# pension funds only averaged 4% over last 10 years



## joe sod (5 Mar 2008)

all the fuss and ads about investing in pensions yet the funds only averaged 4% over last 10 years, they have barely kept up with inflation, the irish pension funds industry (or lack of industry) needs a serious shaking out, more bad publicity for irish financial services (or lack of service), irish people should move there money to the best performing international funds


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## dewdrop (5 Mar 2008)

i think i recall the 10 year return prior to the recent turmoil was much higher


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## LDFerguson (5 Mar 2008)

The recent over-correction has skewed the average.  Average over 15 years is 9.5% per annum.


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## ClubMan (5 Mar 2008)

Somebody with 70+ posts should know the rules at this stage. 

Moved from  Savings and Investments.


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## ClubMan (5 Mar 2008)

joe sod said:


> irish people should move there money to the best performing international funds


Plenty of _Irish _pension products offer "international" funds.


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## joe sod (5 Mar 2008)

ClubMan said:


> Plenty of _Irish _pension products offer "international" funds.


 
well if plenty offer international funds they obviously don't do too much about them because the average is still only 4%, i agree that the average can be skewed depending on where you chose your reference point, however for years financial services people have been doing this to make their products look more impressive to the layman, you can also argue that 10% returns previously (before the big sell off) have been skewed too because they were selective in their reference period namely the celtic tiger years, if they had made their reference period longer to include the 1970s and 80s , with high inflation and poor returns then you would see very low even negative returns, this is also a more realistic period because it is the average lifetime of a pension. When i mentioned international funds i mean the best ones operated outside ireland with the best international expertise, the irish ones are not properly diversified and are too focused on the iseq


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## LDFerguson (5 Mar 2008)

joe sod said:


> well if plenty offer international funds they obviously don't do too much about them because the average is still only 4%


 
You're misinterpreting the survey. The survey from which I presume you're quoting picks *one* Managed Fund from each fund manager. The survey doesn't follow every fund each manager offers. 



joe sod said:


> When i mentioned international funds i mean the best ones operated outside ireland with the best international expertise


 
Plenty of Irish pension funds offer access to international fund managers, e.g. Fidelity, Threadneedle, Wilshire etc.



joe sod said:


> the irish ones are not properly diversified and are too focused on the iseq


 
If you feel that a particular pension fund is too heavily weighted in the ISEQ, there are literally hundreds of alternatives to choose from that have no exposure whatsoever to Ireland. If you want all US and no Europe, you can have that. If you want Asian small caps, you can have that too. 

My point is that it's too much of a generalisation to be suggesting that Irish people are being badly treated by the Irish pension fund management industry _*just*_ because _one_ survey over _one_ time period measuring the past performance of _one_ fund per manager doesn't appear that attractive.

Incidentally - you say that "irish people should move there money to the best performing international funds"
Can you show us examples of a couple of such funds and how they have performed over the same 10-year period?


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## joe sod (6 Mar 2008)

"Plenty of Irish pension funds offer access to international fund managers, e.g. Fidelity, Threadneedle, Wilshire etc."

and they charge a fee for doing this, cut out the middle man and just go directly into these funds, its like using an irish broker to buy foreign stocks, they take a huge cut themselves, it is far cheaper and more efficient to use foreign brokers,


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## LDFerguson (6 Mar 2008)

joe sod said:


> "Plenty of Irish pension funds offer access to international fund managers, e.g. Fidelity, Threadneedle, Wilshire etc."
> 
> and they charge a fee for doing this, cut out the middle man and just go directly into these funds, its like using an irish broker to buy foreign stocks, they take a huge cut themselves, it is far cheaper and more efficient to use foreign brokers,


 
And if you do that, you lose tax relief of up to 41%, PRSI relief of up to 6% and tax-exempt gains, as to do this would be bypassing a pension structure.


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## askalot (6 Mar 2008)

The following figures are from the Eagle Star website. Their performance fund has a growth of 728.50% from 01/11/89 (the fund's launch date) to 05/03/08.

How do you calculate the annualised return?


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## DerKaiser (6 Mar 2008)

Term = 18.5 years, so 7.285 ^ (1/18.5) = 1.113 i.e annualised return of 11.3% since the fund was set up.

These things vary hugely depending on dates selected, I'd venture that the current 10 year return of 4% p.a. is as bad as it's been for a long time.

Gilt funds would have averaged 6% p.a. with cash coming in at just under 3.5% p.a. over the period.


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## joe sod (7 Mar 2008)

LDFerguson said:


> And if you do that, you lose tax relief of up to 41%, PRSI relief of up to 6% and tax-exempt gains, as to do this would be bypassing a pension structure.


 
Therefore the tax system is benefitting the irish pension funds industry, as i suspected, i don't have a pension, l look after my own money, if the government were to open this up and allow people to access foreign funds with the same tax reliefs, it would shake things up, its another example of a cosy little club in operation, shane ross's article in last weeks independent shone a cold light on their carry on, and their complete lack of concern on their shambolic performance, it is required reading for anyone with a pension fund


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## DerKaiser (7 Mar 2008)

As has already been pointed out, there are plenty of managed funds that target specific foreign markets.  I think you'll find you should be able to invest in these for an annual management charge of 1% or less if you shop around.

There are no barriers to entry in the irish pensions market (not for large international players at least).  I think you'll find that many of the large international pensions providers do business here.

You do seem to be peddling the same line as Shane Ross.  There is no monopoly here, it's an efficient market, companies are free to enter and people are free to invest their monies as they please.  If they want to avail of tax breaks then this must be done within the regulated market


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## Askar (8 Mar 2008)

I don't agree that the Irish financial market is efficient. Management charges of 1% plus for basic index funds are not, imo, good value compared with, for eg., Fidelity in the Uk, where basic index trackers can cost 0.3% p.a. Of course, the usual line is that economies of scale are not the same here - but that is because it is a differently regulated market to the UK. Country specific regulation operates to create barriers and reduce efficient entry. Many industries (including the financial industry) have been incredibly good at partitioning markets, thereby create entry barriers and reducing scope for efficiencies, despite the avowed free movement of goods and services mandate that is suppose to underpin the EU. 

DerKaiser, are you a financial service provider?


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## DerKaiser (9 Mar 2008)

I work for one alright.  I'm not in Sales or Investment management.  

I agree with you that 1% management charge is not good for an index tracker when there are plenty of providers offering actively managed funds for 0.75%.  I wouldn't buy the economies of scale arguement either as many providers here are simply branches of international insurers.

I think banks, insurers and investment providers get a lot of attention from the media and in regulation because they are a soft target.  If you're looking for inefficiencies take a look at the HSE, if you're looking at customers suffering due to lack of regulation look at the building trade, if you're looking for cartels look at the motor industry.  Sure banks and insurers could be more efficient but they are performing well compared to best international practice.  This is not true of many other sectors.


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## Askar (9 Mar 2008)

DerKaiser,

I understand that you are sensitive about your industry, but I do not believe that it is efficient. Imo the various problems you highlight in other industries are, to some extent, also present in the finnancial services industry. Btw, I think regulation is a great means of creating entry barriers and reducing market efficiency. Even the Irish 

As for 'actively' managed funds I tend to try to avoid as I do not have the  information to choose the 1 in 5 that may possibly beat an index in the time frame of my investment. I just want my costs as low as possible and my asset allocation properly diversified.


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## LDFerguson (10 Mar 2008)

joe sod said:


> Therefore the tax system is benefitting the irish pension funds industry, as i suspected


 
It's also benefitting the millions of Irish individuals who have availed of the tax reliefs. When you say "as I suspected", you make it sound as if tax relief on pension was some sort of secret, known only to a select few in the business. Literally millions of Irish people have benefitted from these tax reliefs. 



joe sod said:


> if the government were to open this up and allow people to access foreign funds with the same tax reliefs,


 
I repeat what I said earlier - there ARE foreign funds available in Ireland with the same tax reliefs.  In addition, the Government has imposed NO restrictions on foreign fund managers offering their funds for sale here through pension funds.    

I await an answer to my earlier question: - 



> Incidentally - you say that "irish people should move there money to the best performing international funds"
> Can you show us examples of a couple of such funds and how they have performed over the same 10-year period?


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## LDFerguson (10 Mar 2008)

The Shane Ross article has already been discussed here and again in the thread that's linked to.


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## DerKaiser (10 Mar 2008)

Not overly sensitive Askar, trying to give an informed view.  

I think most providers would prefer less regulation but it really isn't a barrier to entry for serious competitors.  If there's enough demand for a product it will be provided competitively.  

Charges could be reduced with lower regulation.  Charges are also lower for execution only deals where the customer waives the right to advice.  I think these type of measures benefit only the most savvy of investors.


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## joe sod (10 Mar 2008)

aberdeen asia pacific and japan fund (10.1% 10 year anualised)
aberdeen european smaller companies fund (10.02% 10 year annualised)
aberdeen UK emerging companies fund (5.82% 10 year annualised)
aberforth UK small companies fund (13.51 % 10 year annualised)

and thats just funds beginning with 'a' , i didn't bother going into the rest of the alphabet, are any of these available to irish people, i doubt it, so the choice of funds is extremely limited to an irish person in comparison to an english person


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## DerKaiser (10 Mar 2008)

Looking up the 3 year return on the Aberdeen Asia Pacific fund gives +42.8% return.
Eagle star's 5*5 Asia Pacific returned 56.0% over the period. Over 1 Year Eagle Star returned -4.35% compared to +2.6% for Aberdeen. 

My conclusions are that that fund is available to the Irish pensioner and i have no evidence of Irish fund managers being inferior.

As for UK emerging or small companies fund, I have no idea if they are available, but doubt they are widely available (or sought after!) outside the UK.


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## LDFerguson (10 Mar 2008)

Standard Life's UK Smaller Companies Fund has returned +15.5% per annum from launch in April 2005 to 31st January 2008. Can't find the exact comparable time-frame for the Aberforth UK Small Companies Fund but over 3 years to 7/3/2008 it has achieved +7.3% per annum.

Now as we all know here on Askaboutmoney, part performance is not a guide to future returns, but I think you can safely say that there are plenty of competitive international pension funds available in Ireland through any broker if you want them. There are no cosy cartels or conspiracies trying to keep us Irish from investing our pension funds in international funds if we want to.


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## Raskolnikov (11 Mar 2008)

I think the big issue on pensions in this country is the ignorance of employers in choosing funds for their employees. I know my former company offered a Bank of Ireland based property fund that would have cost a lot of my former colleagues badly. There is also the issue of management fees. Like a few posters have mentioned, some Irish pension charges are ridiculously high.

So if you ask me, I think employers need to shop around and source funds with the lowest transaction fees for their employees.


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## joe sod (13 Mar 2008)

DerKaiser said:


> Looking up the 3 year return on the Aberdeen Asia Pacific fund gives +42.8% return.
> Eagle star's 5*5 Asia Pacific returned 56.0% over the period. Over 1 Year Eagle Star returned -4.35% compared to +2.6% for Aberdeen.
> 
> My conclusions are that that fund is available to the Irish pensioner and i have no evidence of Irish fund managers being inferior.
> ...


 
i specifically chose funds with performance over 10 years (at least), however to get a true weighting you would need a longer time frame to analyse with regard to the lifetime of a pension. Eagle star asia fund produced 56% only over your lifespan of 3 years, what about 10 years or longer, you are not comparing like with like, berkshire hathaway (buffets fund) produces low returns over certain short term periods, however its over the long term that it outperforms everything, give me funds here that produce 10% returns over at least 10 years, then i will say that is good and that compares well with its international peers


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## askalot (13 Mar 2008)

Hate quoting myself but!



askalot said:


> The following figures are from the Eagle Star website. Their performance fund has a growth of 728.50% from 01/11/89 (the fund's launch date) to 05/03/08.
> 
> How do you calculate the annualised return?



Thanks to DerKaiser for this



			
				DerKaiser said:
			
		

> Term = 18.5 years, so 7.285 ^ (1/18.5) = 1.113 i.e annualised return of 11.3% since the fund was set up.





			
				joe sod said:
			
		

> give me funds here that produce 10% returns over at least 10 years, then i will say that is good and that compares well with its international peers



Seems the Eagle Star Performance fund fits the bill.


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## DerKaiser (13 Mar 2008)

The Asia Pacific fund started in 2004 so there are no 5 or 10 year returns.


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## joe sod (13 Mar 2008)

Well can you not find one with 10 year returns to compare it too (with regard to asia pacific fund started 2004) this is not a comparable fund, the eagle star fund does fit the bill and does stand up when compared to its peers, however there are too many funds that do not stand up and are being chosen without regard to pedigree or history, this is the reason why the bulk of irish based funds have such poor returns over 10year and greater periods, consumers are not discerning and are bamboozled with financial gobbledygook, therefore they choosing poor performing funds which allows these to continue rather than being weeded out, the irish funds have by and large been riding the wave of the celtic tiger and have come crashing down with that wave


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## DerKaiser (13 Mar 2008)

your initial point was that you could not access foreign funds.  That was quickly disproved.

I'm not going to look at a weighted average of the ten year return on all asia pacific funds available to irish pension funds.  You claim such a return would be inferior compared to its benchmark so you need to validate that claim.

I can't think of a response to the rest of your post because I don't know if you're blaming the fund managers for being crap, pension scheme trustees for sticking with crap fund managers or individuals for not having a go at their crap trustees for their use of crap fund managers.


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## LDFerguson (13 Mar 2008)

> this is the reason why the bulk of irish based funds have such poor returns over 10year and greater periods


 
In no particular order...measured over 15 years to 3/3/2008 if you want truly long-term...

Eagle Star Dynamic +11.7% p.a.
Acorn Life Pension Managed Growth +10.2% p.a.
Eagle Star Balanced +11.2%
Eagle Star Performance +11.4%
Friends First Irish Equity +12.9%
New Ireland Pension Irish Equity 3 +13.7%

I can provide more.


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