Pension linked to an index with low charges

[South]

I presume, judging from the post, that a final decision has not been made about anything in relation to the type of pension, level of contribution (never mind the appropriate index (one or multiple) used!) yet.

 

[Carolina]

Thanks to everyone for your replies.

Where do I buy an 'Execution only PRSA'?

You mentioned that an OPS/Exec pension can have a once off fee 4.25/month policy fee and a .75% pa mgmt fee. How do I buy this product at these rates?-

You say that an OPS has a higher max contribution. How much higher?

I have a 35% holding in the company. What is ARFing at retirement? Is that where you can take out a lump sum tax free?

You recommend nil-commission. How do I get a pension set up nil-commission?

If I have an OPS, what happens if I wind up my company and become a PAYE worker? Can I keep paying into the fund?

What is core and satellite? Do you mean some of the pension is invested in x and the rest in y?

OK, I did say 'I just want to buy an index' but I also (inconsistently) said 'I just want a fund that is linked to a stock market index, or a group of indexes'.

Can I clarify by saying that I don't want an actively managed fund, just something linked to transparent indexes that I can follow in the paper? Several indexes is good because that gives diversity. I understand that a pension fund should move away from equities into bonds as retirement age approaches. Fair enough.

Also I don't see that I should pay much for buying an index or a collection of indexes, compared to paying for fund managers , research units and market commentators.

I am told that I can get some life cover linked to a pension. Is this an efficient way to arrange life cover compared to stand alone?

Carolina

 

[South]

Where do I buy an 'Execution only PRSA'?

Lots of places - do a search on AAM and you will see they are freely available.

You mentioned that an OPS/Exec pension can have a once off fee 4.25/month policy fee and a .75% pa mgmt fee. How do I buy this product at these rates?

A lot of execution only brokers will set up an Exec Pension for a 0.75% annual management fee and no other fee - other than the initial set-up cost.

You say that an OPS has a higher max contribution. How much higher?

This is an actuarial calculation - depends on current age and normal retirement age, current salary and current fund...as well as expected annuity rates at retirement.

I have a 35% holding in the company. What is ARFing at retirement? Is that where you can take out a lump sum tax free?

It means transferring it to another retirement savings vehicle rather than being obliged to go down the take 150% of salary tax-free and use balance to buy a pension route...it's good news for you.

You recommend nil-commission. How do I get a pension set up nil-commission?

Use a transparent broker that will set you up nil commission.

If I have an OPS, what happens if I wind up my company and become a PAYE worker? Can I keep paying into the fund?

You could transfer your fund to your new employment and start contributing to that fund.

What is core and satellite? Do you mean some of the pension is invested in x and the rest in y?

Yes.

Can I clarify by saying that I don't want an actively managed fund, just something linked to transparent indexes that I can follow in the paper? Several indexes is good because that gives diversity. I understand that a pension fund should move away from equities into bonds as retirement age approaches. Fair enough.

True.

I am told that I can get some life cover linked to a pension. Is this an efficient way to arrange life cover compared to stand alone?

I would tend to split it out, unless there is a tax advantage by attaching life cover to the pension.

 

[Dave Vanian]

Any of the charging structures outlined above assume that the pension is being set up on "nil commission" terms, i.e. you will pay the broker a fee. If you have a pension broker who comes recommended to you by someone you trust, go to them and ask them will they set up a pension on nil commission terms for you, for a fee. If you don't know such a person have a browse around Askaboutmoney.com as there are several brokers who post here.

You also need professional advice on the most suitable type of pension arrangement for you. If you're contemplating investing hundreds of thousands into your pension fund over time, you need to pay for good advice first. With all due respect to the posters on Askaboutmoney.com, I wouldn't make a substantial financial decision based solely on what I read here.

 

[South]

With all due respect to the posters on Askaboutmoney.com, I wouldn't make a substantial financial decision based solely on what I read here.

I would be inclined to agree with this, there are an awful lot of strong opinions on the site so it would make sense to get independent fee-based advice from an authorised advisor.

 

[F. Kruger]

Hi Carolina,

If you are comfortable making the investment decisons and choosing a provider then there is a list of 'Execution Only' Services/Products from discount brokers in the Best Buys Forum. This might suit you as you are specific in what you are looking for.

I don't think that you need an Authorised Advisor for this transaction, and even if you did, a good Multi Agency Intermediary is better than a bad Authorised Advisor anyday.

All you have to decide is whether it's a Company or Individual arrangement that you want and then look for one that has Index Tracking Funds available at around the 1% AMC mark.

The life cover I would keep seperate from the pension. I would suggest a term insurance with a guaranteed premium. You can buy Executive Term Insurance (Company director) on a stand alone basis.

 

[South]

Hi Carolina,

I don't think that you need an Authorised Advisor for this transaction, and even if you did, a good Multi Agency Intermediary is better than a bad Authorised Advisor anyday.

And similarly, a good Authorised Advisor is better than a good Multi Agency Intermediary every day...no point settling for less.

 

[Dave Vanian]

A good Authorised Advisor will include Quinn Life in their recommendations to this lady. A bad Authorised Advisor will find excuses to justify not recommending Quinn Life, when the real reason is that Quinn Life won't pay commission or over-ride commission.

Any of the Authorised Advisors who post here on Askaboutmoney care to comment as to why Quinn Life doesn't get named in this thread, except by capall who I understand is not a broker?

 

[South]

Bear in mind that the OP does not know what an ARF is - so the level of service she requires (especially if putting in 20K a year) is a lot higher than what the QL arrangement would offer.

The OP is also a proprietary director - so would need to consider maximum contributions that her company can make on her behalf, again this is not a service that she can expect from QL.

Even on costs I would not put forward QL here because if the OP is putting in 20K a year the 25 basis points lower fund management charge available through ILIM, Eagle Star, Friends First etc on a contribution of 20K a year would be €50 in year 1, about €100 in year 2, about €150 in year 3 and so on...and that is if she only uses the very limited QL funds at 1% fund management charge.A contributor at this level (20k per annum) would do well to worry a lot about the size of the fund management charge.

 

[Dave Vanian]

(1) If an Authorised Advisor recommends Quinn Life to her over ILIM, Eagle Star, Friends First or whoever, why would the AA not explain about ARFs, maximum funding etc.?

(2) Notwithstanding (1) above, what verifiable basis have you for alleging that Quinn Life sales staff would not have the necessary qualifications to impart this sort of information?

(3) Over a 25 year term at €20,000 per annum indexing, are you quite sure that QL's reduction in AMC from 1% to 0.5% (or 1.2% to 0.7% for some funds) won't bring it back below other competitors by year 25, bearing in mind that the years when the fund will be largest will be the final 10? A good AA will be able to illustrate the effect of differing charging structures on all available products, including Quinn Life and Acorn Life.

(4) How do Acorn Life compare?

 

[South]

(1)If you go to an AA and can get in for 0% upfront and < 1% ongoing why on earth would you go for QL (only four funds at 1%, of which only two are equity at 0% and 1%)?

(2)From working in the industry, I am quite familiar with the direct sales staff in a whole host of companies - independent advice (not tied to a specific investment manager/insurer) is often worthwhile addition based on my experience.

(3)Of course I am sure that the charges would be lower using a different provider,given the choice between 0% + 0.75% with a greater fund choice compared to 0% + 1% with only two equity funds, it's clear to anybody that 0% and 0.75% will beat 0% and 1%.

(4)How do Acorn Life compare with who and under what criteria?

 

[LDFerguson]

And similarly, a good Authorised Advisor is better than a good Multi Agency Intermediary every day...no point settling for less.

South - like many before you, you've fallen into the trap of believing the hype. But most have seen the error of their ways by now. When delineation between AAs and MAIs originally occurred, the Irish Brokers Association believed the above myth also and tried to make it a condition of membership that all members must be AAs. They were forced to do a U-turn on that one when they realised their mistake.

Now even the regulatory bodies are considering scrapping the titles AA and MAI so that in the future, the only distinction between good and bad will be the quality of the advisor, which is the only workable answer.

 

[South]

South - like many before you, you've fallen into the trap of believing the hype. But most have seen the error of their ways by now. When delineation between AAs and MAIs originally occurred, the Irish Brokers Association believed the above myth also and tried to make it a condition of membership that all members must be AAs. They were forced to do a U-turn on that one when they realised their mistake.

Now even the regulatory bodies are considering scrapping the titles AA and MAI so that in the future, the only distinction between good and bad will be the quality of the advisor, which is the only workable answer.

What trap?

An AA can give advice on the complete market of products, an MAI can't...the MAI can only advise on the agencies he/she holds.

It seems pretty clear to me which is preferable.

 

[Dave Vanian]

(1)If you go to an AA and can get in for 0% upfront and < 1% ongoing why on earth would you go for QL (only four funds at 1%, of which only two are equity at 0% and 1%)?

(3)Of course I am sure that the charges would be lower using a different provider,given the choice between 0% + 0.75% with a greater fund choice compared to 0% + 1% with only two equity funds, it's clear to anybody that 0% and 0.75% will beat 0% and 1%.

Your replies above suggest to me that you're unfamiliar with the Quinn Life practice of reducing their AMC by 0.5% after 15 years. Have another read of point (3) of my earlier post.

(2)From working in the industry, I am quite familiar with the direct sales staff in a whole host of companies - independent advice (not tied to a specific investment manager/insurer) is often worthwhile addition based on my experience.

How does an actuary working for a reinsurance company get to be familiar with direct sales staff in a host of companies?

(4)How do Acorn Life compare with who and under what criteria?

With the rest of the market under product charges and fund choice?

 

[South]

(4)Not very well - no index fund which is what is being discussed here.

After 15 years of paying 0.25% too much, again you seem unfamiliar with the fact that QL have only two equity funds at a 1% fmc, all the rest are higher and your example at 1% then specifically refers to Celtic (who would want their entire pension based on the ISEQ?) and Euro freeway funds.

Most investors putting in 20K annual would require exposure to Asia Pacific and to US, at a very minimum.

I have been working for 15 years - including stints with the two largest pension consultancies in Ireland.

What's your background?

 

[LDFerguson]

What trap?

An AA can give advice on the complete market of products, an MAI can't...the MAI can only advise on the agencies he/she holds.

It seems pretty clear to me which is preferable.

A fine theory but unworkable in practice. Which is why the IBA had to do an about turn. And why in all probability the concepts of AA and MAI will soon be scrapped. If one was clearly preferable over the other, these things wouldn't be happening.

 

[South]

Ah there is no doubt clients prefer to have the full market choice rather than the limited product choice of a MAI, the changes are more on the compliance monitoring and regulatory side, that's fair enough but clients still appreciate the extensive market coverage of an AA (I don't really care what they are called to be honest!!) over that of an MAI.

 

[Dave Vanian]

After 15 years of paying 0.25% too much, again you seem unfamiliar with the fact that QL have only two equity funds at a 1% fmc, all the rest are higher and your example at 1% then specifically refers to Celtic (who would want their entire pension based on the ISEQ?) and Euro freeway funds.

No all 12 QL funds reduce their AMC by 0.5% after 15 years. Some start at 1%, some at 1.2% and some at 1.5%. My example used the lower eight - 1% and 1.2% to start with and 0.5% and 0.7% after 15 years. A mix of these eight funds would produce a lower charging structure after 25 years than a fixed 0.75% per year. This is why a good AA must at least include Quinn Life in the list of recommendations. The client can then decide if the additional charges available in another product are justified by the additional fund choice.

You voluntarily chose to reveal your background in another thread, in which I was only a spectator. I choose not to.

My background is not pertinent to this thread as nowhere have I used the arguments that my background or experience is relevant. I prefer to make arguments based on facts.

For clarity, I will, however, confirm that I have no connection with Quinn Life.

 

[LDFerguson]

Ah there is no doubt clients prefer to have the full market choice rather than the limited product choice of a MAI, the changes are more on the compliance monitoring and regulatory side, that's fair enough but clients still appreciate the extensive market coverage of an AA (I don't really care what they are called to be honest!!) over that of an MAI.

If that was true, then market forces would dictate that MAI's would have gone out of business and would have been replaced by AAs. In fact, more AAs have become MAIs over the years than vice versa.

 

[South]

No all 12 QL funds reduce their AMC by 0.5% after 15 years. Some start at 1%, some at 1.2% and some at 1.5%. My example used the lower eight - 1% and 1.2% to start with and 0.5% and 0.7% after 15 years. A mix of these eight funds would produce a lower charging structure after 25 years than a fixed 0.75% per year. This is why a good AA must at least include Quinn Life in the list of recommendations. The client can then decide if the additional charges available in another product are justified by the additional fund choice.


My background is not pertinent to this thread as nowhere have I used the arguments that my background or experience is relevant. I prefer to make arguments based on facts.

For clarity, I will, however, confirm that I have no connection with Quinn Life.

I never disputed that they reduce the FMC by 0.5% - I pointed out that only two (one is the ISEQ!) equity funds start out at 1.0%, obviously I am correct in this assertion, all other equity funds by QL start at > 1%.

I never mentioned my background either - you brought my background up (not for the first time)