Understanding pension allocation

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mc_arigead

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Hi, I started a personal pension (RAC) back in 2000 as my employer didn't have a scheme in place. I paid approx €63.50/month for around 9 years and then stopped when the economy tanked and I couldn't afford even that small amount. I wasn't very financially literate when I signed on for this plan ( New Ireland Pension Managed Fund (6) ) I just took the brokers word that it was a good plan for me (very naive), filed it away at home and forgot about it (stupid move).

I'm now approaching 40 and am almost in a position to make maximum contributions to my pension. I'm paying tax at the marginal rate so feel investing in the pension is probably my best course of action.
I dusted off the documentation this week to try and get an idea of where I stand. The AMC is 0.75% so not too bad but I'm having difficulty trying to make sense of the allocations. I have three tables titled Relevant Premium with different percentages in them. For example under Initial Investment Percentage it says "The Initial Investment Percentage at the Commencement Date is 48% of the Relevant Premium." This seems to tie in with the first table column for premiums of < £100/month.

Does that mean only 48% of my premium was invested?

Anyone on here know anything about this plan? I can reproduce the tables and any other information from the policy if it helps. If I'm reading it correctly then this looks like a bad policy and I'd like to clarify things before deciding to put more money into it. Thanks in advance.
 
This looks like a policy where the "Initial Premium" (the first two years of premium) get a 48% allocation and all subsequent years get (perhaps) a 100% allocation. But the same applies to any subsequent increase in the initial premium. But the AMC is low (ish).
What's done is done. So what you could do is maintain the initial premium ( and benefit from the low AMC) but to invest any proposed increase into a newer policy with a better initial allocation. You can certainly get 100% allocation in a newer policy but perhaps this might involve a slightly higher AMC.
I suggest you get good advice (if you know a good advisor)?
 
Thanks Conan. I fear it may be worse than a two year "Initial Premium". The policy goes on to say:

"The Adjustment Date is 22 years from the Commencement Date. On the Adjustment Date and on each anniversary of the Adjustment Date the percentages in the above table will be increased by 2.5% subject to the following maxima: Less than £100/month 95.50%."

To me this reads like 48% of premium is invested for initial 22 years after which the percentage is increased by 2.5% each year to a max of 95.5% (assuming premium stays below 100)

But then to add to the confusion there is the third section "Renewal Investment Percentage", this states:

"The Renewal Investment Percentage at the Commencement Date is 94% of the Relevant Premium. The Renewal Investment Percentage for changes in the Relevant Premium is determined in accordance with the following table: Less than £100/month - 94%"

This bit makes it look like there is a 6% charge taken on the premium.

Whatever way the charges are working they look a excessive to me.

Like you said what's done is done so I need to make a plan going forward. There is approx 8K in the plan at the moment, more than I paid in so a small consolation. Do you know if it is possible to move this to a different provider/new policy?

Conan said:
I suggest you get good advice (if you know a good advisor)?
Click to expand...

Yes totally agree. If anyone has any recommendations could the please PM me.
 
These allocations look very poor. I would cease all contributions and look for a much better deal with all future contributions. If you use an advisor they have to be paid (either by a fee upfront or by means of a reduced allocation below 100%). But you should get a much better deal than above.
 
Thanks Conan. Contributions are have been stopped since 2011 when I made a small one off payment into the fund.

Apart from a broker or advisor, where is the best place to get information on fees and charges for the different plans. The various providers websites were not that helpful when I looked earlier today.
 
With such a small premium, you are not that attractive a customer to an insurance company and it will cost them money to set up your pension. So the standard allocation rate for a premium of €63 will be below 100%. Then the advisor you used would have taken his commission as well, which would have reduced the allocation further. His initial fee to set up the policy would have been the biggest. It looks like he took 50% initial commission on that contract. He also gets a renewal commission from year 2 onwards.

It appears that the contact structure is:

Gross allocation: 98% (that's before commission is deducted)
Initial commission: 50% (48% of your money allocated in year 1)
Renewal commission: 4% (94% of your money allocated from year 2 onwards)

Now, this is a bit that most people don't know, if you increased your premium from €63 to €200, the €137 increase is subject to the initial commission treatment i.e. 48% is invested and the other €63 is at 94%. So it is not in your interests to contribute to that contract anymore.

There may also be a monthly policy fee charged on that policy and given the small premium a fee of €3.50 would equate to 5% of the contribution.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Steven thanks for taking the time to explain that. I found some more documentation yesterday and after reading it had figured out some of the allocation details.

SBarrett said:
Now, this is a bit that most people don't know, if you increased your premium from €63 to €200, the €137 increase is subject to the initial commission treatment i.e. 48% is invested and the other €63 is at 94%. So it is not in your interests to contribute to that contract anymore.
Click to expand...

Yes I found this in the policy yesterday too. Bit of a shock to be honest but not surprising really after the inital feedback here.

SBarrett said:
There may also be a monthly policy fee charged on that policy and given the small premium a fee of €3.50 would equate to 5% of the contribution.
Click to expand...

Policy quotes a policy fee of £3 per month and looking at the unit funds section there looks to be a bid offer spread of 5%.

It will be a few months before I will be in a position to make pension contributions again as I am making accelerated payments of outstanding non-mortgage debt. One thing is certain though I won't be putting any more funds into this policy.

There is approx 8K on the policy at the moment and there are no exit charges to transfer to new provider (confirmed today). Would I be better off to leave the monies in this policy or transfer it out to new policy when I start one.

BTW thanks a lot for all the responses, they really helped to clarify things for me.
 
mc_arigead said:
Would I be better off to leave the monies in this policy or transfer it out to new policy when I start one.
Click to expand...

Depends on the rate that you get for the transfer. €8,000 isn't that much to an insurance company so they won't offer a great allocation rate for it.

One thing, those 50% contracts are gone. Brokers should always be clear about the charging structure of any contract they offer. Or you could just pay a fee* instead.



*A lot of work goes into giving someone good financial advice, so you pay for what you get.



Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
SBarrett said:
Depends on the rate that you get for the transfer. €8,000 isn't that much to an insurance company so they won't offer a great allocation rate for it.
Click to expand...

Yes of course.

SBarrett said:
*A lot of work goes into giving someone good financial advice, so you pay for what you get.
Click to expand...

I appreciate that and have no problem paying for independent advice. I'm working on some short term financial goals now (clear non-mortgage debt, build emergency fund, kids college) and will be looking to commit to longer term goals (pension, investment, mortgage) once these are sorted.

What's the going rate for independent advice? Is it usually an hourly rate or is it generally more involved?
 
You seem to have a plan on what needs to be done. Best of luck with that.

I charge €120 an hour with a fixed price once I have assessed the level of work involved.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
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