5% contribution charge... why is nobody complaining?

Get a life

Ah get a life. This thread is full of the usual windbags with dumb and simplistic answers to a complex market. For God's sake 5% of WHAT?

You keep barking on about 5% being poor value, but not a thought about 5% of WHAT. That's pretty stupid. If it's 5% of 100k to do a job that's one thing, but if it's 5% of €1,000 in a year that's a miserable €50.

And €50 will buy you what? Sod all. So get a life. If it falls to 1% you'd save WHAT? About €40 in a year for the average poor man's pension aka PRSA - and all those acres of room in the media barking up this stupid tree. Honestly, adults should know better. Get a life!!!!

I agree with Laser - 5% is very little if the contribution is small. I couldn't find what the minimum monthly contribution is? But it's probably €10 per month.

I doubt if the pension companies will make any profit at all on PRSAs unless they can attract lots of employees contributing €10k a year.

In the UK, something like 80% of stakeholder pension schemes have no members. I would guess that 80% of PRSA schemes will have no members either. So the institutions will have lots of costs with no revenue.

We set up our company scheme with AIB for convenience and to meet the 15 September deadline. If there is a heavy take up and a lot of contributions, we will probably switch to a lower cost provider.

Brendan

I agree with Laser...

Yes - and his/her opinions were so well expressed too! :rolleyes I still don't understand why the annual management fee of c. 1% on the full value of the fund cannot be sufficient to cover the expenses of all of the interested parties involved in setting up and managing a pension fund. Perhaps somebody can explain to a simpleton like me why this is not possible so I can then go off and get a life?

x% is x% regardless of the amount being contributed. If I can only afford €10 a month then a fixed percentage charge affects me as much as it does the high rollers who can make larger contributions. While I accept that any service costs money and there is some level below which certain activities are simply not commercially/financially viable I don't see what the problem is with pushing for even lower charges and better value.

:\

Well obviously Laser does not understand the principle of compounding. 5% is very little? You can buy thousands of US Mutual Funds for far less than a 6% annual charge on your account. I'd be prepared to pay a fair percentage if I trust the fund manager to get a decent return (ie better than the annual fee plus inflation). The only reason they get away with 6% here is because of the tax relief -- in other words banks being subsidised by the government.

I won't be buying a 6% PRSA. Only in Ireland would the financial services industry get away with such a This post will be deleted if not edited to remove bad language product

I won't be buying a 6% PRSA. Only in Ireland would the financial services industry get away with such a This post will be deleted if not edited to remove bad language product.

Of course, if you shop around you don't have to buy a such a product and you can relatively easily get one for a fixed up front fee and 1% p.a. only. At least this is better value than 5% up front/1% p.a. but I don't see why some people seem to have such a problem with me suggesting that there may be potential for charges to be even lower... :\

Hi ClubMan

I have no problem with anyone trying to get the charges down below 5%.

5% is very profitable for the supplier if the annual contribution is €10,000. It would be a big loss maker, if the annual contribution is only €1,000

Likewise, 1% of a €1,000 is only €10 per year, while 1% of a €100,000 is €1,000 per year.

Brendan

Actually it was Laser's arrogant contribution that I had in mind when I posted that last one.

While on the topic of charges, NewsTalk 106's personal finance "doctor" was on this morning and was asked twice about PRSA charges and twice stated that Standard PRSAs levied only a 1% annual management charge and nothing else. He even told a caller that there was something wrong if his PRSA was charging 5%/1%. He said that only Non-standard PRSAs could levy more than 1% p.a. And these are the so called experts... :rolleyes

Yes I think Brendan makes some good points about the charges allowed on standard PRSAs - if we want PRSA providers in Ireland to have such slim margins that they cannot afford to advertise their products (and all those Irish life radio ads and inserst in the Irish times must cost quite a few bob) and pay commission to sales agents and brokers then by all means cap charges at 1% per annum and scrap the 5% charge. Of course the result of that is, as in the UK, only a very small number of people actually bother to take out these cheap products.

I think people on askaboutmoney sometimes make the mistake of thinking that they are typical - it would be nice if everyone were as aware of the need to have a pension as the average askaboutmoney contributor but the reality is that pensions need to be sold - this has been proved time and again here and in the uk - and selling costs money! I'd prefer lots of people to take out ok value pension plans than a handful of financially aware people to take out fantastic value pension plans.

A couple of other points, yes 1% of the fund every year adds up to a lot over 20 years of contributions, more than enough to pay any expenses the PRSA providers incur. However, the sad fact is that each and every year 10% of people fail to keep up their contributions - hardly anyone makes it all the way through to retirement paying regular contributions. So this means that PRSA providers will have lots of small pots of money from lapsed contracts, on which they are earning just 1% but still have to provide annual reports, manage the money, answer queries etc etc. In effect, those people who pay reasonable premiums for many years and build up sizeable funds cross subsidise those who pay small irregular contributions and do not build up funds of much size.

Finally, a previous poster added the 1% to the 5% to get 6%. This is misleading - the 5% applies to new contributions only whereas the 1% applies to the total fund. In fact, the 1% charge is actually a bigger charge than the 5% charge over e.g. 20 years of contributions. In fact it's about twice as big!
(I've assumed 6% growth on the fund each year and that contributions rise in line with inflation of 3%)

I've assumed 6% growth on the fund each year and that contributions rise in line with inflation of 3%)

Interesting... 5% contribution charge + 1% of total fund management charge is greater than 6% p.a., and the experts who sell these products are assuming 6% growth.

This whole thing is a sham, isn't it?

May I say it again? The financial industry subsidised by tax reliefs.

Boo hoo for the poor financial institutions having to manage all those "lapsed contribution" funds, at great expense to themselves. Perhaps they could be more proactive about advising their clients AGAINST buying products they can't keep up the payments on in the first place.

And of course the "smart" people here won't pay the 5%, which means they won't be cross subsidising the people who can't "afford" a pension plan.

And if the 5% is going towards "selling" costs (ads, inserts, etc) well that's a very interesting point. Are PRSA's really such a hard sell? We are talking about 5% of all contributions! Subsidising the banks marketing costs!

I love it.

Get a life

Ah c'mon girls, give it a break. The industry has been bashed with handbags for years and quite right too when products were robbery. But even skinflints, present company excluded, can see that at the standard charging structure there's little fat for an industry asked to sell pensions to the poor, with low contribution rates and poor retention.

The skinflints in this thread with their egghead detachment from the real world would like to squeeze out even more juice - and to hell if it doesn't work. No so long as it wins a silly little argument in an irrelevant thread, on a remote, and little used website, that's just fine.

Get a life.

Halcyon days?

The industry squeezed so much juice out of the proletariat that it got too fat. But now they bite back!

One such as Laser has put on so much fat that they have become slow and cumbersome.

Let slimer newcomers to the industry, who have no memory of the good old 'juice squeezing days' sell the commodities that you don't want to sell whilst you ride out gracefully into the sunset and flatulate about the 'good old days'.

Sumatra

Girly dumb windbags? - Adult behaviour?

Laser, while I agree with a lot of the content of your opinions on this thread, I'm not sure that offending and insulting other contributors is really necessary. You might take a bit of your own advice "Honestly, adults should know better. Get a life!!!!"

Askaboutmoney is a DISCUSSION forum. And I'm sure that when the thread was started by extopia that he or she believed (a) that PRSAs are overly expensive and (B) wanted to know why other people dont see it the same way. So a thread that might be irrelevant to you may not be irrelavant to the person asking the question.

Suggest you skip over the threads you find irrelevant. and that where you have a difference of opinion that you can be constructive (and be taken more seriously) without the derogatory remarks.

Difference of Opinions

Brendan and Laser understand that PRSAs have to be SOLD.

The rest of you have convinced yourselves that PRSAs will be BOUGHT.

If the Pensions Board thought for a minute that the Stakeholder model would work here then you can be sure that all PRSAs would have been issued on an AMC basis only.

What constructive suggestions do you have for our friends in the UK so as to increase Stakeholder coverage?

Re: Difference of Opinions

>> Brendan and Laser understand that PRSAs have to be SOLD.

Well, with 6%+ in charges, it won't be easy!

I certainly won't be buying at these rates... and yes, I know there are cheaper options available (these won't be sold quite so aggressively, I am sure).

When I was buying my SSIA, the "advisor" down at the bank tried to "sell" the equity version. But she couldn't answer even the most basic question about it, such as what the fund investment philosophy might be. All she could tell me was that the returns could be "higher." How many poor fools were led down that garden path by our hard-pressed friends in the financial institutions? Quite a few, I gather -- not that there's anything wrong with equities, just that the institutions need to be more upfront about the risks if they are pushing them on the "poor."

Re: Difference of Opinions

For an irrelevant discussion on a remote and little used website I'm finding this quite interesting. I certainly appreciate the arguments about pensions being sold and there being some limit at which charges can no longer be reduced without making things uneconomical. However eggheads like me with no life will definitely strive to obtain the best value possible in terms of PRSAs and any other financial products. I personally will definitely not buy a 5%/1% deal. Especially since nobody (with the possible exception of Merlin) has adequately addressed my point about why 1% p.a. alone might not be sufficient to remunerate all interested parties. In the meantime hopefully others who don't find discussions such as this so irrelevant that they resort to puerile name calling will also learn that there is scope for shopping around and will not be passively sold a pension but will shop around and buy the best deal for themselves. It's also good to see that all industry insiders (e.g. Alan and others) aren't as boorish as Laser even if they disagree with some of the counterviews. :\

Scumbags & maggots......

In answer to Caius Martius

Would agree that pensions generally have to be sold. I have found in general, people under 30 don't want to know, people 30-40 are interested and know they should be doing something but don't do enough and only those 40+ understand the need to have a pension and to start funding early.

I expect the answer you want to hear is a suggestion to increase the up front charge in order to increase fees to the sales agents. However, they won't backtrack in the UK. Stakeholder has been a flop.

How would they increase coverage?

Suggestions :

1)Education: The state should take responsibility for educating people on pension funding. A lot of people believe that they can leave pension funding til later in life and end up leaving it too late and find themselves in a more desperate situation than they would have expected.

2)Compulsory pensions with minimum contribution levels, I think it maybe only a matter of time before these are introduced.

3)As longevity of life contintues to march upwards I believe it likely that the state will change the OAP age to 70. This will be most unpopular but possibly may be a requirement to keep the state afloat. This will result in people to be encouraged fund for early retirement at 65.

Not saying I necessarily want these measures to be taken but they are steps that could be taken to increase pension coverage.


In answer to Extopia,
"Well, with 6%+ in charges, it won't be easy!".
Its not easy and PRSAs aren't selling that well. However I believe that most people don't decide whether or not to take a pension out based on charges. They take out a pension on he principal of having an income in retirement & tax relief on their contributions. Then they look for a pension with competative charges but they've already made their mind up to do a pension of some description.

In answer to Clubman aka egghead
You probably need an actuary to explain why 1% isn't sufficient as it is in the UK. May come down to economies of scale. Couldn't tell you where the breakeven point is for an insurance company. P.S. Me not boorish? You should get me talking about in-laws.

Re: Scumbags & maggots......

Laser is only winding you up. He takes a contrary opinion in the Media Watch thread.

Enjoy his colourful language for what it is and don't take offence.

Brendan

Well Spotted

I'm outed, oh boo hoo hoo!

Because the 'traditional wisdom' on this site was that the 4.5% initial charge with Equitable Life was AOK.

Although, Clubman seems to be singing a different song these days :lol

Although, Clubman seems to be singing a different song these days

I don't get it. I did express a preference for EL in the past but not at a rate of 4.5% up front (I certainly never paid that level of charges) and also because they had a 0.5% annual management fee. On the other hand obviously the EL situation is pretty grim since the whole GAR and related debacles but then again but I'm not the only one not to have forseen this. Even the professionals never warned about this issue in advance unless I'm mistaken.