Negotiating the ARF potholes...

[Hooverfish]

Dear askaboutmoney people
First, thank you for good advice in the past.

Have got to the stage of retiring, trying to consolidate pensions together, take the tax free 25% and negotiate the ARF stuff now.
My funds aren't huge but OH has similar amount in various savings, we own our house and could downsize if required etc. etc.

Financial advisor is looking for 0.5% annually of ARF fund of about 220k and an initial commission of 3.5% (where they overallocate the units to 103.5% thingummy). Suggested ARF provider is looking for 1.5% AMC which I gather from other threads is high, but advisor says they have good systems and range of available funds etc. (it's New Ireland, they weren't too bloody hot with my actual pension savings for 23 yrs - but fortunately I had others).

Spoke to an old family friend in "the business" but UK-based, who says it sounds like the UK 25 years ago before they had non-life options!

UK friend prefers a situation where ongoing relationship with advisor is rewarded - and suggests can the initial commission be reduced?
We had been going to nix the optional ongoing advice part, as we would be stuck with a continuing payment but were told all the life companies insist it's continuing and cannot be cancelled if you do it. Just no clue what's ever "normal" here...

UK friend also suggested to be sure that ARF withdrawal breaks are possible in case of major economic shocks.
Does the quote include government levy? (I'll have to check, that's 1%, is that right?)
Can overall costs be reduced using passively managed funds on agreed equity bond split?

Anything else you guys would ask? I am not in any way against the advisor or their advice, I just find the process nerve-wracking and like to have more than one view.
It seems like the options are pretty expensive and it seems such a risk using a company you haven't previously had a good experience with but I accept this may be the "least worst" available and maybe we were just unlucky with them.

I don't think I would want to be doing the execution-only route, I don't know enough, is all I really know.

Thank you for your thoughts...

 

[ClubMan]

trying to consolidate pensions together

Why? Depending on circumstances (and assuming that the charges on each pot are reasonable) it can be beneficial to keep pension cover "fragmented" as it may alllow for flexibility with regard to staggered/staged retirement rather than it being a once off/all or nothing decision and event.

That's exactly what I'm using to slide rather than jump into retirement.

Financial advisor is looking for 0.5% annually of ARF fund of about 220k and an initial commission of 3.5% (where they overallocate the units to 103.5% thingummy). Suggested ARF provider is looking for 1.5% AMC which I gather from other threads is high, but advisor says they have good systems and range of available funds etc. (it's New Ireland, they weren't too bloody hot with my actual pension savings for 23 yrs - but fortunately I had others).

You can get better/lower charges on ARFs if you shop around and maybe select an execution only intermediary. E.g. check out the following:

• www.prsa.ie
• www.ferga.com
• www.labrokers.ie

You should probably also search/read some of the existing threads here on Askaboutmoney before doing anything.

it's New Ireland, they weren't too bloody hot with my actual pension savings for 23 yrs

Quite possibly that could be because of (a) high charges and/or (b) inappropriate fund selection/asset allocation.

 

[S class]

There is no government levy on ARFs

An ARF is almost totally flexible.
The only inflexible bit is the imputed distribution.
This is 4% per year from age 61 to 70 and 5% beyond.
Apart from this you can choose how much you drawdown each year.
You can suspend drawdowns in the case of major economic shocks.
I did this at the start of COVID when markets halved. I restarted the drawdowns later that year when all the market losses recovered.

There is no need to worry to much about investment strategy when starting your ARF.
You can change your strategy any amount of times after set up. You can normally change the choice of funds up to 4 times per year free of fees.

The changes can be to the type of funds and the risk level of the funds.

You can also change brokers and providers at any time.

If you actively read posts on AAM and in the newspapers you will get a good idea of investment strategy relating to age and financial status.

You could initially set up an ARF using an execution only broker to minimise costs and adjust your strategy as time goes on.

If at a future date you decide that you would like more advice you could then reallocate your ARF to an advice based broker.

 

[Dave Vanian]

Financial advisor is looking for 0.5% annually of ARF fund of about 220k and an initial commission of 3.5% (where they overallocate the units to 103.5% thingummy). Suggested ARF provider is looking for 1.5% AMC which I gather from other threads is high, but advisor says they have good systems and range of available funds etc. (it's New Ireland, they weren't too bloody hot with my actual pension savings for 23 yrs - but fortunately I had others).

So the financial adviser is getting €7,700 upfront and €1,100 per year ongoing (depending on fund size) for doing this job. Have they told you what services they'll be providing to you for your €1,100 per year ongoing? Commissions and charges on ARFs are not fixed - all brokers have a range to choose from.

We had been going to nix the optional ongoing advice part, as we would be stuck with a continuing payment but were told all the life companies insist it's continuing and cannot be cancelled if you do it.

This is a tricky one. Regulations insist that the broker carries out some level of ongoing monitoring to make sure that the product and fund choice remains suitable for your needs. On the other hand, that could be done in the form of a few quick "Has anything changed in your world?" questions every year or two. Trail commission is negotiable. If you want detailed ongoing reviews, then pay for them and agree what you're going to get in advance. Otherwise, haggle on the trail commission as the broker chooses what level to take.

 

[Deauville]

When you say consolidating pensions. What type of schemes ? Are they attached to the same employment ?

I'm pretty much in the same boat. Retired and shopping for an ARF.

I would suspect if you shop around, you would get a much better deal on provider AMC and broker/advisor trail for advice.
Is there an exit penalty attached to the offer ?

As far as I can see, the main advantage of ongoing advice would be to prevent activity at a time when we should do nothing.

It seems to be a mine field out there with some advisors coming up with questionable advice at questionable cost.
Good and fair advisers do deserve a premium. But which ones ?

If you feel you could keep your hands in your pockets and do nothing when the markets go off on a roller coaster ride you should do some homework regarding the use of execution only.

There are plenty of online tools to help in assessing volatility risk tolerance, choosing funds, building a portfolio.

An advisor should take into account many factors including other assets, liabilities, life expectancy..... but unfortunately some seem to simply use the same online resources we have access to and then act as salespersons.

I hasten to add that the advisors (including execution only) who willingly help us on this forum are commendable.

Although this forum isn't a substitute for good financial advice, there are many helpful and knowledgeable contributors.

 

[ClubMan]

As far as I can see, the main advantage of ongoing advice would be to prevent activity at a time when we should do nothing.

It seems to be a mine field out there with some advisors coming up with questionable advice at questionable cost.
Good and fair advisers do deserve a premium. But which ones ?

If you mean advisors who will tell you when to "trade" or switch asset allocations and when not to then I would disagree strongly. Nobody can predict the markets/future with any reliability. If you mean somebody who assesses your needs, your appetite for risk/reward, maybe counsels when this appetite may be too much or too little, etc. then I might be more inclined to agree that it's worth paying for this.

 

[Hooverfish]

When you say consolidating pensions. What type of schemes ? Are they attached to the same employment ?

I'm pretty much in the same boat. Retired and shopping for an ARF.

I would suspect if you shop around, you would get a much better deal on provider AMC and broker/advisor trail for advice.
Is there an exit penalty attached to the offer ?

As far as I can see, the main advantage of ongoing advice would be to prevent activity at a time when we should do nothing.

It seems to be a mine field out there with some advisors coming up with questionable advice at questionable cost.
Good and fair advisers do deserve a premium. But which ones ?

If you feel you could keep your hands in your pockets and do nothing when the markets go off on a roller coaster ride you should do some homework regarding the use of execution only.

There are plenty of online tools to help in assessing volatility risk tolerance, choosing funds, building a portfolio.

An advisor should take into account many factors including other assets, liabilities, life expectancy..... but unfortunately some seem to simply use the same online resources we have access to and then act as salespersons.

I hasten to add that the advisors (including execution only) who willingly help us on this forum are commendable.

Although this forum isn't a substitute for good financial advice, there are many helpful and knowledgeable contributors.

I have 14 pensions with 6 companies (was self employed for many years) and a small public service pension... I am assuming that my current advisor doesn't do execution only, but I'm definitely going to ask about it now. Mind you, not sure I could take the stress of another 4 Trump years...

 

[Hooverfish]

So the financial adviser is getting €7,700 upfront and €1,100 per year ongoing (depending on fund size) for doing this job. Have they told you what services they'll be providing to you for your €1,100 per year ongoing? Commissions and charges on ARFs are not fixed - all brokers have a range to choose from.



This is a tricky one. Regulations insist that the broker carries out some level of ongoing monitoring to make sure that the product and fund choice remains suitable for your needs. On the other hand, that could be done in the form of a few quick "Has anything changed in your world?" questions every year or two. Trail commission is negotiable. If you want detailed ongoing reviews, then pay for them and agree what you're going to get in advance. Otherwise, haggle on the trail commission as the broker chooses what level to take.

Yes, I think I'm going to query "how much advice/cost?" again. Thank you for confirming that.

 

[Hooverfish]

Why? Depending on circumstances (and assuming that the charges on each pot are reasonable) it can be beneficial to keep pension cover "fragmented" as it may alllow for flexibility with regard to staggered/staged retirement rather than it being a once off/all or nothing decision and event.

I've decided to retire 2 years before statutory for reasons I won't bore everyone with here. I can't sort three small policies easily, but the other 12 I'd like to have in one place with a properly planned investment strategy which I'm thinking will be ARF.

 

[november16]

I've decided to retire 2 years before statutory for reasons I won't bore everyone with here. I can't sort three small policies easily, but the other 12 I'd like to have in one place with a properly planned investment strategy which I'm thinking will be ARF.

New Ireland re Individual premium AVC were practically non responsive or had flatlined. I had an urgent query which I initiated in Sept it went on for 5 weeks, until I raised a formal complaint. Customer service tried to assist, but didn’t have the knowledge. It was like the Heineken add re the unanswered phone. Not sure what broker was doing except taking their fee. So for Small ARF need to find out what exactly they actually do for their remuneration, fees etc and who does what.

 

[GSheehy]

Are you sure the advisor isn't a tied-agent ie. they don't have a choice of where they are going to place the ARF?

I've never dealt with NI, except on transfers away from them and those aren't great experiences. They're owned by a bank which means that customers aren't the top priority, it's shareholders. A broker (with a choice of where to place the ARF) would probaby be wary of the service (based on past experience) and choose another provider.

The pricing structure you mention will have exit charges in the first 5 years so if you wanted to move to something better, or away from potential terrible service, you'd be restricted.

Not sure about the wisdom of maturing all 12 at the one time. Do you need all the tax-free-cash now? What are you going to do with the €73,000? What way will the income from the cumulative ARF value be taxed, when combined with other income/s?

There is a fair bit of work involved in maturing so many different pensions, from different providers, for a broker but I think you need someone to give you an alternative plan/advice with them. Take your time. Maybe start a conversation with one of the brokers in the advisory space that contributes to these pages. You're around long enough to know who they are.

 

[Hooverfish]

Are you sure the advisor isn't a tied-agent ie. they don't have a choice of where they are going to place the ARF?

I've never dealt with NI, except on transfers away from them and those aren't great experiences. They're owned by a bank which means that customers aren't the top priority, it's shareholders. A broker (with a choice of where to place the ARF) would probaby be wary of the service (based on past experience) and choose another provider.

The pricing structure you mention will have exit charges in the first 5 years so if you wanted to move to something better, or away from potential terrible service, you'd be restricted.

Not sure about the wisdom of maturing all 12 at the one time. Do you need all the tax-free-cash now? What are you going to do with the €73,000? What way will the income from the cumulative ARF value be taxed, when combined with other income/s?

There is a fair bit of work involved in maturing so many different pensions, from different providers, for a broker but I think you need someone to give you an alternative plan/advice with them. Take your time. Maybe start a conversation with one of the brokers in the advisory space that contributes to these pages. You're around long enough to know who they are.

Apparently not "tied", I did ask... they say NI has improved a lot in past two years. Yes, will need at least half of the cash in next couple of years. Will start by going back to current advisor with the queries, but will also approach others, and indeed, track record here is one of strongest positive starts for any enquiry! Thanks for the advice.

 

[Queenspawn]

There is no government levy on ARFs

An ARF is almost totally flexible.
The only inflexible bit is the imputed distribution.
This is 4% per year from age 61 to 70 and 5% beyond.
Apart from this you can choose how much you drawdown each year.
You can suspend drawdowns in the case of major economic shocks.
I did this at the start of COVID when markets halved. I restarted the drawdowns later that year when all the market losses recovered.

There is no need to worry to much about investment strategy when starting your ARF.
You can change your strategy any amount of times after set up. You can normally change the choice of funds up to 4 times per year free of fees.

The changes can be to the type of funds and the risk level of the funds.

You can also change brokers and providers at any time.

If you actively read posts on AAM and in the newspapers you will get a good idea of investment strategy relating to age and financial status.

You could initially set up an ARF using an execution only broker to minimise costs and adjust your strategy as time goes on.

If at a future date you decide that you would like more advice you could then reallocate your ARF to an advice based broker.

Interesting comment about suspending drawdowns in the event of a major economic shock. I didn’t know this. Can you elaborate about the rule surrounding this. I had thought that between 61 and 70 you have to take a minimum of 4% no ifs no buts.

 

[Setforlife]

Interesting comment about suspending drawdowns in the event of a major economic shock. I didn’t know this. Can you elaborate about the rule surrounding this. I had thought that between 61 and 70 you have to take a minimum of 4% no ifs no buts.

You have to pay the tax as if you drew down 4% but you don’t actually have to draw down is my understanding, so if it’s bad timing you could avoid a lot of the sequence of risks. It’s also something that might suit someone who took a large lump sum and wants to leave the rest to grow, not take it out and out it somewhere that another 33% or 41% will be due on any increase. I of course paying tax on money you haven’t taken is not ideal either. So it’s only in carefully worked out cases it would make sense.

 

[Setforlife]

Mentioned here https://www.standardlife.ie/adviser/news-insights/latest-news/imputed-distribution-2024
From about 5 minutes in, mostly as a warning that people who take option need extra advice and warning as if you decide to move all your money later it’ll be taxed again.

 

[TomEdison]

Unless I'm missing something, not taking the minimum required distribution is very costly, since you will be taxed on that amount as if you had received it and then, in later years, when you actually receive it, you will be taxed on it again — when you receive an actual distribution from an ARF you get no credit for tax paid in previous years on deemed distributions.

 

[Flybytheseat]

You have to pay the tax as if you drew down 4% but you don’t actually have to draw down is my understanding, so if it’s bad timing you could avoid a lot of the sequence of risks. It’s also something that might suit someone who took a large lump sum and wants to leave the rest to grow, not take it out and out it somewhere that another 33% or 41% will be due on any increase. I of course paying tax on money you haven’t taken is not ideal either. So it’s only in carefully worked out cases it would make sense.

Far better surely to draw down the 4% and just reinvest immediately in an equity fund outside of the pension wrapper.

 

[Dr Strangelove]

not taking the minimum required distribution is very costly, since you will be taxed on that amount as if you had received it and then, in later years, when you actually receive it, you will be taxed on it again

It depends a bit on your marginal rate: getting notionally taxed at 40% is worse than at 20%.

Succession planning is relevant too: an ARF passed on to a child over 21 is taxed at a flat rate of 30%.

These are kind of edge cases but there are circumstances where it can make sense to pay the imputed tax rather than draw down.

 

[GSheehy]

This is what @S class means, here & here

 

[Fortune]

You have to pay the tax as if you drew down 4% but you don’t actually have to draw down is my understanding, so if it’s bad timing you could avoid a lot of the sequence of risks. It’s also something that might suit someone who took a large lump sum and wants to leave the rest to grow, not take it out and out it somewhere that another 33% or 41% will be due on any increase. I of course paying tax on money you haven’t taken is not ideal either. So it’s only in carefully worked out cases it would make sense.

I'd rather take the withdrawal and then invest outside the ARF than to be double taxed via an imputed distribution