# Pension contributions into cash funds query



## Daddy (18 Mar 2012)

What is the typical return on these in any year.  If the annual charge is .75per cent and 3per cent on contributions I would guess I would be losing money excluding the inflation element.
One reads that as one approaches their retirement that it's prudent to start putting some of your pension pot into cash.  I am 10 years from this event and will I think shortly start putting 10 per cent of the fund into cash.     So just wondering what is the loss one suffers for being prudent.


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## LDFerguson (19 Mar 2012)

The average return on Money Market funds for 1 year to 1st March 2012 was 0.4% according to MoneyMate.  

De-risking your fund is indeed prudent, but you should bear a couple of things in mind: - 

(1) If you intend to continue the investment of (some or all of) your funds in an Approved Retirement Fund (ARF) after retirement, it may not be necessary to de-risk (some or all of) your funds now.  You'll simply be continuing the investment when you retire.

(2) There are many alternative to basic cash funds these days.  For example, several providers offer deposit funds with fixed rates for up to five years, paying >5% per year AER before charges, so >4% assuming reasonable charges.  Check does your existing pension provider offer such a fund.  Investigate also the full range of lower-risk fund options.  

Liam D. Ferguson


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## Daddy (28 Apr 2012)

Liam thanks for the info.

Do you know if Canada Life or New Ireland offer such 5 year deals.  It sounds attractive enough to me to avail of such an option if looking for certainty and I was left after 5 years with a net annual return of almost 4 per cent and knowing from the outset where I stand as I hope to retire in 9 years and this certainty together with the current tax relief makes it very appealing for me to maximise my contributions.


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## tester12 (29 Apr 2012)

Just a question in relation to security/safety of deposits in a fixed term.  As I understand it if you are a direct depositor with the Bank your first 100K is guaranteed by Depositor Protection Fund.  Above that by the Bank Guarantee Fund.  The Bank guarantee Fund is OK until the end of this year and might be renewed.  Does anyone know what the protection mechanism is with the fixed term Deposit from the Insurance Co.  The reason I ask is that the following is in the flyer for a 5 Year Fixed Term Deposit ARF.

"Clients do not have a deposit with EBS Limited or KBC Bank Ireland plc. In the event that EBS Limited or KBC Bank Ireland plc do not meet
their obligations to Assurance Co, or the return on the relevant EBS Limited or KBC Bank Ireland plc account is otherwise insufficient, the value
of the relevant Fixed Rate Deposit Fund will be based only on the value returned from the relevant deposit account with EBS Limited or KBC
Bank Ireland plc. No other assets of Assurance Co plc shall be used to make up the difference"

I have deleted the name of the major assurance Co.  This seems to indicate that no cover for 100K is there.  Not sure what the cover mechanism is anyone got an idea.


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## Jim2007 (29 Apr 2012)

tester12 said:


> I have deleted the name of the major assurance Co.  This seems to indicate that no cover for 100K is there.  Not sure what the cover mechanism is anyone got an idea.



Well since you have not given us the actual reference we can't say for certain, but since you're dealing are with the assurance company and not the bank, then I don't see how you could expect to rely on the bank guarantee....


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## Marc (29 Apr 2012)

I'm not an expert on the legal position here but my understanding would be that the investment would be held in the name of the assurance company on the balance sheet of the assurance company.

As such you would be covered by the investor compensation scheme if the life assurance company got into difficulty but you would not be covered for losses incurred from making a "bad investment" decision.

The ICCL would protect you as follows:

 There are limits to the amounts we may pay in compensation. We can pay only 90% of the amount lost, subject to a maximum of €20,000, to each investor.

I'm happy to be corrected on this if anyone knows differently.

This post asks much the same question about switching to cash as retirement approaches.
http://www.askaboutmoney.com/showthread.php?t=168389


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## LDFerguson (30 Apr 2012)

Daddy said:


> Liam thanks for the info.
> 
> Do you know if Canada Life or New Ireland offer such 5 year deals. It sounds attractive enough to me to avail of such an option if looking for certainty and I was left after 5 years with a net annual return of almost 4 per cent and knowing from the outset where I stand as I hope to retire in 9 years and this certainty together with the current tax relief makes it very appealing for me to maximise my contributions.


 
New Ireland do; Canada Life don't.


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## LDFerguson (30 Apr 2012)

tester12 said:


> Just a question in relation to security/safety of deposits in a fixed term. As I understand it if you are a direct depositor with the Bank your first 100K is guaranteed by Depositor Protection Fund. Above that by the Bank Guarantee Fund. The Bank guarantee Fund is OK until the end of this year and might be renewed. Does anyone know what the protection mechanism is with the fixed term Deposit from the Insurance Co. The reason I ask is that the following is in the flyer for a 5 Year Fixed Term Deposit ARF.
> 
> "Clients do not have a deposit with EBS Limited or KBC Bank Ireland plc. In the event that EBS Limited or KBC Bank Ireland plc do not meet
> their obligations to Assurance Co, or the return on the relevant EBS Limited or KBC Bank Ireland plc account is otherwise insufficient, the value
> ...


 
If the bank is covered by the Eligible Liabilities Guarantee scheme (the ELG or blanket guarantee scheme) then all deposits of that bank are covered by the scheme, which would include deposits made by a life insurance company.  My understanding is that fixed-rate deposits are covered by the ELG scheme until the expiry of the fixed rate, even if the scheme itself is withdrawn before this.


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## Marc (30 Apr 2012)

From the NTMA website:

*About the Scheme*

   The Credit Institutions (Eligible Liabilities  Guarantee) Scheme 2009 (the "ELG Scheme") is made pursuant to Section  6(4) of the Credit Institutions (Financial Support) Act 2008 and came  into effect on 9 December 2009 and was amended on 29 September 2010. The  ELG Scheme provides for an unconditional and irrevocable State  guarantee for certain eligible liabilities (including deposits) of up to  five (5) years in maturity incurred by participating institutions from  the date they joined the scheme until 30 June 2012 on certain terms and  conditions.
   The Minister for Finance has appointed the NTMA as the ELG Scheme Operator.
  The ELG Scheme was introduced by the Minister for  Finance as a measure to maintain the stability of the financial system  in the State. The ELG Scheme will be reviewed at least on a six monthly  basis to determine whether the financial support provided by the ELG  Scheme continues to be necessary.
  Participating institutions in the ELG Scheme are  credit institutions or subsidiaries of credit institutions which have  been approved by the Minister for Finance. Each participating  institution is bound by terms of the ELG Scheme, including the Rules of  the ELG Scheme, copies of which may be downloaded on this website. The  Minister stands as guarantor of all guaranteed liabilities of a  participating institution, subject to the terms and conditions of the  ELG Scheme, the Rules and ELG Scheme Agreements entered into by each  participating institution. A list of participating institutions is  available at  [broken link removed].
  In respect of debt securities incurred by a  participating institution after it joins the ELG Scheme, the ELG Scheme  provides a guarantee for eligible liabilities for which a guarantee  certificate has been issued by the NTMA. Eligible liabilities include:   


senior unsecured certificates of deposits;
senior unsecured commercial paper; and
other senior unsecured bonds and notes.
   It is also possible for participating institutions to  obtain a guarantee certificate for an entire debt issuance programme.  All eligible securities issued under a guaranteed programme will be  guaranteed.


So, it would seem as Liam states, if the deposit is covered by the ELG scheme (note EBS is on the list but KBC isn't) then you are protected by the full faith and credit of the Irish State.

On a related matter......

Ratings agency Standard and Poor’s has held its credit rating for Ireland at BBB+, with a negative outlook.

http://www.rte.ie/news/2012/0427/standard-poors-retains-bbb-irish-credit-rating.html


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## Daddy (30 Apr 2012)

Thanks Liam for confirming on that.


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## kennyb3 (10 May 2012)

I'd like to add  my own queries, semi related.

Looking at similar to whats mentioned above (i'm only 28 but very risk adverse - the euro crisis will see me steer well clear of equities or bonds at present):

- which are safest providers of same (deposit based products with reasonable returns) in Ireland based on credit rating?

- I keep reading about the 20k limit if the provider goes bust - any ways around this/or to increase. This is very low if you've got a 200/300k pot at 50/60 years old.

- What set up costs/initial outlay is there to get this up and running.

Looking at making a start from October so interested to hear my options.

Cheers


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## LDFerguson (10 May 2012)

kennyb3 said:


> which are safest providers of same (deposit based products with reasonable returns) in Ireland based on credit rating?


 
As far as I know Rabo have the highest credit ratings of any bank operating in Ireland at present.  



kennyb3 said:


> I keep reading about the 20k limit if the provider goes bust - any ways around this/or to increase. This is very low if you've got a 200/300k pot at 50/60 years old.


 
Standard Life's Irish office is a branch of the Scottish parent and so any Irish policies are covered by the UK Financial Services Compensation Scheme, rather than the Irish one.  Policies taken out since 1 December 2001 are covered by the UK's Financial Services Compensation Scheme (FSCS) in the 
event that *Standard Life is in default*.  (Not that the deposit-taker is in default - Standard Life.)  The UK scheme covers 90% of the claim, without any upper limit.



kennyb3 said:


> What set up costs/initial outlay is there to get this up and running.



Standard Life don't have a direct sales operation and distribute through brokers.  Individual brokers have discretion as to what charging structure they want to use, of a huge variety of options.  So you could set up the same pension with two different brokers and they'd have two different charging structures.  Ask your broker to detail the charges.  

Incidentally, in the above, I'm just answering the straight questions you have asked, as distinct from advising that this is the best option for you.  We could debate the suitability of a deposit fund for a 28-year old and discuss the very real risk of inflation, but that's another day's work.  

Liam D. Ferguson


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## kennyb3 (11 May 2012)

LDFerguson said:


> Standard Life's Irish office is a branch of the Scottish parent and so any Irish policies are covered by the UK Financial Services Compensation Scheme, rather than the Irish one.  Policies taken out since 1 December 2001 are covered by the UK's Financial Services Compensation Scheme (FSCS) in the
> event that *Standard Life is in default*.  (Not that the deposit-taker is in default - Standard Life.)  The UK scheme covers 90% of the claim, without any upper limit.



Cheers - that sounds more like it!




LDFerguson said:


> Standard Life don't have a direct sales operation and distribute through brokers.  Individual brokers have discretion as to what charging structure they want to use, of a huge variety of options.  So you could set up the same pension with two different brokers and they'd have two different charging structures.  Ask your broker to detail the charges.



Moving away from charges - i'll get into the nitty gritty of that a bit later but what sort of fee are you looking at initially - say for meeting a broker and getting such a fund off the ground before any money gets contributed. 



LDFerguson said:


> Incidentally, in the above, I'm just answering the straight questions you have asked, as distinct from advising that this is the best option for you.  We could debate the suitability of a deposit fund for a 28-year old and discuss the very real risk of inflation, but that's another day's work.
> 
> Liam D. Ferguson



Cheers I appreciate that. Maybe i'm being very simplistic and unduly risk adverse but say your getting 3% return after charges (realistic yes?), I cant see inflation running above that give the ECB remit.

I'd be happy for my money to move inline with inflation (effectively no return) once i know i ll get back what i put in at the opposite side in 30 years time. Its not sexy but its a savings plan that takes advantage of tax relief - with the downside of money being locked up until 60.


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## ashambles (11 May 2012)

> The average return on Money Market funds for 1 year to 1st March 2012 was 0.4% according to MoneyMate.


I guess this would be prior to the pension levy on pension cash funds – based on how I’ve seen pension funds typically displayed with the pre-levy return. So on average cash funds would have lost money last year. –(minus) 0.2%. 

I believe higher rate deposits are like this one http://www.newireland.ie/docs/pensions-documents/Secure_Cash_Term_for_Pensions.pdf, which claims 4.25% before “charges” – maybe leaving 2.5 - 3% net. It gets this higher cash deposit return by using BOI as its sole deposit holder. The safer cash funds presumably deposit with a wider range of banks in less economically stressed countries.
The security for this New Ireland deposit is described as follows


> “New Ireland is committed to passing on to policyholders the amount received from Bank of
> Ireland on 29 August 2014. If, for any reason, New Ireland is not repaid its deposit in part
> or in full, you may not receive back some or all of the amount invested. “


 
While I’d consider it as an option I’d probably not deposit money in such a scheme; the return is higher but is higher because it’s a riskier deposit. It’s significantly more risky than simply going to BOI and lodging the same amount on your own behalf – you’ve more protection as an individual with say 100k on deposit than you do when you’ve funds with a pension company lodging 100m on behalf of all its customers including you into one account. 

Each individual account might only be protected up to say 100k in a worst case scenario, that’s not so bad for small to medium depositors, but for a large depositor like a pension company it could mean they lose nearly 100% of their deposits. There’s only a tiny chance of a problem, but if there is a problem it’s guaranteed to be a big one.


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## Marc (12 May 2012)

I like the last post. More or less captures all the important points here.

Risk and expected returns are related.

There is no free lunch when it comes to investing.


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## kennyb3 (8 Jun 2012)

Right i'm still trying to make a decision on this. Here's a basic scenario:

- Say i go for the New Ireland 4.25% cash/deposit fund.

- Assume i make one contributions of €1,000 (for simplicity)

A year on it will be:

(€1,000 * 1.0425) =  €1,042.50

Pension levy of 0.6% so €1,042.50 * 0.994  = €1,036.25

Fees of say 1% €1,036.25 * .99 = €1,025.88

Broker commission ???

Questions:


1.Are there any other costs i ve missed apart from a 1% charge? Broker commission - how much? estimate will do.

And obviously i realise the pension levy will come off the fund so if next year its €2k plus it will eat another 0.6% of my year 1 contribution.

2. Are broker charges off the total fund value each year too?


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## Dave Vanian (8 Jun 2012)

Couple of points: - 


Pension funds don't have to pay any DIRT tax.
New Ireland don't have a 4.25% rate. They have a 5.25% rate, fixed until August 2017, a 3.75% rate fixed until November 2015 and a 3% rate fixed until February 2014.  Rates quoted are all AER.


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## kennyb3 (8 Jun 2012)

Dave Vanian said:


> Couple of points: -
> 
> 
> Pension funds don't have to pay any DIRT tax.





Brain on leave, cheers



Dave Vanian said:


> [*]New Ireland don't have a 4.25% rate. They have a 5.25% rate, fixed until August 2017, a 3.75% rate fixed until November 2015 and a 3% rate fixed until February 2014.  Rates quoted are all AER.




Cheers, was going off this but the rate isnt a massive deal.

Just trying to get my head around fees, commission etc.

Also what about broker charges - again how much and at what point do they come off?


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## Daddy (23 Feb 2013)

New Ireland's rate is now 5.15% p.a fixed till 2017.
Sounds a good option.
Fearful though that it's backed by Bank of Ireland.
Is this fear justified at this stage or would anyone disagree and that things will be ok with BOI.


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## kennyb3 (23 Feb 2013)

Have you a link to that fund?


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## Daddy (23 Feb 2013)

Do a search   New Ireland cash fund 5.15%. And that should lead you to it.    Sorry I don't have a direct link.


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## LDFerguson (25 Feb 2013)

Daddy said:


> Do a search New Ireland cash fund 5.15%. And that should lead you to it. Sorry I don't have a direct link.


 
I think your information is out of date Daddy. New Ireland open these funds for a limited period and close them when they've been filled. As far as I know, the 5.15% rate closed a while ago and the current rates are lower.


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## DerKaiser (25 Feb 2013)

I'm seeing 5 year rates closer to 3% now, on a par with what you might get on deposit. 

I wonder did anyone come on here and take advantage of the 5%+ rates that were open until recently?


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## Daddy (25 Feb 2013)

ok thanks for that.   On doing a search as I did it did say limited availability.

My question though is that the guarantee is only as fgood as the Bank of Irelands so i would say not too many took up the offer with their pension funds.   Is it a lot safer now i.e very low risk.


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