Blow for pension savers as bank imposes charges on holding cash

[azerogo]

Crazy decision to punish people looking to put their pension in the safe haven of cash during this uncertain time

Blow for pension savers as bank imposes charges on holding cash

Bank of Ireland is to impose negative interest rates on cash held in pensions, in a move that will hit people saving for their retirement hard.

www.independent.ie

 

[Brendan Burgess]

What? If BoI has to pay to put its surplus money somewhere, of course, they should pass on the cost.

If they don't like the rates on offer or being charged by one bank, go to another.

Complain to the ECB who have created negative savings rates.



Brendan

 

[Bronte]

Here's the article not behind a paywall.

Irish Independent

Local News from Dublin with Independent.ie. Get local Sport, Entertainment, Business & Lifestyle news for Dublin City, North and South Dublin.

www.herald.ie

I see our own Liam Ferguson was interviewed on it.

 

[Thirsty]

I'm not following the pensions / cash charge here.

Are they saying that anyone on a pension who has cash savings will be charged?

Are they saying that working people who are contributing to a pension fund will be charged?

Can someone set it out in a 'Pensions for Dummies' fashion?

 

[Purple]

I'm not following the pensions / cash charge here.

Are they saying that anyone on a pension who has cash savings will be charged?

Are they saying that working people who are contributing to a pension fund will be charged?

Can someone set it out in a 'Pensions for Dummies' fashion?

It's a charge for the cash deposits element of pension funds.

 

[EmmDee]

I'm not following the pensions / cash charge here.

Are they saying that anyone on a pension who has cash savings will be charged?

Are they saying that working people who are contributing to a pension fund will be charged?

Can someone set it out in a 'Pensions for Dummies' fashion?

It is negative interest to be charged on cash deposits held by pension funds at BoI. It is the same thing that is happening for large corporate cash or cash held by a lot of other fund structures.

It's not really that new or even unusual for funds.

It's not a charge on individuals. It's not a charge on the cash you receive from a pension.

 

[Saavy99]

Quite a high interest rate they charging too, if you have few hundred thousand in cash deposits within a pension fund, it adds up to a tidy sum.

 

[Sarenco]

Quite a high interest rate they charging too, if you have few hundred thousand in cash deposits within a pension fund, it adds up to a tidy sum.

Not really - it's roughly the same as the 30-day (negative) yield on Euro money market funds.

 

[Saavy99]

There's no bank offering .65% interest rates on ordinary bank deposits in Ireland maybe State savings, so bit of cheek they are well able to load negative interest on the cash reserves in the pension funds.

 

[Sarenco]

There's no bank offering .65% interest rates on ordinary bank deposits in Ireland maybe State savings, so bit of cheek they are well able to load negative interest on the cash reserves in the pension funds.

Why?

Deposits cost the bank money. Why should large corporate deposits (including pension trustees) get a free lunch?

 

[Saavy99]

Very true, they will just have to look elsewhere to stash their cash.

 

[LDFerguson]

Cash funds in "ordinary" pensions have been giving negative returns for some years now. My understanding is that this only applies to "self-administered" pension funds deposited in BOI - which very few people can avail of.

Yes the article is about self-administered pension funds with cash in Bank of Ireland. I would disagree with your claim that very few people can avail of self-administered funds.

Lots of people can avail of self-administered pension plans - personal pensions and PRSAs for the self-employed and anyone in non-pensionable employment, occupational pension schemes for employees and directors (provided that the employer is willing to facilitate), buy-out-bonds for funds from previous employments, AMRFs and ARFs for those post-retirement - all can be set up as self-administered arrangements. ITC is just one provider and they have over 4,000.

 

[LDFerguson]

Absolutely. So why is Charlie Weston saying this is a first?

Pooled Cash Funds from pension providers have been in negative territory for some years. Large corporate deposits have also been charging negative interest before now. But this will apply to individual accounts within self-administered pension schemes. If the Joe Bloggs self-administered pension fund's operating bank account is with Bank of Ireland, it might only hold a small amount of cash. Now that's going to incur negative interest charges. That's a first. It's one step closer to retail bank account holders being charged.

 

[Sarenco]

Bank of Ireland statement:-

“European Central Bank interest rates have been negative since 2014,” the bank said in a statement.

“Since then banks have been subject to negative interest rates for holding funds overnight and market indications are that rates will remain low for some time.

“As a result we have applied negative rates on deposits for large institutional and corporate customers since 2016.

“We recently wrote to 14 investment and pension trustee firms to inform them about a rate change to their accounts, which is reflective of the negative interest rate environment.”

Bank of Ireland said average amount held on deposit by these firms is in excess of €100 million.

“Therefore it is no longer sustainable for the bank to continue with the current rate of interest,” it said.

“We provided three months’ advance notification of this rate change to our investment and pension trustee firm customers.”

Pensions to be hit as Bank of Ireland charges negative interest on cash

Bank has written to 14 investment and pension trustee firms to inform them

www.irishtimes.com

 

[LDFerguson]

ITC (the pension trustee referenced in the article) would have cash on deposit that is substantially in excess of €2.5m.

The trustee/pension provider is charged negative interest and that impacts their underlying customers.

With self-administered arrangements, each arrangement has its own bank account. So the John Sarenco self-administered pension arrangement has its own bank account. In many cases the amount held in the bank account can be quite small.

 

[Sarenco]

But this will apply to individual accounts within self-administered pension schemes. If the Joe Bloggs self-administered pension fund's operating bank account is with Bank of Ireland, it might only hold a small amount of cash

Not according to the statement -

A spokesman for the bank later said it was not targeting individual pension-holders and pointed out that it will be up to the companies to decide whether to pass the charge on to consumers or absorb it themselves.

“Our customers are the large trustee funds,” he said. “It’s up to the trustee and investment firms to decide if they absorb that or pass it on to consumers. They have fees and charges that they charge anyway.

 

[LDFerguson]

Not according to the statement -

A spokesman for the bank later said it was not targeting individual pension-holders and pointed out that it will be up to the companies to decide whether to pass the charge on to consumers or absorb it themselves.

“Our customers are the large trustee funds,” he said. “It’s up to the trustee and investment firms to decide if they absorb that or pass it on to consumers. They have fees and charges that they charge anyway.

Each self-administered arrangement has its own bank account. Because the accounts will all have ITC (or one of the other trustee companies) as trustee, it's a neat defence for the bank to refer to them as "large trustee funds". Collectively they would have large amounts on deposit. But this is still being applied to individual accounts, which are often modest amounts of a pension fund of an individual. The whole idea of a self-administered arrangement is that it's run differently to a pooled fund from one of the insurance companies.

 

[Sarenco]

Each self-administered arrangement has its own bank account.

Or to put it another way - the pension trustee will set up a separate account for each scheme.

But this is simply a matter of administrative convenience. The pension trustee - not the underlying beneficiary - is still the depositor in each case.

It would be very odd if banks charged life companies negative rates but didn't similarly charge pension trustees.

I still think the original article is completely misleading.

The application of negative rates to institutional deposits of this nature is not a "first" in any meaningful sense.

 

[LDFerguson]

Or to put it another way - the pension trustee will set up a separate account for each scheme.

But this is simply a matter of administrative convenience. The pension trustee - not the underlying beneficiary - is still the depositor in each case.

If the Joe Bloggs Self-Administered Pension Scheme bank account has €10,000 on deposit with Bank of Ireland, it was most likely put there from Joe's earnings and Joe is the only beneficiary. So while what you say is technically correct, I don't think Joe would be terribly happy about the fact that his SSAS bank account is being categorised as an "institutional investor". For all practical intents and purposes, that's Joe's bank account.

 

[Brendan Burgess]

Guys

I have deleted some of the off topic and factually wrong posts as they are taking from the serious underlying issue.

Liam - can you clarify this please:

If a person has €50,000 cash in their Self Administered Pension Fund account with Bank of Ireland , will it reduce by 0.65% a year?

If so, they might want to consider switching their account to another bank.

Brendan