AVC - How to calculate if an allocation rate and AMC is better than an alternative.

Benbulben

Registered User
Messages
28
Hi there

I have an option to go with an Irish Life group AVC which has a 99% distribution and .65% AMC. The available fund choices are not large but they have some decent ones like Indexed North American Equity Fund and Indexed Global Equity Fund.

They were initially looking to put me on the Empower Growth fund but I feel it is putting the brakes on too early and want to stay invested in Equities for longer. I have circa 12 years to grow it.

I have another option to independently set up an AVC with a 100% allocation and an AMC of .75% and can look at a broader range of investment opportunities including Technology and Alternative Energy Equities

I was trying to find a calculator that could help me work out the break even point on the fees for the 2 options.

Could anyone help me with this ?

If anyone has any thoughts on a good AVC for circa 12 years growth I'd appreciate it also.

Thanks very much.
 
What about something like this?

Candid Money: Investment Charges Impact Calculator

Calculate how charges might impact your investments
www.candidmoney.com
Benbulben said:
If anyone has any thoughts on a good AVC for circa 12 years growth I'd appreciate it also.
Click to expand...
What do you mean by "good"?
All you can really do is minimise charges and invest in a suitable fund/asset mix.
In my opinion for a pension this should be mostly of fully equities for the best chances of the best long term appreciation.
 
Thanks very much Clubman. I'm looking at 100% Equities right now with a risk category of 6.

Using the calculator it looks like the .75% AMC is the better option in terms of minimising charges.
 
But, if the collective investment vehicle charges / other ongoing fund charges are higher on the second contract (I doubt they're included in the 0.75% quoted ?) than on the first contract (I don't think that Irish Life disclose them at all), then you'd have to go back to th drawing board to get a comparable current like-for-like.


Gerard

www.prsa.ie
 

Can you not ask what the TER is for each option you are looking at? This should allow a like-for-like comparison (on charges- not allowing for allocation %).
 
Thanks Gerard

I am not sure on the Group Irish Life one. I think that if I went to choose say the Indexed Global Equity Fund I might find that the was an additional AMC of .1% or .2% added on. I will ask the question and see if I can get a concrete answer to that.

I know that on the independent one I can get World Equity and Tech Funds @ 100% allocation and .75% AMC. Alternative energies would add an additional .25% AMC and if I split it 50/50 between 2 funds it would be an effective bump in AMC up to circa .875%
 
Benbulben said:
Thanks very much Clubman. I'm looking at 100% Equities right now with a risk category of 6.

Using the calculator it looks like the .75% AMC is the better option in terms of minimising charges.
Click to expand...
Over 12 years yes, but you might want to play around with the investment term as it may equal out or switch later on?
And if you're likely to roll into an ARF then a longer investment term might be relevant.

As others have mentioned you need to be careful that you're comparing like with like in terms of charges - ideally a clear TER (total expenses ratio) figure that reflects all charges should be used.
 
Thanks Clubman I've been playing around with a few options and the .75% AMC looks good up to circa 15 years.

Between 12 and 15 years I'd look to roll it into an ARF I'd be hopeful of better overall charges via Vanguard or something like that (fingers crossed anyway)
 
ClubMan said:
Over 12 years yes, but you might want to play around with the investment term as it may equal out or switch later on?
Click to expand...
99%/0.65% is better for an investment with over 10 years to run and 100%/0.75% is better for investment durations less than 10 years. At 10 years they are about equal. Strictly speaking then the first three years would be in 99%/0.65% and then switch to 100%/0.75% but the gain would be very marginal and not worth the effort.
 
Thanks Duke

I'm looking to maximise the AVC contributions each year in line with the applicable Tax relief percentage. I'm in the 25% age related bracket right now but as that climbs to 30%, 35% and 40% I'll also look to keep the investments in line with this.
 
Benbulben said:
I'm looking to maximise the AVC contributions each year in line with the applicable Tax relief percentage. I'm in the 25% age related bracket right now but as that climbs to 30%, 35% and 40% I'll also look to keep the investments in line with this.
Click to expand...
You may already be aware but the higher percentage applies for the full year in which you turn the relevant age - even if your birthday is 31st December!
 
So it looks like you are in effect doing recurring single premiums in which case you should consider each investment in its own right rather than seeing them as a recurring premium. So, all else equal, you should invest in 99%/0.65% in the first couple of years.
However, I should add that whilst I myself put great store on costs I would think the difference between the two alternatives is so slight that other considerations would be more important.
 
Last edited:
Hi All,

I am going through something similar at the moment.
What i would like to know is if a Standard PRSA is better than Non-Standard PRSA if the charges are similar.
I am looking at investing in passive ETF funds so i will not be investing in shares directly and so, i seem not to need a Non-Standard PRSA.

After you start the AVC, can the pension provider not increase the charges as they like on the non-standard PRSA while these charges will be ultimately capped in the Standard PRSA?

Also, Standard Life (whom i am interested in for the Vanguard funds) only seem to provide Non-Standard PRSA. Why is this?

Finally, is there any legislation around PRSA policies which allows you to transfer between providers (with no extra charges) in case you are unhappy with pension provider (e.g. if they suddenly increase charges) ?


Thanks for the help!

Silvergrove
 
There's no real difference between standard and non-standard PRSAs in practice and you can easily transfer between PRSA providers, for example in order to benefit from lower charges. Just find the PRSA with the lowest charges and investment options that you want and keep an eye on the market going forward in case another option with lower charges eventually becomes available.
 
Legislation doesn't allow early encashment charges on PRSAs, and it also doesn't allow a charge on a transfer into a PRSA. This means no charges for transferring between PRSAs
 
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