# Is 47% of first year's contributions a reasonable fee?



## sickaroll (9 Apr 2013)

Hi all,

I signed up to a pension scheme with Zurich through a financial advisor recommended by the company. I contributed about 7% of my gross to this fund for the year. I got my first year financial health statement back from Zurich and was horrified to discover that a little over half remained, in what seemed like a good year, financially.

In the heal of the hunt, it turned out that there's a clause on the 4th paragraph of the 12th page of documentation he sent to me (after I signed up I might add) that says:

"Percentage of Premiums used to purchase units at the Ruling Offer price:
First 12 monthly premiums 53%
Subsequent Premiums 99%"

In order to break even on this exception level of tithe, I'll have to invest at this level for 4 more years; if I try to speed that up, say by doubling my contributions, my FA will take 47% of that too! He has nothing to lose if I want to fire him either, he's taken 32 years commission in 12 months, and reserved the ability to take his slice of every increase I make until I'm 64? When he's extremely unlikely to be in business.
As I asked him myself, who'll be earning this extraordinary commission in 2040?

Is this even remotely usual? It seems excessive in the extreme. I feel like I've been scammed.

What's more, there's little to be gained from firing my FA either, he took 30 years' commission up front, it saves him quite a bit of hassle not to have to answer my questions. 

If this is common practice, it's no wonder people don't have pensions.

I have to say, I find them both shocking and punitive. I could just be naive, which is why I came here before going any further.  
Buyers of pensions; did you pay half of your Premiums to a broker/advisor?  What happens if you increase your premium?


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## burmo (9 Apr 2013)

What did the documentation say that you actually signed?

And yes, that sounds absolutely mad and it sounds like you will be slapping him around the head with the ombudsman soon enough.


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## sickaroll (9 Apr 2013)

Initial documentation was an invitation to join the plan; it contained the FA's Ts & Cs, grievance procedure, and an appendix of financial orgs he works with, 8 pages in all.  Pension levy, fun management fee are mentioned on it, but only a note to say that a commission is returned to the FA by the Financial orgs, and that details are included in Appendix A (they aren't).


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## Protocol (9 Apr 2013)

No, it's not unusual.

Pensions commissions, fees and charges are criminally high in Irl.

I was paying *8% of each and every premium* in commission to an Aviva branch employee, even though I thought that I'd save money by bypassing a broker middleman.

AFAIK, the only solution is to use a discount broker, like www.labrokers.ie or www.ferga.com, there are others, search AAM.


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## sickaroll (9 Apr 2013)

Thanks Protocol, that sounds like it might be just the ticket; the fund I'm in seems decent, if I could get rid of my next to useless thief broker, and raise my contributions with them I'd be pretty happy, particularly if I could monitor the value online.
Now, either I write off the 47% my broker effectively stole, and chalk it down to a bad experience, or I pursue him for some of it.  Definitely complaining anyway, I owe him that much.


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## sickaroll (9 Apr 2013)

Of course, there's Option C..  complain about him, reduce my contributions to the fund he manages, open a second PRSA (can I do that?) with a different Fund (for redundancy, in case Zurich go titsup).  That way he has to work for the next 30 years managing half my pension, and the other one lets me increase my premiums over the years without stealing any of it.


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## David Quinn (1 May 2013)

I would agree with the previous poster. Assuming no penalties, I would stop paying into that scheme completely and start a new one. Use a discount broker or fee based advisor to ensure you know exactly how much you are paying. As an added bonus, the life company may also clawback some of that initial commission paid to your broker if you stop premiums now. Either way, it would be crazy to continue in that contract for the longer term.


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## IrishRain (2 May 2013)

It soulds like its not a PRSA you took out but a personal pension.  Maximum premium charge is 5% and maximum Management charge is 1% on Standard PRSA's.  Personal pensions can have an initial commission of up to 50% of the first years premium but in practice most brokers would not take anything like the maximum.

You have already paid the initial charges so taking out a new policy and making this one paid up might not be in your best interest as you have already paid the up front charges. You will have to pay upfront charges on any other pension you may take out.  
Firstly I would get an estimated value from Zurich assuming no more premiums are paid and also assuming level premiums continue.  (Any increase in premium will incur 50% charges also)
Then shop around and get an estimated value if you were to take out a new level pension now.  You will be able to see if its worth your while continuing with this plan or starting a new one.
The important things to consider when comparing pensions is allocation rate, fund management charge and any plan charge.


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## LDFerguson (2 May 2013)

IrishRain said:


> You will have to pay upfront charges on any other pension you may take out.


 
Althouh pension contracts with up-front charges still exist, it's certainly not true to say that you would have to pay up-front charges on any pension.  

An increasing number of pension products are arranged these days with no up-front charges - just the annual charge.


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## McGaggs (26 Jun 2013)

Did you take the policy out recently? You could cancel the policy within the cooling-off period and get your premum back if you're within the time limit.


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## Importer (26 Jun 2013)

This kind of thing makes my blood boil. When will these Scammers let up.

I've been managing my own pension for years for exactly this reason.
I would never tolerate this type of (over)charging structure.


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## Bronte (27 Jun 2013)

Amazing story from the OP.  How can it be in this day and age he didn't know the fees he would be charged.  Was he really not allowed a cooling off period and can they get away with burying the commissions deep in the small print.  At least it will serve as a warning to others.


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## DerKaiser (27 Jun 2013)

Importer said:


> This kind of thing makes my blood boil. When will these Scammers let up.
> 
> I've been managing my own pension for years for exactly this reason.
> I would never tolerate this type of (over)charging structure.


You tend to get extremes in the level of engagement people have in managing their pension. Some will trust the broker and let them at it, whilst others trust no one and try manage it all themselves. 

I disagree with both approaches for the average person. Unless you have an extremely large level of investment or simply love managing your own financial affairs (and are financially literate enough to do that), spending enormous amounts of time trying to figure out the subtleties of the various product and fund offerings can be quite frustrating and indeed counterproductive.

There is a happy medium whereby you challenge your broker by doing some basic research on typical charges and keeping them honest.


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## DerKaiser (27 Jun 2013)

Bronte said:


> Was he really not allowed a cooling off period and can they get away with burying the commissions deep in the small print.  At least it will serve as a warning to others.


Of course there would be a cooling off period, maybe 30 days. The problem, as with this case, is that you might not review your documents until 12 months later. 

Commissions, and charges, are disclosed in accordance with very specific regulations. They are contained in tables in an a4 sized document. There's debate on how user friendly they are, but a pension is a long term commitment and it's worth investing time in fully running through all the documentation.


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## DerKaiser (27 Jun 2013)

IrishRain said:


> You have already paid the initial charges so taking out a new policy and making this one paid up might not be in your best interest as you have already paid the up front charges. You will have to pay upfront charges on any other pension you may take out.
> Firstly I would get an estimated value from Zurich assuming no more premiums are paid and also assuming level premiums continue.  (Any increase in premium will incur 50% charges also)
> Then shop around and get an estimated value if you were to take out a new level pension now.  You will be able to see if its worth your while continuing with this plan or starting a new one.
> The important things to consider when comparing pensions is allocation rate, fund management charge and any plan charge.


Sound advice. 
I'd suggest you get you broker to do the work!


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## Stkeogh (1 Jul 2013)

I work in the industry and that seems absolutely ridiculous. I have never heard of that before. Brokers would have taken big commission in 2006 but not any more. If you switched your fund to another provider he would get a clawback in commission if the pension was set up in last year. You should be getting 98-99 percent allocation on regular contributions from day 1.


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## simp (17 Sep 2013)

I'm talking to a broker at the moment about starting an executive pension, and he's offering a tailored basket of Irish Life funds for 100% allocation and 1.45%pa - does this sound reasonable?


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## Steven Barrett (17 Sep 2013)

simp said:


> I'm talking to a broker at the moment about starting an executive pension, and he's offering a tailored basket of Irish Life funds for 100% allocation and 1.45%pa - does this sound reasonable?



You are paying his fees by paying a higher management charge. In the long run, you will pay more by doing that. Pay him a fee instead and get a lower management charge on the contract. Or else consider the broker fee coming straight out of your allocation rate and a lower management fee. 


As for the OP, that's a disgrace. I thought the 50% initial commission structure was gone and no one did that anymore. I am obviously wrong. If it is a personal pension plan, look through all the paperwork he gave you as there is a disclosure obligation. But as Dave said, cancel the plan immediately. If you just started it, he will have a massive commission clawback.


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