# 5%-1% seems outrageous to me.  Isn't there something better?



## pjburkina (18 Feb 2007)

Hello forum community,

I have spoken with someone at ArkLife and they told me that the charges for "Standard" PRSAs are capped by the Financial Regulator at 5% of everything you contribute plus 1% annual value of the fund.  I don't have a problem with the 1% per annum but the 5% fee on contributions makes my head spin.  I haven't done the math but I can imagine the compound interst lost over the life of a PRSA due to the missing 5%.  In effect, are the PRSA providers taking approximately 6% commision charge?  Wouldn't I need at least a 6% rate of return to keep the value of the fund even with the value of the (before-charges) contributions?

This ArkLife consultant said to be wary of "Non-Standard" PRSAs because the charges are not capped and can change at any time.  Can I ask for anyone's advice on what option is the best for me.

Here's my story:  I turn 27 in one month's time, I'm slightly past the Standard Rate Cut-Off Point, the company I work for does not contribute or help with retirement, and I would like to move to France in about 5 years time.  Any advice would be greatly appreciated.


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## ClubMan (18 Feb 2007)

The *maximum *charges for a standard _PRSA _are 5%/1% but you can get 0%/1% from certain discount/execution only brokers for a fixed arrangement fee of a few hundred €. See here and several other threads on cheap _PRSA _offers.

The cheapest PRSA?

Note that you may be able to get similar or better charges on regular personal pension plans/_Retirement Annuity Contracts._ As far as I can see there are few circumstances in which non standard _PRSAs _or the potentially higher charges involved are justified.


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## extopia (18 Feb 2007)

Ah, yes - this used to be my favourite topic. Have you seen this thread?


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## pjburkina (18 Feb 2007)

ClubMan, Extopia,

It looks like you posted essentially the same concerns back in 2003.  Since then, what have you discovered?  Have you begun a 0%-1% PRSA where you pay an upstart fee?  If so, who are you going through?  It seems like much the better option to me!  I would only have few questions about this type of PRSA.

1)  Is it a Standard or Non-Standard PRSA?
2)  Can I drop my payments to 0 if I leave the country for 20 years or so?
3)  Is the rate of return performance as good as the other 5%-1% PRSAs?

I was looking at the Excel spreadsheet from the Pensions Board website:

http://www.pensionsboard.ie/index.asp?locID=40&docID=-1

and for example, Irish Life has two types of "Standard" PRSAs, one of which is 5%-1%, the other of which is 0%-1%.  What's the difference between these two?  Thanks for your help.


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## CCOVICH (19 Feb 2007)

pjburkina said:


> and for example, Irish Life has two types of "Standard" PRSAs, one of which is 5%-1%, the other of which is 0%-1%. What's the difference between these two? Thanks for your help.


 
I can't recall, but the 1% + 5% (management fee + contribution charge) might be for ongoing contributions whereas 1% could be for lump sums.


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## pjburkina (19 Feb 2007)

pjburkina said:


> 1) Is it a Standard or Non-Standard PRSA?
> 2) Can I drop my payments to 0 if I leave the country for 20 years or so?
> 3) Is the rate of return performance as good as the other 5%-1% PRSAs?


 

After doing a bit more research, let me try and answer my own questions. Somebody please tell me if I'm wrong:

1) You are able to open Standard and Non-Standard PRSAs through brokers. These are essentially the same as with the PRSA provider except contribution charges can be reduced.
2) It depends on the provider of the PRSA. Irish Life and Eagle Star allow you to stop payments for as long as you want with no penalties
3) Yes, the performance is the same because the PRSA is the same

Now, if I've answered myself correctly, the next logical questions arise:

*What's the catch?*

*Why would anyone open a 5%-1% PRSA when they can open the same for 0%-1% through a broker like LABrokers?*

There's something that I'm missing. What is it?


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## ClubMan (19 Feb 2007)

pjburkina said:


> Have you begun a 0%-1% PRSA where you pay an upstart fee?


Hey - I'm no upstart!  

Yes - I have a 0%/1% _PRSA _arranged through _Liam Ferguson_ (www.prsacentre.com). There are other discount execution only brokers mentioned in the other thread who do similar deals so shop around. 


> 1)  Is it a Standard or Non-Standard PRSA?


Stanard.


> 2)  Can I drop my payments to 0 if I leave the country for 20 years or so?


With a standard _PRSA _- yes. I guess non standard _PRSAs _may have their own special terms & conditions?


> 3)  Is the rate of return performance as good as the other 5%-1% PRSAs?


Higher charges do not mean better performance. All things being equal they mean lower returns due to the eroding effects of the charges. It's meaningless to compare fund returns unless they invest it exactly or broadly the same assets and involve the same charges. It's impossible to predict the future and past performance is no guide to future returns. Better (all things - such as customer service, fund selection etc. - being equal) to minimise charges and choose a fund or funds that give you a risk/reward profile, geographic spread, asset allocation etc. that suits your specific needs. In general this will probably mean a high equity content and high risk/reward profile for somebody with a good while to go to retirement. 


> and for example, Irish Life has two types of "Standard" PRSAs, one of which is 5%-1%, the other of which is 0%-1%.  What's the difference between these two?  Thanks for your help.


Not sure of the specific differences between the two. But if the funds available were broadly similar then it would be a no brainer to go for lower charges. (Not that this is a recommendation of _IL's _offerings per se).


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## F. Kruger (19 Feb 2007)

pjburkina said:


> *What's the catch?*
> 
> *Why would anyone open a 5%-1% PRSA when they can open the same for 0%-1% through a broker like LABrokers?*
> 
> There's something that I'm missing. What is it?


 
There is no catch. The only difference is that one is an 'execution only' service (no 5%) and one is an 'advisory' service.


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## pjburkina (19 Feb 2007)

If there is no catch, why would anyone open a 5%-1% PRSA?  It's a rip off!

What exactly are you paying 5% for when you get an "advisory" service as composed to an "execution" only service?  I'm just trying to rationalize the thinking behind opening a 5%-1% PRSA.  I don't understand why some PRSA providers allow 100% allocation through a broker and 95% directly through the provider.  Shouldn't it be cheaper if you buy goods and services directly through the supplier rather than through an intermediary who takes a mark up?

I'm beginning to see the light at the end of the tunnel.  We're almost there.....


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## ClubMan (19 Feb 2007)

pjburkina said:


> If there is no catch, why would anyone open a 5%-1% PRSA?  It's a rip off!


It's not a rip off. Just higher charges than are available elsewhere. One reason why people might opt for these charges is because that is the only _PRSA _charging structure that their employer provides for under their work _PRSA _scheme and (in some cases) it may be a quid pro quo for availing of (optional) employer contribtions to the scheme. Otherwise I can't see why an individual would arrange a 5%/1% scheme when there are 0%/1% products available to them (often for the payment of a fixed arrangement fee) but perhaps in some cases the advice or other services offered may be deemed to justify the additional charges. 


> What exactly are you paying 5% for when you get an "advisory" service as composed to an "execution" only service?


 The advice or other services presumably? In some cases you get nothing extra for the higher charges but that goes for any product or service if you don't shop around and get the best deal/lowest price that offers you whatever meets your specific needs.


> I'm just trying to rationalize the thinking behind opening a 5%-1% PRSA.  I don't understand why some PRSA providers allow 100% allocation through a broker and 95% directly through the provider.  Shouldn't it be cheaper if you buy goods and services directly through the supplier rather than through an intermediary who takes a mark up?


 Why not just forget about this so and just go for a 0%/1% offer that suits your needs?


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## pjburkina (19 Feb 2007)

Alright.  I'm convinced.

Any advice on the intermediary or doesn't it really matter (except for the start-up charges?)  ClubMan, you went through Liam Furgesson.  I also see that myadvisor.ie and LABrokers also offer this service.

Thanks for your help everyone.  It's amazing how much a little research can save you so much in the long run.


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## ClubMan (19 Feb 2007)

I would recommend _Liam _based on my own personal experience but I'm sure that the other intermediaries listed (and others listed in other threads) are just as good. I am assuming that you are looking for little or no advice other than maybe a summary of the products/funds available to you and will just be executing the business on an execution only non advisory basis?


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## pjburkina (19 Feb 2007)

That's correct.  I'd like to just set it up myself but once it's all up and running, I'd just like to let it simmer over medium heat for 33 years.


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## MandaC (22 Feb 2007)

I am going to go with one of the low cost PRSA's either Irish Life, Eagle Star or Hibernian, through a discounted broker.

I note the comments in respect of the fund allocation being more conservative with Irish Life and will take this into account. However, Eagle Star charge 1% management charge, whereby on Irish Life and Hibernian once the fund increases the 1% management charge decreases, in line with the size of fund.

I am just going to go with the default Investment strategy, as I really havent got a clue about different funds, etc.

Has anyone any advices as to which would be the best out of the three, or are they really all much of a muchness. 

Incidentially, I got a quote direct from Eagle Star for a standard PRSA and they are quoting 1% Management Charge and 2.75% contribution charge, so they too seem to have dropped the charges in line to compete with the discount brokers.

Many thanks


MandaC


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## ClubMan (22 Feb 2007)

MandaC said:


> I am just going to go with the default Investment strategy, as I really havent got a clue about different funds, etc.


If you don't understand then get advice. Opting for a too conservative fund just to minimise charges could be cutting off your nose to spite your face in the long run.


> Has anyone any advices as to which would be the best out of the three, or are they really all much of a muchness.


On charges? Just compare them. On fund selection? You need to choose one that suits your specific needs. If you have a good while to go to retirement then you should at least consider a high risk/reward high (possibly 100%) equity content fund.


> Incidentially, I got a quote direct from Eagle Star for a standard PRSA and they are quoting 1% Management Charge and 2.75% contribution charge, so they too seem to have dropped the charges in line to compete with the discount brokers.


Still not that competitive versus many brokers' offers (possibly even allowing for the arrangement fee).


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## MandaC (22 Feb 2007)

Thanks Clubman,  I see your point in respect of the charges.  It might be worth my while to have a one off consultation.  I dont mind paying for advice on a one off basis, so that might be the way to go for me.

I had narrowed down to one of those three as the charges were similar,and I liked the idea of the flexibility of it all.  The problem I have is that I am in a considerably well paid job at the moment.  Its not going to on forever and I know that I would not get the same salary elsewhere.  I want to put as much away now while I can, so I may need to stop or drop the contributions if my circumstances change.

 On another note,  the Rep. I spoke to told me that I could not offset monies from my SSIA against tax year 2006 and claim back a tax refund at the higher rate.  I do not think this is correct.  Though really, am I right in thinking that it makes no difference if I date an AVC  against 2006 or 2007 because I am really not going to lodge any more than about €2K.

Also does anyone know the position in respect of claiming PRSI.  It would appear that you have to lodge a form at the end of the year and get a refund?  

Thanks for your help.


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## ClubMan (22 Feb 2007)

MandaC said:


> Thanks Clubman,  I see your point in respect of the charges.  It might be worth my while to have a one off consultation.  I dont mind paying for advice on a one off basis, so that might be the way to go for me


Any of the discount brokers may well give you basic information/advice if you go through them for a 0%/1% style deal. The usual suspects are mentioned in other threads on this issue.


> I had narrowed down to one of those three as the charges were similar,and I liked the idea of the flexibility of it all. The problem I have is that I am in a considerably well paid job at the moment.  Its not going to on forever and I know that I would not get the same salary elsewhere.  I want to put as much away now while I can, so I may need to stop or drop the contributions if my circumstances change.


 All _PRSAs _are equally flexible in this respect.


> On another note,  the Rep. I spoke to told me that I could not offset monies from my SSIA against tax year 2006 and claim back a tax refund at the higher rate.


 What rep? Sounds like s/he is wrong:

October 31 - what does it mean for PAYE worker?


> I do not think this is correct.  Though really, am I right in thinking that it makes no difference if I date an AVC  against 2006 or 2007 because I am really not going to lodge any more than about €2K.


 No harm in setting it against last year's earnings just in case you do manage to be able to use up this year's pension tax relief this year or next.


> Also does anyone know the position in respect of claiming PRSI.  It would appear that you have to lodge a form at the end of the year and get a refund?


 See here:

Claiming PRSI relief on standalone PRSA contribution


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## MandaC (22 Feb 2007)

Thanks for that. I will make any AVC from SSIA against last year 's (in case I come into the position (highly unlikely) of being able to pay more this year or next)

Just so you all are aware. Be very careful of what the representatives from the various companies tell you. The Eagle Star Rep. advised me incorrectly then. I was advised
(1) Could not offset against last years tax as I am not self employed.
(2) PRSI Relief is granted through your salary by way of tax credit. I put down the phone and then thought, hang on, how would that work, your PRSI is nothing to do with tax credits!

I am going to send him an e-mail to advise him that the advice he had given me is incorrect, just so that someone else does not fall foul somewhere along the line.

Again, thanks for your help.


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## ClubMan (22 Feb 2007)

MandaC said:


> Be very careful of what the representatives from the various companies tell you. The Eagle Star Rep. advised me incorrectly then. I was advised


Don't expect or assume authoritative, independent, professional advice from a tied agent.


> (1) Could not offset against last years tax as I am not self employed.


 *Revenue *once tried to convince me the same way when I turned up looking to claim backdated relief and *I *had to convince *them *that I was entitled to it!!!


> (2) PRSI Relief is granted through your salary by way of tax credit.


 Yes - wrong again.


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