ARF for Individual on full Civil Service Pension

[Villaines]

Individual has a full civil service DB pension and €100k remainder on AVC after withdrawing maximum tax free lump sum from AVC (a small top up on the civil service lump sum due to years worked after normal retirement age).

Civil service pension is half of final salary and is considered adequate. The ARF to be purchased with the €100k AVC will only be withdrawn in line with Revenue limits to minimize income tax.

Appears to be a cosy relationship between the civil service/union appointed "financial advisor" and one very large ARF provider, offering funds at a total reduction in yield of 1.4%.

Are there better options out there? Through direct sales, we seem to be offered 0.75% fee on another ARF provider.

The range of funds available through both ARF providers appears to be the similar. But where's the catch?

Why should we pay the additional fee? And why has the financial advisor not achieved a similar fee as direct sales? Isn't 0.65% a large incremental charge to pay for this advice?

 

[LDFerguson]

ARF providers generally offer brokers a wide range of charging options for the broker to choose from, with differences in how much the broker is going to get paid. At €100,000 an annual charge of 0.4% to 0.75% is certainly achievable. Ongoing commission can be added if ongoing service is to be provided and is required by the client. Often this is added to the annual charge.

It's certainly worthwhile shopping around.

Regards,

Liam
www.ferga.com

 

[Villaines]

ARF providers generally offer brokers a wide range of charging options for the broker to choose from, with differences in how much the broker is going to get paid. At €100,000 an annual charge of 0.4% to 0.75% is certainly achievable. Ongoing commission can be added if ongoing service is to be provided and is required by the client. Often this is added to the annual charge.

It's certainly worthwhile shopping around.

Regards,

Liam
www.ferga.com

Thanks.

Is there no requirement for the broker to disclose the fee they are getting from the ARF provider?

It appears that ARF providers are happy to work with brokers because pensioners don't shop around and the fee structure is opaque.

Can anyone suggest a low risk ARF fund with fees of 0.75% or less via direct sales?

 

[Dave K]

Thanks.

Is there no requirement for the broker to disclose the fee they are getting from the ARF provider?

It appears that ARF providers are happy to work with brokers because pensioners don't shop around and the fee structure is opaque.

Can anyone suggest a low risk ARF fund with fees of 0.75% or less via direct sales?

As LDFerguson has said, it is definitely worth shopping around. Speak to a number of Financial advisors and get a clear grasp of what charges are involved and also what service the financial advisor is going to provide you for them charges. Maybe a small increase in the charge (AMC) might be worth while if the advisor is giving you a better service.

Also something to maybe consider about the broker who is charging the 1.4% is if they have the connection with the civil service, how many clients are they managing and what long term service can they offer you. I dont know them and so cannot say.

Some brokers work on a commission basis, and some work on a fee bases and some on a mixture of both so try and get a breakdown of what the fees are, an honest advisor will have no problem providing the information.

Best of luck.

David K

 

[Marc]

Why would you ever invest in a “low risk ARF” if you have a defined benefit pension and you are only going to take the minimum income distributions, why not invest more in growth assets?

Your pension looks like a government bond from a risk perspective so logically loading up on equities makes perfect sense in this situation

 

[LDFerguson]

Is there no requirement for the broker to disclose the fee they are getting from the ARF provider?

There is such a requirement. Intermediary remuneration must be disclosed in writing both before and after the transaction has been completed.

Can anyone suggest a low risk ARF fund with fees of 0.75% or less via direct sales?

Aviva, Irish Life, New Ireland, Standard Life and Zurich Life all have ARF products with charges of 0.75% or less, as do a number of self-administered ARF providers. I couldn't recommend one over the other without knowing all about the customer's specific requirements - financial circumstances, attitude to risk etc. - in detail.

As a broker myself, this comment may appear self-serving, but it's easily verifiable. You'll rarely if ever get a better deal on a financial product by dealing directly with the ARF provider than by going to a broker. If you go directly, the ARF provider will just keep the commission or pay it to their direct sales person. In a similar vein, if you buy a VW car directly from VW Ireland, they won't sell it to you at wholesale price. They'll sell it to you at the retail price as otherwise nobody would buy from their network of dealers.

 

[Villaines]

Why would you ever invest in a “low risk ARF” if you have a defined benefit pension and you are only going to take the minimum income distributions, why not invest more in growth assets?

Your pension looks like a government bond from a risk perspective so logically loading up on equities makes perfect sense in this situation

This individual is incredibly risk averse and their advisor highlighted to them how they could lose lots of money on equities and played on their fears.

In the end the individual didn't follow my advice (although they were offered 0.75% by Zurich Direct Sales after making a call themselves as I suggested) and instead took the advice of the Cornmarket broker that recommended they buy the ARF from Irish Life at a fee of 1.4% per annum. Cornmarket have the contract from the INTO for AVC contributions from national school teachers. Unfortunately it seems that the national school teachers are not getting value for money. Cornmarket convinced the individual that the Zurich funds were very risky, whereas the Irish Life funds were designed for cautious pensioners, etc.

C'est la vie (en Irlande) !

To be honest I think it's disgustingly excess pricing.