# Personal Pension Choice



## Cheeer (3 Nov 2003)

Hi, I have two different providers offering me differing personal pension products:

Broker A: (provider - IrishLife )
charges - bid offer spread of 5% (reduced to 3% due to an investment allocation of 102%); 3.80 Euro/month policy fee; 1.15% management fee.

Broker B: (provider - Hibernian - Clear Plan Plus)
charges - bid offer spread of 4% (investment allocation of 96%); 4.44 Euro/month policy fee; 1.75% management fee.
This product offers a bonus of (0.75% x no. of years full monthly contrib) providing a 10 year minimum. This is added on at retirement. 

Both policies do not deal with nill allocations. The IL policy is due to break even after the second year and the HIB policy soon after that. 

I've already received projections on both policies and the IL policy has a higher fund value of 5 grand after 10 years than HIB, but the overall retirement projection places HIB in a better placing due to the bonus.

Questions: Should I pay attention to these conditional bonuses or do people generally shift policy after about 10 years or so? Also Broker B is pushing for HIB because they are under the BIAM fund managers, are they really that good? Am I getting a good deal either way?

I appreciate your help and advice as always.


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## Conan (4 Nov 2003)

All other things being equal (and they never are in reality) the Hibernian product looks best if you pay all contributions right up to the chosen retirement age (because of the bonuses). However these bonuses can be very conditional (e.g. pay all contributions, never reduce contributions etc).
So you need to consider whether you take the long term view (Hibernian ) or the medium term view (in which case perhaps the Irish Life product is best).

As I stated above this assumes all other things being equal. In reality the actual fund performance will be the real determinant of the fund value. And if I knew which fund manager was going to do best over the next 10 or 20 years, well I would be sending this response from sunnier climes that Dublin.


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## rainyday (4 Nov 2003)

Both bid/offer spreads look very high - Have you checked out low-charging alternatives like Quinn Life?


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## alannah (4 Nov 2003)

*Pension Choice*

Rainyday you are not right there. Hibernian dont have a bid offer spread on their products. The broker is offering you an enhanced allocation rate. Commission has been reduced by 50%. This means you get good value in early years so if you stop paying you dont get penalised. If you pay 10 years contibutions you will get a bonus. If you think that this will be unlikely look at Hibernian's Clear Plan - Hibernian also have 4 other fund mangagers including Montgomery Oppenheim exclusive to the pension market where i invested my pension this week !


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## rainyday (4 Nov 2003)

*Re: Pension Choice*

Alannah said


> Rainyday you are not right there. Hibernian dont have a bid offer spread on their products.



Cheer said


> Broker B: (provider - Hibernian - Clear Plan Plus)
> charges - *bid offer spread of 4% (investment allocation of 96%); * 4.44 Euro/month policy fee; 1.75% management fee.



Am I missing something? Is a bid/offer spread of 4% not a bid/offer spread of 4%?


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## Cheeer (4 Nov 2003)

*Re: Pension Choice*

Firstly let me thank you for spending the time to respond...

Now as far as my own limited experience on the dizzy subject of pensions goes... I had a look at another site and saw this explanation:

"Bid-offer spread
A charge on your pension premiums. It's the difference between the cost of buying and selling units in your fund."

So really what I was doing was to draw appropriate comparisons to keep the bid/offer spread the flip side of the investment allocation on each premium, ie: a cost to me. (is this correct?)

The Quinn Life thing has got me thinking but then my emphasis shifts to how the fund is managed and I get the feeling that just maybe the QL fund options are not specific enough for long term investments (my SSIA is with QL and I see no difference in fund choice with that of the pension)... and as the pension is 6 times the life of a SSIA. Should I not expect more specifically managed fund types. Am I being naive on the investment practices of other pension providers?

Thanks again..


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## alannah (5 Nov 2003)

*Pension*

When there isn't a bid/offer spread ! The Clear Plan Plus policy is an indemnity commission contract. Therefore the allocation rate is 95% in the first year irrespective of the premium (96% has been offered by the broker because I would imagine he has organised an extra 1% allocation rate from HIB) BUT there is no bid/offer spread on their products - Cheeer might not know that but I thought you'd know that Rainyday (Standard Life also). It doesn't make sense to say that a bid/offer spread of 5% sounds a lot and therefore check out Quinn Life. Allocation rates, bid offer spreads, risk v return, fund choice, fund management style, policy fee, commission, fees etc are just some of the factors that could and should be assessed before choice is made.


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## rainyday (5 Nov 2003)

*Re: Pension*

Hi Alannah - It's not a question of whether Cheer (or Rainyday) knows the Hib charging structure. The quotation that they have been given by their broker refers specifically to a bid/offer spread. Are you saying that even though this is included in the quotation, it won't actually be charged?


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## alannah (5 Nov 2003)

*Pension*

Hi Rainyday

I reckon Cheeer has their facts mixed up. 

The reason that there is 96% allocation rate on this particular Hib policy is to ensure that early transfer values are good hence why there is Management charge of 0.75% as well as an additional Plan Management charge of 1%. The normal allocation rate for the corresponding Clear Plan policy (allocation unit policy) would be 75%. This would have a negative effect on the values of the policy. There is no higher allocation of the "plus" product of say 96%. To compare like for like with other providers one should ADD 5% onto the 96% to come up with gross allocation rate of 101%. It is better to have no bid/offer spread as transfer value will equal notional value and there will be no penalties. Big advantage.

I also would question the analogy that Irish Life's Bid Offer spread is reduced to 3% because of the allocation rate of 102%. The bid offer spread is ALWAYS 5%. 

A gross allocation rate  is merely that. Bid offers and commission come off this figure to arrive at a net allocation rate which will determine what % of your money is allocated. 

Accumulation unit contracts are transparent. Companies offer different allocation rates depending on the premiums invested and they also differ between regular and single premiums. The higher the premium the higher the allocation rate. If a company want the business these rates can be enhanced. (Special rates were available for the month of October from a lot of companies).

Initial unit contracts were designed to pull the wool over consumers eyes in that some companies were offering allocation rates of  109% ! Broker still got 60% of the premium. So how relevant was the allocation rate then ?

In todays terms, the commission is 2.5% x term up to max of 50% and using the above example an allocation rate of say 50% would imply a commission rate of 50%.


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## rainyday (5 Nov 2003)

*Re: Pension*

OK - So Cheeer should clarify the position with the broker & post back to us.


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## Cheeer (5 Nov 2003)

*Re: Pension*

Hi alannah & rainyday...

kind-a didn't want to get bogged down on bid-offer spread, but to clarify...

The Broker A quoted to me :
"Regarding the charging structure for this fund, the charges are as follows: Bid/offer spread 5% (effectively reduced from 5% to 3% by increasing the investment allocation 
to 102%)...."

I used this as a simple rule of thumb so as to generalize my current pension fund options, but really my questions were based around the statement of:..

[from my previous post]
"The IL policy is due to break even after the second year and the HIB policy soon after that."

Now with your inputs you have mentioned Quinn Life. Broker B was pushing me HIB as it has BIAM as a fund manager, I understand that they are quite a strong performer. But then rainyday and alannah you both have mentioned Quinn Life,... in my previous post I asked...

[from my previous post]
"The Quinn Life thing has got me thinking but then my emphasis shifts to how the fund is managed and I get the feeling that just maybe the QL fund options are not specific enough for long term investments (my SSIA is with QL and I see no difference in fund choice with that of the pension)... and as the pension is 6 times the life of a SSIA. Should I not expect more specifically managed fund types. Am I being naive on the investment practices of other pension providers?"

I'd really appreciate if you could cast your experience on these questions... I'm relatively keen on QL's low charging but its really the fund performance that is bothering me,... is QL offering a self managed pension product in comparison to the HIB's and IL's?

Ta.


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## rainyday (5 Nov 2003)

*Re: Pension*



> is QL offering a self managed pension product in comparison to the HIB's and IL's?



No - they offer index trackers only.



> kind-a didn't want to get bogged down on bid-offer spread, but to clarify...


Don't mean to nitpick, but for me, the charges are a key issue. I'm still not clear - what did your broker quote you for the bid/offer spread on the Hibernian option?


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## Cheeer (5 Nov 2003)

*Re: Pension*

Really the only information I got was simply the 96% allocation (+1% adjusted). I have probably miss-used the term bid-offer spread, but it was only to define a equal footing for some basic comparison between the two.

I've looked on the HIB website and there's no mention of a bid/offer spread there either for the Clear Plan Plus!

I've also just noticed that Broker B is charging 1.75% management fee instead of the HIB's documented 0.75% (this could be due to the fund management he wants me with, namely BIAM) but this would surely negate to some degree the additional 1% being offered in the premium allocation!


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## Alan Moore (5 Nov 2003)

*Pick on someone else....*

Tried to resist staying away from this thread due to the risk of sounding like a broken record in giving the AAM belief that Quinn is cheap as chips a bit of a bashing.

Rainyday, you said that

"the charges are a key issue" for you. 

Now my understanding and I stand to be corrected is that Quinn Life run index tracked funds which don't get the benefits of dividends. So is the 1% charge, a charge on the increase in the index i.e. the real cost I suspect is 1% plus the dividends foregone (and I also suspect that this is the reason Quinn don't have a PRSA - i.e that the real cost is not transparent).

In another thread I have asked why are Quinn being recommended as "The pension solution" and nobody has been able to give me an answer.


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## rainyday (5 Nov 2003)

*Re: Pick on someone else....*



> which don't get the benefits of dividends.



That is not my understanding, but I'm open to correction too.


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## Alan Moore (5 Nov 2003)

*Further evidence......*

From "The Motley Fool":

"One complication you should be aware of is that most indices don't include the dividends paid out by their constituent companies. Dividends make up a significant element on the returns generated by shares so bear this in mind if you want to compare the performance of any of your investments against an index." 

[broken link removed]

Again I suspect that Quinn is one of these and the fact they have not got a PRSA would lead me to further believe this.

Another piece of evidence. All insurance companies peddle their wares to AA's. Quinn don't. In my days with Equitable Life we did ( even though no commission was payable ). Equitable Life got a reasonable amount of AA business.

And again, I could be wrong on this one but doubt it.


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## Skinflint (5 Nov 2003)

*.*

According to Brendan in this topic (  ) QL Freeway funds do reinvest dividends.


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## Alan Moore (5 Nov 2003)

*Cheers.....*

Good man, I stand corrected. However I stand over the original contention. Why does AAM consider Quinn Life to be "The Pension Solution"?


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## cheeer (6 Nov 2003)

*Pension*

Cheeer - I think you are getting confused. I have just read the full product details of Clear Plan Plus at:

www.hibernian.ie

Download brochure and look at plan details (page 13 of 16). You will note that normal allocation rate is 70%, the reason your quoted rate is higher is because commission has been reduced but then that would have been disclosed to you ? The fund management charge is 0.75% and a plan management charge of 1%. A loyalty bonus is payable if you pay 10 years premiums. The extra 1% is to make up for the fact that early transfer values are very high. 

The Open Plan product might be more suitable.

Otherwise go talk to a fee based advisor for proper advice. I do not not think with all due respect that you have the knowledge to go down an execution route. The single most important aspect of a pension is the actual fund performance. Hibernian offer over 35 funds and 5 fund managers. Most of the other main companies also offer choice eg New Ireland, Irish Life. Why would one stick to one company eg QL who could get it horribly wrong unless its Standard Life.

I agree with Alan on the Quinn Life issue and similar arguments in relation to Lifetime (BOI Life) and Ark Life. Just because there is no 3rd party intermediary doesnt necessarily mean that there product is better.

There is nothing stopping you Cheeer from getting a number of opinions from a number of advisors and then after deciding which company go to a fee based execution broker who will act as agent for the policy for something ranging from €70 to €190 upwards. However you are then on your own. If you know when to move funds good luck to you. The 2 other options available to you are single premiums or PRSA but then that's another story......................


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## alannah (6 Nov 2003)

*sorry*

My apologies cheeer I put the wrong user name in  - the last reply was mine.

alannah


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## Skinflint (6 Nov 2003)

*.*



> he single most important aspect of a pension is the actual fund performance.



And that is the one thing that nobody can predict - not even the highest paid or most skilled intermediary/advisor. Conversely, at least the charges levied are a known quantity and choosing the lowest possible is a good bet on the lowest drag on performance over time. Having said that I'd agree with Alan's point (here and elsewhere) that what might seem like or be presented as a great deal (e.g. QL 1% p.a. only on lump sums or 1% p.a. plus €3.81 per month on regular contributions) may be beaten by other products, possibly those only available on an execution only or advisory basis from some sort of intermediary. Even an execution only customer may need to engage with an intermediary in order to navigate the complex sea of charging structures which are not always made transparent to the general public. Of course others may want to talk to an advisor in order to obtain more wide ranging general financial advice, fact finds etc. in any case. However, somebody who understands a little about investments, the markets, risk/reward profiles, fund selection etc. should not be discouraged from taking the execution only route in my view.


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