Decreasing Units in PRSA

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Prudence

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I have a query about my Eagle Star PRSA. I have two policies, one for infrequent lump sums and one for regular contributions. I made one payment into the lump sum one and then didn't make another for over a year. I noticed that the number of units was reduced from what it had been at the beginning. It is not something I would have noticed re the policy with regular contributions, both because it would be more complex and because the voluminous paperwork they provide does not refer to the number of units very often.

After some effort, I got the explanation from Eagle Star that this is how they take the 1% management charge every year. I had previously thought that the management charge came from the price of the units. I did some calculations and, even though intuitively it seems I am losing more this way, it actually has the same effect over time. Is this the way all PRSA providers do it? Is this even the way all unit-linked funds do it? Am I right to be a bit nervous about it?

I did try to search for whether this had been discussed before, but I couldn't find anything. Thanks for any answers anyone can give, and thanks to all the people who work so hard providing this very valuable website, from which I have learned (and continue to learn) a lot.
 
I too would have expected the annual management charge to be reflected in the unit price and that it would not affect the number of units held. I know that with some pensions there can be an ongoing monthly policy fee (for example) which is charged even when there are no ongoing contributions and in that case the charge might be paid by encashing units as required. However policy fees shouldn't apply to PRSAs as far as I know. Unless this is a non standard PRSA and such additional charges can apply there?
 
Thanks for your quick reply, ClubMan. This is not a non-standard PRSA and I don't know anything about an ongoing monthly policy fee. I looked up the details. I made the first payment in August 2006 and got a statement at 31/12/06 giving a certain number of units at a certain price. I got another statement at 30/6/07 also giving a certain number of units at a certain price, but the number of units was exactly 0.5% less, which seems to corroborate the explanation I got. I actually haven't gotten the 31/12/07 statement yet, so I don't know whether it will be another 0.5%. The latter will be complicated by the fact that I made another lump sum payment in September 2007, but don't know how many units that equalled.
 
Sounds strange all right. PRSAs, whether they be standard or non-standard should not have a policy fee attached.

Most PRSAs that I am aware of reflect the annual management fee in the price of the fund, therefore the number of units are unaffected.

For non-standard PRSAs the fund management charge would be higher.

However, Eagle Star do indeed seem to take the charge from units within the policy. This is from their Preliminary Disclosure Certificate, which can be downloaded from [broken link removed]

Management charge
A management charge of at most 1.75% per annum (excluding the SuperCAPP Fund) means that Eagle Star levies a charge of at most 1.75% per annum of the total value of your PRSA assets. This charge is to cover investment management and other expenses incurred by Eagle Star in providing this PRSA to you.

The management charge is the percentage of your PRSA assets that Eagle Star deducts and is at most 1.75% per annum for your PRSA. Eagle Star deducts the management charge either directly from the PRSA funds or from your PRSA or by a combination of these methods.
There is an additional management charge of 0.25% per annum applying to the SuperCAPP fund. Eagle Star deducts the additional management charge either directly from the fund or from your PRSA or by a combination of these methods.

Refund of Management Charges
In the case of the Advice PRSA (Rebate) only, if you take your retirement benefits on or after your selected retirement date, your selected retirement date is at least 15 years after the start date, and you did not cease making contributions during any 13-month period, Eagle Star will increase the benefit payable by refunding any management charges deducted from your contract in respect of regular contributions since the start date. Eagle Star
will not refund any additional management charges levied on moneys held in the SuperCAPP Fund.
Click to expand...
 
The [broken link removed] says similar: - ​


The management charge is the percentage of your PRSA assets that Eagle Star deducts and is at most 1% per annum for your PRSA.
Click to expand...
Eagle Star deducts the management charge either directly from the PRSA funds or from your PRSA or by a combination of these methods.
Click to expand...


The policy conditions booklet for Standard PRSAs says the same. ​


Policy fees don't apply to Standard PRSAs. As far as I know Eagle Star utilise a combination of both methods of collecting the charge, e.g. some by unit cancellation and the rest contained in the unit price. To be honest, I don't know what the split is - Prudence's example below suggests that it may be 0.5% per annum paid by cancelling units and the remaining 0.5% incorporated into the unit price. ​



I've e-mailed a query to Eagle Star to clarify and will report back. ​



As long as the combined total doesn't exceed 1% of the fund per annum, it shouldn't make any difference to the policyholder how it is collected. ​



Liam D. Ferguson

www.ferga.com​
 
Thanks for your replies. I had read this before, of course, but I guess I hadn't stopped to think what deducted "from your PRSA" means. My basic query is covered in the last sentence of Liam's answer, that it "shouldn't make any difference". That's what my logic was telling me, but not my intuition, and I wanted confirmation that my logic was right. I am interested to know whether other PRSAs and other kinds of Unit-Linked funds operate this way, but I guess I can look at their literature if I really want to find out. Thanks again.
 
Eagle Star answered my query that the entire annual management charge is taken by unit deduction, and none incorporated into the unit price. I did some very quick calculations based on a client's policy details and this appears to be accurate.
 
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