this is tolerated by the Central Bank is beyond me.


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## Slippers (24 Mar 2022)

> I'm afraid I have no idea what bespoke index Irish Life are trying to track. Without that information, the performance figures for the fund versus its benchmark are somewhat meaningless.



I thought from their literature that they were tracking the MSCI World Index.  I just assumed that that meant my money was going directly into the MSCI World Index.  

Are we saying that this is not the case? 

I am now focusing in on the sentence found in their Indexed World Equity Fund Fact Sheet, which reads as "To try and track the performance of the MSCI World Index."




I am at a loss here. If there are not, why are they not just putting the money into the MSCI World Index?


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## Steven Barrett (24 Mar 2022)

This is the fact sheet that I was sent. Amazing that they have fact sheets for the same fund and one says it tracks the MSCI World Index and the other doesn't. 

BTW, the fund doesn't go into the MSCI World Index, it tracks it. MSCI produce the index of c. 1,600 different companies that they believe represents the global developed world. The likes of Vanguard, Blackrock etc buy this list and weighting off MSCI and try to get as close as they can to it (the tracking error). They have money coming in and out each day and have to balance the books and keep their weightings as close as possible to the MSCI World Index.


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## Slippers (25 Mar 2022)

> Amazing that they have fact sheets for the same fund and one says it tracks the MSCI World Index and the other doesn't



What is more, back in late 2019 there was conflicting detail with the funds being offered through their portal.  That is, my employers portal that I use to access/monitor/adjust my pension.

Just had a dig through my emails.  Here is a screenshot that I sent them back in 2019.  The detail shown in the screenshot did not match the fund sheet for the Indexed World Equity Fund.  I had to ask them at the time what is the fund linked to, FTSE or MSCI?



Eventually they confirmed that it was MSCI, and corrected the above screenshot.  

Irish Life does not really fill you with much confidence.


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## Sarenco (25 Mar 2022)

Here’s the net return (EUR) for the MSCI World index for the last three years compared to the self-declared returns of the Irish Life World index tracker with an AMC of 0.75% -

Year. MSCI World. Irish Life. Difference.
2021.   31.07%.       28.81%.    2.26%
2020.     6.33%.          5.55%     0.78%
2019.     30.02%.      28.66%.    1.36%


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