Charges for Executive Pension (Zurich)

[time to plan]

Just looking to see if I'm missing anything re charges for an Executive Pension I'm setting up (I'm a proprietary director).

I've not gone via a broker but have approached Zurich directly and spoke to a Certified Financial Planner, who is a 'Tied Agent'. I'm happy that I'll only get advice around Zurich products.

I'm particularly interested in charges. Zurich will reduce its AMC from 1.0% to 0.75%. I have a list of all funds, including those that have an additional AMC (funds managed by 3rd party companies e.g. Blackrock). Allocation is 100%. Are there any other charges I should be on the lookout for?

Thanks in advance.

 

[Marc]

The headline annual management charge is not the real cost

There are hidden charges that are not disclosed because Irish pensions are not subject to the same disclosure requirements as direct investments.

You can get a better idea of the likely real charges from this document



this document is prepared under the PRIIPs regulations that do not apply to an Irish pension fund.
The levy that applies to personal investments of 1% has been amortised over 7 years to give an upfront cost of 0.15%pa but it is reasonable to leave that in, since the pension doesn’t come free.

A similar level (although these regulations have still not been brought together) of disclosure applies to UCITS funds

so we can make a comparison with the Zurich document and say Vanguard’s funds here

https://www.vanguardinvestor.co.uk/content/documents/legal/vanguard-full-fund-costs-and-charges.pdf

so now we are accounting directly for underlying transaction costs on a similar disclosure basis.

for many funds the drag from transaction costs (stamp duty, bid offer spread, brokerage charges etc) are on the order of the annual management charge due to high portfolio turnover (picking stocks in an effort to beat the market)

in numerous studies turnover of funds has been found to average around 80% of holdings on an annual basis. A good rule of thumb is the real cost of your fund is about twice the annual management charge.

this means that for a fund invested in Irish equity for example they are adding at least 0.8%pa to the running costs just from stamp duty (1% stamp duty x 80% turnover)

In the vanguard document substitute in the column PI the following pension wrapper charge

Exec pension/buy out bond etc 0.40%pa
(Subject to a min €300pa so not suitable for smaller pensions under say €80k)
PRSA 0.50%
advice fees are payable in addition but are agreed
with the investor rather than a third party commission at the control of the product provider


and now you should be able to see how much margin is built into an Irish unit linked contract for sales commission and life company profit.

I’m not engaging with every petty attack on my posts by a particular group of posters my reasons are set out in this post



Marc Westlake CFP®, TEP, APFS, EFP ,QFA
CHARTERED, CERTIFIED & EUROPEAN FINANCIAL PLANNER™ professional
AND REGISTERED TRUST & ESTATE PRACTITIONER

Everlake

Financial Advisors Dublin offering wealth management advice, cross border planning, inheritance strategies, and investment advisory.

www.globalwealth.ie

 

[Gordon Gekko]

That’s an interesting document; is it accurate though? The entry and trading costs might be helpful but are the 1% levy and the maximum AMC baked in there?

For example, I’ve a PRB/BOB with an AMC of 0.5%. I don’t for a minute think that the total costs are 0.5%, but I’d be surprised if they’re more than 1%.

 

[LDFerguson]

Just looking to see if I'm missing anything re charges for an Executive Pension I'm setting up (I'm a proprietary director).

I've not gone via a broker but have approached Zurich directly and spoke to a Certified Financial Planner, who is a 'Tied Agent'. I'm happy that I'll only get advice around Zurich products.

I'm particularly interested in charges. Zurich will reduce its AMC from 1.0% to 0.75%. I have a list of all funds, including those that have an additional AMC (funds managed by 3rd party companies e.g. Blackrock). Allocation is 100%. Are there any other charges I should be on the lookout for?

Thanks in advance.

Tied agents of the pension companies rarely offer the company's best available charging structures unless put under pressure. What age are you and what's the size of the contribution? Is it a once-off lump sum or regular contribution?

Regards,

Liam
www.ferga.com

 

[Zenith63]

Yes the hidden charges that are not disclosed because Irish pensions are not subject to the same disclosure requirements as direct investments.

You can get a better idea of the likely real charges from this document

Interesting doc thanks Marc. Though even after looking at some of the funds my pension is in, I’m not sure I’m much wiser for it. The way the information as presented doesn’t lend itself or the average person interpreting it.

Do we really have much control over these internal fund costs though? If you could choose one S&P500 fund over another with higher internal costs then great, but that’s not an option and choosing funds based on lowest internal costs instead of diversity, risk tolerance etc wouldn’t make much sense.

 

[time to plan]

Tied agents of the pension companies rarely offer the company's best available charging structures unless put under pressure. What age are you and what's the size of the contribution? Is it a once-off lump sum or regular contribution?

Regards,

Liam

Thanks, Liam (and others) for responding.

I'm 48, no lump sum (just starting pension now), putting in €4,000 per month. I'm always happy to exert some pressure to get a better deal, and also to look around to see if a competitor (not a tied agent) can beat it. I'm also trying to work out if there are other charges or commissions I haven't thought of, or is it all so opaque, it's difficult to get a handle on?

 

[GSheehy]

Are there any other charges I should be on the lookout for?

I would guess that there's a policy fee of €3.50 per month on the contract you've been offered.

There's the €8 pa Pension Authority Fee.

Plus, I'd be surprised if there weren't exit charges in the first 5 years of the contract. Some folk don't mind exit charges as they think they won't have a reason to move within the penalty period. But, they're a good earner for Life & Pension companies.

You'll probably have to ask what the commission is as there's no obligation on them to disclose it to you.


Gerard

www.prsa.ie

 

[Zenith63]

FWIW these are my fees, ignoring internal fund fees, with a direct Zurich exec pension -

• Contribution Allocation Rate - 100%
• Annual Management Charge - 0.75%
• €3.50 policy fee per month
• Early Encashment Penalties in the first five years: 5% Yr One, 4% Yr Two, 3% Yr Three, 2% Yr Four, 1% Yr Five, 0% Yr Six+
• Four free fund switches per policy year
• Fund choice from Zurich's full fund range
• Zurich Trustee Services are normally €5 per month. However, this charge is currently waived.

Not too worried about the policy fee or trustee fee, they’re both a pittance compared to the AMC once your pot heads over say €50k.

I didn’t find much better value when I looked to be honest. A reputable financial advisory firm, who gave some really good advice in fairness, recommended the same Zurich Exec pension but with a 1.25% AMC to cover their advisory costs. I would have ended up in the exact same funds but with 0.5% less of my pension pot per annum.

 

[time to plan]

FWIW these are my fees, ignoring internal fund fees, with a direct Zurich exec pension -

• Contribution Allocation Rate - 100%
• Annual Management Charge - 0.75%
• €3.50 policy fee per month
• Early Encashment Penalties in the first five years: 5% Yr One, 4% Yr Two, 3% Yr Three, 2% Yr Four, 1% Yr Five, 0% Yr Six+
• Four free fund switches per policy year
• Fund choice from Zurich's full fund range
• Zurich Trustee Services are normally €5 per month. However, this charge is currently waived.

Not too worried about the policy fee or trustee fee, they’re both a pittance compared to the AMC once your pot heads over say €50k.

I didn’t find much better value when I looked to be honest. A reputable financial advisory firm, who gave some really good advice in fairness, recommended the same Zurich Exec pension but with a 1.25% AMC to cover their advisory costs. I would have ended up in the exact same funds but with 0.5% less of my pension pot per annum.

Thanks Gerard and thanks Zenith (again).

I'm not worried about early encashment. Those other fees are pretty small. It looks like I'm not far off the mark here, but always open to cutting non-trivial costs. I'll check about commission as well.

 

[LDFerguson]

Thanks, Liam (and others) for responding.

I'm 48, no lump sum (just starting pension now), putting in €4,000 per month. I'm always happy to exert some pressure to get a better deal, and also to look around to see if a competitor (not a tied agent) can beat it. I'm also trying to work out if there are other charges or commissions I haven't thought of, or is it all so opaque, it's difficult to get a handle on?

Assuming that you want Zurich Life, that's about as good as you'll get for a monthly contribution. You'd have to look at other companies for lower charges, and that's a bigger decision with more variables to consider. I'd second everything that has been said in subsequent posts by @GSheehy and @Zenith63. Make sure that the fee for trusteeship is being picked up by Zurich, be aware of the policy fee, Pensions Authority fee and early exit charges. Ask the tied agent to disclose commission as commission disclosure is not an obligation on Executive Pension contracts. After 5 years when you've come out of the early exit charge period, have a look then as you should be able to get lower annual charges on the lump sum you've accumulated by then.

 

[Marc]

At that level of contribution you will still be better off with an "unbundled" scheme without a life co.

Save up your first years contribution in the company and pay a lump sum at the end of the year to kick off the scheme then add annually to the plan at around €50kpa you will soon cover the minimum fee.

So you would be paying
0.40% for the pension wrapper
around 0.18% for investment funds (based on Vanguard Global Stock Index investor share class)
0.58% leaves room to pay an adviser to make sure you don't make any mistakes

 

[time to plan]

At that level of contribution you will still be better off with an "unbundled" scheme without a life co.

Save up your first years contribution in the company and pay a lump sum at the end of the year to kick off the scheme then add annually to the plan at around €50kpa you will soon cover the minimum fee.

So you would be paying
0.40% for the pension wrapper
around 0.18% for investment funds (based on Vanguard Global Stock Index investor share class)
0.58% leaves room to pay an adviser to make sure you don't make any mistakes

Thanks, Marc.

 

[Dave Vanian]

At that level of contribution you will still be better off with an "unbundled" scheme without a life co.

Save up your first years contribution in the company and pay a lump sum at the end of the year to kick off the scheme then add annually to the plan at around €50kpa you will soon cover the minimum fee.

So you would be paying
0.40% for the pension wrapper
around 0.18% for investment funds (based on Vanguard Global Stock Index investor share class)
0.58% leaves room to pay an adviser to make sure you don't make any mistakes

The saving here looks like 0.17% per year compared to what the OP already been offered. And the €3.50 per month policy fee.

The broker would have to charge something on top of this, surely? What would the broker's charge be?

 

[Bern78]

Sorry to hijack thread but what do people think of these fees on a pension- it’s a company one:

allocation rate 105.25
AMC 0.75
Policy fee :3.49 per month

no other fees or so they told me- I didn’t specifically ask about early encasing fees- not sure if they exist for a company scheme.

I understand the allocation rate but why do they give everyone diff ones.

 

[Zenith63]

At that level of contribution you will still be better off with an "unbundled" scheme without a life co.

Save up your first years contribution in the company and pay a lump sum at the end of the year to kick off the scheme then add annually to the plan at around €50kpa you will soon cover the minimum fee.

So you would be paying
0.40% for the pension wrapper
around 0.18% for investment funds (based on Vanguard Global Stock Index investor share class)
0.58% leaves room to pay an adviser to make sure you don't make any mistakes

When you say unbundled, you're referring to a Small Self-Administered Pension Schemes (SSAS) right? My understanding when I setup my Exec pension, from posts here and articles elsewhere, was that the costs of these schemes meant your pension pot needed to be €200k or higher to cover the fixed annual costs. I guess you wouldn't agree? I understand the big cost of a SSAS is the annual trustee fee which can be a few thousand, is that included in your figures or have I got that wrong?

My take at the time was I should setup an Exec pension, build the pot up to €200-300k and then consider a SSAS if I wanted to go that route.

And thanks again for your input!

 

[Zenith63]

I wonder has anybody else on the forum setup a SSAS and could share some information on the costs they had to pay? It would be interesting to put them side-by-side with the likes of an Exec pension and see where the crossover point is etc.

 

[time to plan]

I've now got some more documentation so there are a couple of other things I'm trying to understand.

1. Commission:

Terms of Business doc states maximum up front and ongoing commissions. Does this description of upfront and ongoing commission mean that my funds are reduced to pay the commission, or is it just advice to me so that I understand that the agent is receiving commission from Zurich, so is not an independent adviser?

2. Bid / Offer prices
What is the effect of Bid / Offer prices on my fund if any?

Overall I can see that there is a 0.75% AMX and 100% allocation, but I'm looking to understand whether there are any gotchas for my pension in the commission and bid / offer prices. Sorry if these are basic questions.

 

[Marc]

When you say unbundled, you're referring to a Small Self-Administered Pension Schemes (SSAS) right? My understanding when I setup my Exec pension, from posts here and articles elsewhere, was that the costs of these schemes meant your pension pot needed to be €200k or higher to cover the fixed annual costs. I guess you wouldn't agree? I understand the big cost of a SSAS is the annual trustee fee which can be a few thousand, is that included in your figures or have I got that wrong?

My take at the time was I should setup an Exec pension, build the pot up to €200-300k and then consider a SSAS if I wanted to go that route.

And thanks again for your input!

The old posts are out of date.

The fixed cost is €300 or 0.40% therefore the breakeven point is €75,000.

However, that is the breakeven with the fixed costs, and you are really trying to compare with the pretend cost of an insured scheme which is hiding the real total cost of the pension and therefore no accurate comparison can really be made.

I’m not remotely prepared to accept that 0.75% amc is the real cost

 

[Dave Vanian]

The old posts are out of date.

The fixed cost is €300 or 0.40% therefore the breakeven point is €75,000.

However, that is the breakeven with the fixed costs, and you are really trying to compare with the pretend cost of an insured scheme which is hiding the real total cost of the pension and therefore no accurate comparison can really be made.

I’m not remotely prepared to accept that 0.75% amc is the real cost

The OP in this thread quoted charges that included the tied agent's commission. From what I can see, you're showing charges that exclude the broker's fee/commission. That also makes it impossible for anyone to compare. On top of the charges that you're talking about here, what's the broker fee / commission?

 

[GSheehy]

Overall I can see that there is a 0.75% AMX and 100% allocation, but I'm looking to understand whether there are any gotchas for my pension in the commission and bid / offer prices. Sorry if these are basic questions.

When you asked the direct agent what commission he/she was going to earn from your transaction did he/she tell you how much it was, or are they refusing to disclose that?

Gerard

www.prsa.ie