Best value AVC for a public sector employee

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CharlieMac

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I work in the HSE and want to start making AVCs. I aim to max out my tax relief. For me that will cost me just over €10k a year.

Currently I am inclined to go with Cornmarket/Irish Life. The contributions can be deducted from payroll and they look after managing tax with The Revenue. Another reason is the fees. For instance I can get an AMC of 1% on the "Indexed World Equity Fund" but this will reduce to 0.75% on fund totals between 40k - 140k and then to 0.5% above 140k. They do however have a 4% allocation charge on lump sum contributions.

Before I go with this I wonder should I consider alternatives?

The execution only route seems more cumbersome because I would have to do more of the work myself (e.g: manually claiming tax relief/fixing tax credits with The Revenue) but once shown how to do that I wouldn't mind if the savings were considerable.

This thread "Probably the best (cheapest) PRSA in the world?" talks about a low cost self directed PRSA from Royal London. Going with this fund via execution-only.ie would give 0.6% AMC, zero lump sum contribution charges, the potential to benefit from "value-share" reducing the AMC further and presumably a World Index Fund that might be similar to the offerings from Irish Life.

I did some calculations and R London would still be cheaper on AMC than Irish Life up to a fund value of €440,000. Then Irish Life would be €100 a year cheaper for every additional increase of 100k in the value of the fund.

Standard Life also have a (non-standard) PRSA (O) product, mentioned in this post that gives a 0.5% AMC rebate on fund totals >100k which could actually see an AMC as low as 0.4% depending on fund choice of course.

To further complicate things, in my case I want to keep open the option of using my AVC fund to purchase additional HSE Single Pension Scheme benefits/referable amounts at retirement (like buying back pension years). I have another thread where I confirmed it is possible to do this and put any remainder from the AVC fund in to an ARF. However in this case the rule, outlined here in Pt. 55, is that the AVC must be a...
"Public Sector AVC which is linked to the public sector employment and scheme rules."
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So I have these questions:
  1. Should I go with Irish Life/Cornmarket or are there decent savings to be made with something like Royal London or maybe Standard Life mentioned above. Or anything else for that matter?
  2. In order to satisfy the rule re: Using AVC fund at retirement to purchase referable amounts... What makes an AVC a "Public Sector AVC"? What makes an AVC be "... linked to the public sector employment and scheme rules."? because...
  3. I am confident that going with Irish Life will set me up with an AVC that DOES meet that pension buy-back rule but would an AVC with those two alternatives also satisfy that rule?
Thank you.
 
CharlieMac said:
Currently I am inclined to go with Cornmarket/Irish Life. The contributions can be deducted from payroll and they look after managing tax with The Revenue.
Click to expand...
This is quite frankly an awful reason. Trust me, it’s why I bought Cornmarket products in the past and I’ve learned from my mistakes.

A direct debit from your current account and uploading a pdf once a year to Revenue to get your tax credits is all you need to do. Even a 0.1% saving in fees could be worth thousands of euros over several decades.
 
I put together a spreadsheet to compare investing in an AVC fund for 20 years with Irish Life vs Royal London.
It may not be 100% accurate. This is not financial advice. It is merely a thought experiment.

Assumptions of the model:
1. In my model I am investing in a passive index fund that gives a 4% return every year.
2. Only once a year, at year end, the total value of the AVC fund is multiplied by the Index fund growth for that year.
E.g: From a starting point of €0 in the AVC fund at the start of the year. €1000 AVCs are added to the AVC fund during the year. The Index fund had a 4% growth that year so.... By end-of-year: €1000 * 1.04 = €1040 is the value of the fund (pre AMC, see next point).
3. The AMC is levied only once a year, at year end. E.g: Assuming fund is worth €1040 at year end with an AMC of 1%. AMC is: €1040 * 0.01 = €10.40. Fund value at year-end is now €1040 - €10.40 = €1029.60

Assumptions of the charges:
1. Royal London charges 0.6% AMC on the full amount of the AVC fund and has no lump sum contribution charge. "Value share" is not included at all.
2. Irish Life charges 1% AMC on the first 40k then 0.75% on the next 100k then 0.5% thereafter. Irish Life has a 4% lump sum contribution charge.

Assumptions of my AVCs:
1. Year 1: I will make a lump sum contribution of 160k and I will make AVCs that max out my age related tax relief and I will also make an additional 10k worth of AVCs (no tax relief on that 10k).
2. Years 2+: I will make AVCs that max out my age related tax relief and I will also make an additional 10k worth of AVCs (no tax relief on that 10k).
3. I worked out the value of my max'ed-out yearly age-related AVCs (with tax relief applied) using the excellent Single Pension Scheme AVC calculator by @gort_gráinneog.

Results:
After year 20 there is €40,000 more in the Royal London fund compared with the Irish Life fund.

Observations:
1. Even though the Irish Life AMC is 0.5% on the value of the AVC fund that is in excess of €140k the growth potential of the AVC fund overall is dragged by the first 40k always having a 1% AMC and the next 100k always having a 0.75% AMC.
2. Also my year 1 lump sum of €160k gets reduced to €153,600 due to their 4% lump sum contribution charge.

Questions:
1. Any feedback much appreciated, I might have made an error in my calculations. I can share my spreadsheet with anyone interested.
2. Could this Royal London AVC fund be considered a "Public Sector AVC which (can be) linked to (my) public sector employment and scheme rules."?
 

Attachments

  • AVC Returns comparison.xlsx
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So is general rule that cornmarket is to be avoided for public sector AVCs due to their charges?
 
ArthurMcB said:
So is general rule that cornmarket is to be avoided for public sector AVCs due to their charges?
Click to expand...
Seems to be...

Cornmarket too good to be true?

I have been shopping around on the pension such as cornmarket, tried to contact Davy but no success. I had the first finance advisor meeting about two weeks ago from irish pension and finance, the only charge is 4% allocation plus 0.75% AMC after first year, first year is 34% allcation rate +...
www.askaboutmoney.com

Cornmarket Public Sector AVCs - 1.5% AMC

For anyone who has taken out Irish Life public sector AVCs (e.g. HSE/Gardai), perhaps through Cornmarket or Irish Life directly, they should take a look to see if they have signed up to a Consensus Individual Retirement Strategy. This "strategy" moves the AVC into a Capital Protection Fund as...
www.askaboutmoney.com
 
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Thanks Clubman. Read those two threads but not clear to me that Cornmarket to be avoided based on whats in those threads. Seems to be mixed commentary.
 
Apologies if this is taking the thread off topic, but my post is relevant to the discussion about Cornmarket. My issue is that they are endorsed by the public service unions and do not always provide best value. They purport to act as brokers, but are actually tied agents. For example they use one company for motor insurance quotes. It was RSA when I used them, although this may have changed. One year my car insurance quote skyrocketed. I was able, as an individual. to go to another broker and save hundreds. If you are representing tens of thousands of workers you should be able to get a better deal than one individual, but this doesn't always seem to be the case.
 
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Where I work Irish Pensions and Finance are in bed with the union and they're more expensive.

Anyone interested in looking at my spreadsheet.. is that a reasonable way of comparing two AVC providers?

In practice I suppose a fraction of the AMC is charged with each regular contribution or monthly and likewise the calculation that grows (or reduces) your AVC fund with the market is probably applied daily or weekly? That's a trickier spreadsheet.
 
Oh yes I assumed so and that's how my spreadsheet works. But I wonder how often is the AMC applied and the performance of the invested funds reflected in the AVC fund value.
 
CharlieMac said:
Assumptions of my AVCs:
1. Year 1: I will make a lump sum contribution of 160k and I will make AVCs that max out my age related tax relief and I will also make an additional 10k worth of AVCs (no tax relief on that 10k).
2. Years 2+: I will make AVCs that max out my age related tax relief and I will also make an additional 10k worth of AVCs (no tax relief on that 10k).
3. I worked out the value of my max'ed-out yearly age-related AVCs (with tax relief applied) using the excellent Single Pension Scheme AVC calculator by @gort_gráinneog.
Click to expand...


Therefore, you won't get any tax relief on the initial 160k lump-sum contribution.

Putting 160k into an AVC, with no tax relief, requires careful consideration.
 
I set up my AVC about 3 years ago with Cornmarket, who the union recommend. Their commission was a once-off fee of €595. They set you up with Irish Life who run the pension investment and charge 1% AMC (Annual Management Charge) per year.

https://cornmarket.cdn.prismic.io/c...s+statement+-+irish+life+multi_11-18_form.pdf

Cornmarket will arrange for it to be taken out of your salary fortnightly, so you get the tax relief of 40% at source.

About a year ago I switched to Standard Life as I wasn’t happy with how my fund was performing. I had gone for Irish Life’s Adventurous Fund and even though stock markets were up massively, my fund was only modestly increasing.

I like Standard Life as they let you pick your own funds. You don’t need to self-manage the pension, you just need to tell them what to invest it in.

I just went for 1 index fund, Standard Life Vanguard Global Stock Index Fund, as that tracks 100s of companies worldwide. Standard Life fees are 0.9% AMC per year.

You could split it across way more if you wanted but that’s too much effort to be monitoring.
 
Protocol said:
Therefore, you won't get any tax relief on the initial 160k lump-sum contribution.

Putting 160k into an AVC, with no tax relief, requires careful consideration.
Click to expand...

My thinking is: make a decent lump sum from day 1 to accelerate up the AVC fund size to avail of greater compounded growth from the get-go compared with starting at zero.

Unfortunately I've forgone years of tax relief with pension contributions I never made but this is where I am. I aim to avail of the full relief available to me for 2024 and max out my relief going forward.

I'm open to alternative suggestions for what to do with a sizeable large lump sum. My priority is to catch up where my pension needs to be given I have about a 20yr remaining working life horizon. Don't know where else to put that sum that can grow tax-free and compound?

@TheJackal
Irish Life have about 30+ funds public sector workers can invest in. You are free to choose whichever of those you want. Several have AMCs lower than 1%. The Irish Life "Indexed World Equities Fund" has performed 93% annualised over the past 5 years. The "Standard Life Vanguard Global Stock Index Fund" has performed 12% annualised over past 5 years.

Maybe in your case you were unaware of what Irish Life funds were available to you and that you could combine them in various ways. Switching to Standard Life didn't necessarily give you more or better fund options or flexibility with how to select them compared with Irish Life. The difference is, like Royal London their charges are also likely lower than Irish Life. For instance, I'm not certain but your 0.9% AMC with SL might be reduced to 0.4% when the value of your fund exceeds 100k.
 
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