Pension "fragmentation" and options for consolidation

“But how often are you going to have two (or more) pension products that invest in exactly the same underlying assets to make such a comparison meaningful? Index trackers tracking the same index maybe, but anything else is surely apples and oranges? Don't we (in Ireland) simply have to accept that TER may be higher than the stated headline charges and work within that constraint? Unless something like a self managed/directed (?) pension is an option which I presume is only an option for high net worth punters?”

It doesn’t matter if your PRSA invests in one option and the occupational pension another.

All you are trying to establish is the answer to your question; “what should I expect the actual costs to look like for each plan?”

Let’s say for sake of argument that the occupational scheme says it also has an AMC of 1%.

How are you supposed to compare the merits of moving the PRSA to the occupational scheme?

All you can do is pick one or more funds from each scheme against which you can measure against a relevant benchmark.

Yes an index fund with a recognised index is ideal.

That this might tell you is that the PRSA returned say 1.5% implied cost but the occupational scheme 1.25%

It’s not foolproof but at least it’s giving you another way of looking at the comparative merits of the two options.

In practice a more relevant consideration is the availability of relevant investment options.

If your prsa only offers (and I’m being flippant) an Irish equity fund and a cash fund and the occupational scheme offers global developed equites, emerging market equities, euro hedged bond funds, cash, REITs, specialist funds like value weighted and smaller cos then it’s a slam dunk, go for the occupational scheme.
 
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Thanks Stephen

If that is not possible then isn't it going to be very complicated at retirement time dealing with three/four pensions separately? It is not complicated at all. A bit more paperwork alright but that's about it.
OK - so paperwork alone is not a reason for "consolidating"?
Are PRSAs, PRBs, PPPs and occupational pensions treated differently at retirement time or are they all aggregated when calculating things like 25% tax free lump sum, ARF/AMRF purposes etc.? - Occupational pensions & PRB's give you the option of up to 150% final salary as a lump sum (based on years service).
I presume that the 150% is taxed?
If (as I expect) my new employer's occupational scheme has higher charges than my current PRSA can I contribute the minimum to take advantage of their matching contribution and then use my PRSA for the rest of my age related tax relief limit? - You must use a PRSA AVC plan in this case. Employer schemes are very competitively priced these days, so they should be cheaper.
OK - it's a while since I was in an occupational scheme but when I was the charges were outrageous. This may have been back in the days of the first year or two of contributions going in charges which I presume is no longer the case?

BTW - I thought that a PRSA was a PRSA. What exactly is a PRSA AVC? Does this mean that I would need to start yet another PRSA or could I use my existing one(s)?
Can the new employer unilaterally change the pension benefits like this or do I have any statutory rights in this respect? - I don't manage group schemes but I am almost sure they can.
I thought that TUPE legislation might have some relevance here?
 
No, the 150% is tax free up to €200,000. The next €300,000 after that is taxed at 20%.

The days of the first 2 years contributions being taken up in fees are well gone. Those policies don't exist anymore. There has been a lot of downward pressure on fees in recent years. Depending on the size of the scheme, fees can be very cheap.

A PRSA is not a PRSA. That was a marketing trick. if you are in an occupational pension scheme and want to make extra contributions through a PRSA, it must be a PRSA AVC plan that is linked to the main scheme. You can also make AVCs directly into the main scheme. If it is an occupational PRSA scheme, you can top up into that plan.


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

You can also make AVCs directly into the main scheme. If it is an occupational PRSA scheme, you can top up into that plan.
The thing is that the contract that I have seen says 3% employer contribution and a maximum of 5% employee contribution to the occupational plan. This seems odd and maybe mistaken to me. As I mentioned early I am waiting for more clarification on these issues from the company.
A PRSA is not a PRSA. That was a marketing trick.
To be fair I didn't get that impression from the providers but rather from the statutory bodies tasked with providing info about PRSAs. They gave the impression that PRSAs were a lot simpler (and more cost effective) than alternative options. Looks like that is not necessarily the case... o_O
 
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A standard PRSA has an allocation rate of 95% and annual management charge of 1% and has a vastly restricted fund choice. I wouldn't say they are more cost effective than a lot of alternatives.

And certainly not simplier. You can read some of the differences here and here


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
A standard PRSA has an allocation rate of 95% and annual management charge of 1% and has a vastly restricted fund choice.
This is not quite correct. A standard PRSA has a MINIMUM allocation rate of 95% and a MAXIMUM AMC of 1%. Mine has an allocation rate of 100% and an AMC of 1%. I have seen many people make this mistake about standard PRSA charges for many years.
 
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This is not quite correct. A standard PRSA has a MINIMUM allocation rate of 95% and a MAXIMUM AMC of 1%. Mine has an allocation rate of 100% and an AMC of 1%. I have seen many people make this mistake about standard PRSA charges for many years.

What I meant is that most PRSA's are charged under that structure. There are of course different ones too.

There are lots of personal pension contracts out there with 100% allocation and a 0.5% amc

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Of course the disclosed charges are a complete red herring.

Remember that pensions in Ireland are not subject to a formal disclosure regime.

PRSAs are subject to an entirely different regime to everything else under watch of the Pensions Authority.

All the allocation rate and contract charge really tell you is what commission option you signed up to. It doesn't give you any information about the real charges on your pension.
 
Of course the disclosed charges are a complete red herring.

Remember that pensions in Ireland are not subject to a formal disclosure regime.

PRSAs are subject to an entirely different regime to everything else under watch of the Pensions Authority.

All the allocation rate and contract charge really tell you is what commission option you signed up to. It doesn't give you any information about the real charges on your pension.
So you keep saying @Marc but, in practice, many/most punters can't do much about this as there's not always any like for like index/fund to compare against to get a better idea of effective charges.
So, it seems to me, that until/unless the powers that be introduce a more transparent disclosure/reporting this is moot and punters just have to suck it up and simply repeating that the situation is unfair doesn't really help?
 
What I meant is that most PRSA's are charged under that structure. There are of course different ones too.

There are lots of personal pension contracts out there with 100% allocation and a 0.5% amc
Thanks @SBarrett- can you clarify what you mean by personal pension contracts here?
PRSAs? Personal Pension Plans? PRBs? Something else? All of these?
 
@ClubMan

We seem to be at cross-purposes

I'm not saying this just because its unfair, I'm saying it because its misleading to focus on it.

If a post mentions allocation rates or annual charges as being a reason for doing "x" course of action it is simply the case that the post is describing a commission schedule not the fees charged to the investor.

I've lost count of the number of posts that talk about allocation rates as if these were somehow in the interests of the investor when in reality they simply reflect the payment terms negotiated by the adviser.

The adviser is an agent of the insurance company and is paid by the Insurance company when operating on commission.
 
What I meant is that most PRSA's are charged under that structure. There are of course different ones too.
Thanks @SBarrett- can you clarify what you mean by personal pension contracts here?
PRSAs? Personal Pension Plans? PRBs? Something else? All of these?

Personal Pensions.

Although Personal Retirement Bonds (also known as Buy Out Bonds) are also available at that price.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
If a post mentions allocation rates or annual charges as being a reason for doing "x" course of action it is simply the case that the post is describing a commission schedule not the fees charged to the investor.
You've lost me. Again.
How on earth do allocation rates and annual management charges NOT reflect the charges payable by the customer?
I'll allow that there could be ADDITIONAL effective charges that are not transparent but, as I've said, the average punter has little insight into and practically no control over these...
I've lost count of the number of posts that talk about allocation rates as if these were somehow in the interests of the investor when in reality they simply reflect the payment terms negotiated by the adviser.
How is an allocation rate of 100% (or more) NOT in the customer's favour?
 
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How is an allocation rate of 100% (or more) NOT in the customer's favour?

You are paying for the additional allocation through a higher annual management charge.

Example:

Option 1: 101.5% allocation, 0.5% amc
Option 2: 103% allocation, 0.75% amc
Option 3: 105% allocation, 1% amc

In a lot of instances, the client doesn't know of these extra allocations. Just had a case yesterday where the client had loads of different single premium policies. Broker was taking 5% on each payment and making thousands. Client didn't have a coherent investment strategy, just a lot of expensive pension plans.

But back to allocations, say the clients gets the full additional allocation, this is a €100,000 investment after 20 at 5% gross growth:

Option 1: €244,788
Option 2: €236,787
Option 3: €230,067

The world of smoke and mirrors


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
And, again, I'll say...
How on earth do allocation rates and annual management charges NOT reflect the charges payable by the customer?
I'll allow that there could be ADDITIONAL effective charges that are not transparent but, as I've said, the average punter has little insight into and practically no control over these...
 
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