Pension too conservative - switch to PRSA?

[cavanman2006]

Re: Key Post: The cheapest PRSA?

I have a private pension since 1999 that was too secure for my age. It has been very safe but performance was lousy. I am 44 in 2 weeks time and I will increase the monthly rate after SSIA. Now want to switch to PRSA. I can get a PRSA now for 98% and 1%. Can I get better deal than this? Can any one you point me towards a different company and fund? Thanks for any feedback.

 

[ClubMan]

Re: Key Post: The cheapest PRSA?

I have a private pension since 1999 that was too secure for my age. It has been very safe but performance was lousy.

What charges apply? Are there no less conservative funds which you can switch to for higher risk/reward?

I am 44 in 2 weeks time and I will increase the monthly rate after SSIA.

Do you qualify for the Revenue's SSIA to PRSA transfer bonus incentive?

Now want to switch to PRSA.

If the charges on your existing plan are competitive, you can switch into a less conservative fund and there are no penalties for freezing it then you could always park it leaving the funds where they are and open a new PRSA if necessary. Having more than one pension fund (usually only one of which is active) is not that unusual and (all things being equal - in particualr charges being reasonable) is not necessarily a bad thing other than perhaps from an administrative/tracking point of view. I have about half a dozen different pensions for various reasons for example!

I can get a PRSA now for 98% and 1%.

Do you mean 2% per contribution charge and 1% annual management fee?

Can I get better deal than this? Can any one you point me towards a different company and fund? Thanks for any feedback.

If you mean 2%/1% then that's pretty good although you also need to check that the funds available are suitable to your needs.

If in doubt get independent, professional advice which will be more comprehensive and tuned to your specific needs than most of the comments here no matter how useful.

 

[cavanman2006]

Clubman

Thanks for the reply. My pension has increased 3.7% in total since I started in 1999. So you can imagine the charges and commissions involved. I am at the higher rate of tax so I assume the SSIA to pension will not apply. I would prefer one pension so keep admin simpler. The charges I have seen are indeed 2% and 1%. I probably will select the Dynamic fund from Eagle Star. Is there better funds and/or management charges out there?

Thanks a lot for your time.

 

[ClubMan]

Thanks for the reply. My pension has increased 3.7% in total since I started in 1999.

What BoI fund is it invested in? Some sort of With Profits fund or conservative (e.g. cash/bonds) fund? Is switching to another more aggresive fund not an option?

So you can imagine the charges and commissions involved.

Actually I can't and feel it would be better if you detailed them here - both those that were already charged (including initial units or premiums that went totally on charges in the early months/years of the policy) as well as the ongoing charges and any that might apply if you stopped contributing at any stage.

I am at the higher rate of tax so I assume the SSIA to pension will not apply.

Correct - just checking in case...

I would prefer one pension so keep admin simpler.

I'm not sure if you can transfer a private personal pension fund into a PRSA so that may not actually be an option. I could be wrong.

The charges I have seen are indeed 2% and 1%. I probably will select the Dynamic fund from Eagle Star. Is there better funds and/or management charges out there?

If you are looking for high equity content/risk/reward that is certainly one option (and coincidentally what I'm in 100% for my current PRSA). Ultimately with a couple of decaded to go to retirement and a stomach for some volatility such a fund would probably be suitable. There are other ES funds available too some of which are arguably higher risk/reward (e.g. concentrated funds such as 5*5 I think?).

 

[cavanman2006]

The current pension is Friends First (Not BOI) and is with Profits. I have spent some time talking to them about charges, etc. I don't have them here but they appeared not to be excessive in terms of the monthly and yearly charges. I think it aims to pay 4% per year. They have never explained the commission system. I did no research when I started the pension - I went with what a broker advised. I presume a with profits is a low risk, low return which is suitable for an older person closer to retirement. Not sure why someone 28 years from retirement would start with it. I want to switch to a PRSA fund because it appears to be simpler to me. After lots of talk with Friends First, I don't fully understand a with profits pension and why a steady eddie would return 3.7% in 6.5 years. Deposits are better than this. I have been told by FF that I can switch it a PRSA with another company with no exit costs. Thanks for your time.

 

[ClubMan]

The current pension is Friends First (Not BOI)

Sorry - think I got confused with another recent pension post.

and is with Profits.

WP funds are notoriously complex and lacking in transparency. Check out previous discussions about them. It's often difficult to get a clear valuation given the impact of stuff like MVAs (Market Value Adjustments - basically charges for early encashment), how bonuses are added often at maturity, maturity versus early surrender values etc. Perhaps you could post the details from your last statement and the total of all contributions made to date?

I have spent some time talking to them about charges, etc. I don't have them here but they appeared not to be excessive in terms of the monthly and yearly charges.

You really need to be more sure than that. What charges (including MVA) are specified in any written documentation that you received originally or since?

I think it aims to pay 4% per year.

That's not that much better than current deposit rates. And it's probably not even guaranteed. What guarantees, if any, apply? Past performance is irrelevant but perhaps you could post the past annual returns on your fund?

They have never explained the commission system.

Commission = charges so you need to factor this into the overall cost of the policy.

I did no research when I started the pension - I went with what a broker advised.

Potentially a bad move but at least you (like me!) can learn from such mistakes.

I presume a with profits is a low risk, low return which is suitable for an older person closer to retirement.

Sort of - WP fund normally invest in a range of assets including equities, property, bonds/cash and are supposedly managed to smooth out returns by holding back profits when times are good and releasing them when times are bad. In general they would not be suitable as the main or only investment for a person with a good while to go to retirement. Having said that I still have a chunk of my total pension savings in the Equitable Life WP fund to this day and have never bitten the bullet, taken the pain of the MVA and transferred to something that might be more likely to give better returns in the long term including covering the cost of the MVA.

Not sure why someone 28 years from retirement would start with it. I want to switch to a PRSA fund because it appears to be simpler to me. After lots of talk with Friends First, I don't fully understand a with profits pension and why a steady eddie would return 3.7% in 6.5 years. Deposits are better than this. I have been told by FF that I can switch it a PRSA with another company with no exit costs. Thanks for your time.

Are you sure that no MVA applies and that you can transfer a personal pension fund to a PRSA?

Hope this is all making sense and helping you to get a better idea of the issues/trade-offs etc. Please note that I am not a professional advisor so stick arround for additional - possibly dissenting - comments and if in doubt get independent, professional advice from a good authorised advisor or multi-agency intermediary but not a tied agent.

 

[cavanman2006]

I'll gather more data and post it later on. When I started the pension 6.5 years ago I thought I was talking to a good advisor, so I am sceptical of finding independant advise now. I will move to a product with ...

A. Low transparent charges.
B. A number of good performing funds.
C. Ability to make cost free fund switches from time to time

I will then keep an eye on fund performance as time passes.

Thanks again for all the time

 

[ClubMan]

When I started the pension 6.5 years ago I thought I was talking to a good advisor, so I am sceptical of finding independant advise now.

You dealt with a broker of some sort. An authorised advisor or multi-agency intermediary who deals with a wide range of product/service providers is a a different kettle of fish in all likelyhood.

I will move to a product with ...
A. Low transparent charges.
B. A number of good performing funds.
C. Ability to make cost free fund switches from time to time

Sounds fair enough even if B is largely irrelevant in my opinion (past performance is no guide to future returns).

 

[bocade]

Try Quinn Life,

Low Charges - 1% or 1.2% pa, no other charges
Performance - Check out on website www.quinn-life.com
Switches - 2 free annually

 

[cavanman2006]

I pulled out some FF notes and letters. The monthly allocation at the moment is 99%. The annual charge is 0.75%. 2.90/month charge on top of this. (some other FF person said this was 5.80/month) There was 76% allocation in 1st year. With profit growth of 4% (not guaranteed). Market value adjustment is zero. Exit tax is zero.

 

[ClubMan]

I pulled out some FF notes and letters. The monthly allocation at the moment is 99%. The annual charge is 0.75%. 2.90/month charge on top of this. (some other FF person said this was 5.80/month) There was 76% allocation in 1st year. With profit growth of 4% (not guaranteed). Market value adjustment is zero. Exit tax is zero.

Apart from the 76% allocation in year one (i.e. almost the first three months worth of contributions went into somebody else's pocket in charges) the charges are not as bad as I thought they might be. If there is no penalty for breaking out and you can transfer into a PRSA then it might be worth it (a) to benefit from lower charges and (b) to invest in a less conservative fund. If this is not possible and you cannot transfer to a more aggressive fund where you are then if a buy out bond is an option (thought these were only for occupational fund transfers?) then that might be worth checking. Ultimately there seem to be two separate but related issues here (a) what to do with your WP pension fund and what the options are etc. and (b) what to do about ongoing pension savings (which seems to be a PRSA or a cheap personal pension plan).