Pensions are a gimmick

[CCOVICH]

GeneralZod-would you know what kind of asset allocation your CL plan has/has had?

 

[putsch]

I agree with the title. Private pensions as currently set up are a very lucrative gimmick for the pension providers - fees are paid regardless of performance and the tax relief (paid for effectively by all the joe soaps many of whom are pensionless) masks very poor performances - many not giving a return in excess of off the street interest rates.

As people have found alternatives to the traditional pension providers those companies have gone ballistic at the idea that the golden goose might be threatened. They have created an artifical head of steam about the % of people without pensions (what they mean is without pensions invested with them). And it looks as if the politicians will respond - talks about compusory pensions are ridiculous. Let the companies come up with risk sharing schemes i.e. their fees are dependant on performance - then we'll see the manager work for their money.

 

[GeneralZod]

GeneralZod-would you know what kind of asset allocation your CL plan has/has had?

The allocation from the start has been 25% of premiums into each of:

CL/BIAM Pension Managed
CL/Setanta Pension Equity Fund
CL/Setanta Group Pension Managed I
CL/KBC Pension Managed

I believe the names/managers of these funds have changed since the start. I started making 10% AVCs in 2006.

I also have a personal pension plan from Standard Life set-up in 1998 and I stopped making payments into it in 2000. The asset allocation into that is 10% Irish equity and 90% international equity. Total premiums were €17k and value of fund in April 2007 was €20k. Clearly €17k in 2000 money is worth a lot more than €20k in 2007 money.

They have created an artifical head of steam about the % of people without pensions (what they mean is without pensions invested with them).

And it looks as if the politicians will respond - talks about compusory pensions are ridiculous. Let the companies come up with risk sharing schemes i.e. their fees are dependant on performance - then we'll see the manager work for their money.

Putsch, based on my experience over the last 10 years I strongly agree with you, in particular about how the pension industry is manipulating the agenda, they're riding on the discussion from the UK where the demographics are significantly different. After 10 years of a mostly booming Irish and World economy my returns have been appalling. I've little faith that by the time I retire my funds will be worth much more than the sum of the contributions. After inflation they might well be less than what was put in. The annuity rules will prevent me from accessing most of what little there is. It really is little wonder people look for other ways of funding their retirement such as property, present property price correction included. That said I don't like property because I wouldn't want the hassles but might eventually be reluctantly driven into it. I dearly hope to be proven wrong. For these reasons I'm attempting to invest separately from my pension. At least I'll only have myself to blame for the mistakes I'll make.

 

[CCOVICH]

The returns from Quinn Life for the and Freeway funds over the past 10 or so years were in excess of 11% p.a. (and that is to 30/11/2007 apparently), which appears to be quite a bit better than what GeneralZod is getting from CL. Of course past performance is generally meaningless, but it is a useful benchmark in this context, as Quinn also offer these funds as pension products.

But we are not necessarily comparing 'like with like' as I see that the word 'managed' appears in 3 out of the 4 funds owned by GeneralZod, whereas the Quinn funds are merely index trackers...

There are more than likely other (managed?) funds out there that will have done better (and worse), but I am familiar with Quinn down to having a little money in there myself, but if there are other examples out there, it would be useful to see them.

Of course a more balanced portfolio may include US, Asian and emerging markets, fixed income and cash, the returns on which could very well have dragged down overall portfolio performance over the same period.

It's not surprising that the pensions industry would scaremonger over pension coverage, they have a vested interest to do so.

So, what are the alternatives? Do it yourself, i.e. you pick the assets/funds in which your pension contributions are invested? Defined benefit for all? Property (on its own)? Cash/fixed income?

Leaving aside pension fund performance for a minute, surely the tax relief on contributions is a good thing?

 

[MMilken]

This thread is in danger of turning into a nonsense with people who little or nothing about what they are talking about spewing out paragraphs about "poor joe public".

Tax relief is available to everyone on pensions.

PRSAs are also available to all - no annuity rules with these.

Pensions can also invest in property.

Property over the last two years in Ireland has truly proven to be an appalling investment so I think people need to get their head out of the sand and realise that they need to educate themselves about pensions and investments OR get an educated advisor.

Either way, spouting out nonsense on a forum is not going to help the situation.

 

[ClubMan]

This thread is in danger of turning into a nonsense with people who little or nothing about what they are talking about spewing out paragraphs about "poor joe public".

I agree - it's all a bit pointless. Blanket condemnations of pensions as a gimmick or some sort of plot by the financial industry against unsuspecting punters and pliable Governments are as facile as comparing what one person thinks might be the story with Finnish state pensions with Irish private pensions...

 

[GeneralZod]

But we are not necessarily comparing 'like with like' as I see that the word 'managed' appears in 3 out of the 4 funds owned by GeneralZod, whereas the Quinn funds are merely index trackers...

Of course a more balanced portfolio may include US, Asian and emerging markets, fixed income and cash, the returns on which could very well have dragged down overall portfolio performance over the same period.

Within the constraints of the funds that i can select within my occupational DC scheme I've stayed away from cash funds because I'm well away from retirement. The descriptions for the other funds say they're invested in a broad mix of Irish and International equities, property bonds and cash.

This thread is in danger of turning into a nonsense with people who little or nothing about what they are talking about spewing out paragraphs about "poor joe public".

I'm hoping for some constructive analysis of the information I've provided instead of dismissive replies. I believe the title of this thread is overly simplistic but there's something to it. For example the out performance of index tracker funds mentioned by CCOVICH aren't available to me through my occupational scheme. Traditional advice says equity investments won't necessarily make a return in the short term. Seven years is the figure I've seen to on average to hope for a decent return. After 10 years of investment in funds whose stated objective is to deliver long term growth the facts of the funds performance speak loudly.

Tax relief is available to everyone on pensions.

Several people have already acknowledged this as one of and possibly the main attraction of pension funds.

PRSAs are also available to all - no annuity rules with these.

Yes. I wouldn't have started making AVCs unless otherwise.

Pensions can also invest in property.

That is an asset class that my managed funds are invested in.

I'm hoping this thread can continue in a constructive manner.

 

[MMilken]

I'm hoping for some constructive analysis of the information I've provided instead of dismissive replies. I believe the title of this thread is overly simplistic but there's something to it. For example the out performance of index tracker funds mentioned by CCOVICH aren't available to me through my occupational scheme. Traditional advice says equity investments won't necessarily make a return in the short term. Seven years is the figure I've seen to on average to hope for a decent return. After 10 years of investment in funds whose stated objective is to deliver long term growth the facts of the funds performance speak loudly.


Several people have already acknowledged this as one of and possibly the main attraction of pension funds.


Yes. I wouldn't have started making AVCs unless otherwise.


That is an asset class that my managed funds are invested in.

I'm hoping this thread can continue in a constructive manner.

Most company pension schemes allow access to passive (index tracking funds) - if not, then a person can ask the Trustees to make such a fund vailable...this is easily done, or opt out of their company's arrangement and set-up an index-tracking PRSA.

A Managed Fund would only have about 5% to 10% property, so the exposure would be low.

The average performance over the last three years is about 10% annual, the average over the last ten years is about 7% annual...the facts speak loudly...you are in a crap scheme or are picking bad funds.

 

[z109]

The average performance over the last three years is about 10% annual, the average over the last ten years is about 7% annual...the facts speak loudly...you are in a crap scheme or are picking bad funds.

And the performance for the years before that? I seem to recall 2000/2001/2002 (down 10-20%), the late nineties (Asian currency crisis), the early nineties (UK property crash, Japan deflation) being appalling years. A few years of losses makes a huge dent in a pension fund that takes a long time to recover. In theory these funds should be invested 'safely' as they are a long-term investment, but it seems that they are stuffed into whatever the flavour of the month is:
- Japanese bubble
- Tech bubble
- Property bubble
- next? gold bubble? commodity bubble? BRIC bubble? Pick your poison, your mid-twenties pension manager who's never seen a bubble burst will stuff your money into it.

Try moving your funds from a non-performing fund to a better one? Prepare for opaque charges, long delays, arguments from the pension staff ("you're locking in the losses, why don't you speak to one of our investment managers").

The only thing that makes it worth doing is the tax relief. The pension companies know this and don't give a monkeys as long as they get their management fees.

 

[boaber]

And the performance for the years before that? I seem to recall 2000/2001/2002 (down 10-20%), the late nineties (Asian currency crisis), the early nineties (UK property crash, Japan deflation) being appalling years. A few years of losses makes a huge dent in a pension fund that takes a long time to recover. In theory these funds should be invested 'safely' as they are a long-term investment, but it seems that they are stuffed into whatever the flavour of the month is:
- Japanese bubble
- Tech bubble
- Property bubble
- next? gold bubble? commodity bubble? BRIC bubble? Pick your poison, your mid-twenties pension manager who's never seen a bubble burst will stuff your money into it.

This is a very sweeping statement and you seem to be picking out very specialised funds, rather than, say, a managed fund, which not only invests in different assets (e.g. Ireland, N. America, Europe, Property, Cash, Fixed Interest) but also invests in different sectors (e.g. Healthcare, Financials, Energy, Telecoms etc).

I'm no expert, but there's a lot more to fund management that just stuffing your money in a bubble. Plus the people who make the final decisions are not the mid-twenty pension manager.

The only thing that makes it worth doing is the tax relief. The pension companies know this and don't give a monkeys as long as they get their management fees.

But the fund management fee is usually a % of the value of the assest, so if the value falls, the amount received by the fund manager falls

 

[z109]

This is a very sweeping statement and you seem to be picking out very specialised funds, rather than, say, a managed fund, which not only invests in different assets (e.g. Ireland, N. America, Europe, Property, Cash, Fixed Interest) but also invests in different sectors (e.g. Healthcare, Financials, Energy, Telecoms etc).

I'm no expert, but there's a lot more to fund management that just stuffing your money in a bubble. Plus the people who make the final decisions are not the mid-twenty pension manager.

But the fund management fee is usually a % of the value of the assest, so if the value falls, the amount received by the fund manager falls

No, the funds I am referring to are BIAM or Natwest or the company pension fund that I was invested in. They were/are all general managed funds. Medium risk, as befits my age. On default investment strategy (i.e. every other sap is likely to have had the same losses).

I agree that there should be more to fund management than following the herd. I just don't see any evidence of it. The evidence that I do see (that trackers outperform managed funds) shows that they follow the herd up and down and hope to look good on a long-term average.

The management fee is the most outrageous part of the whole setup. Why should they get a fee if the fund goes down? Why should they get a % of the total asset and not a cut of the profits/share of the losses?

 

[Sunny]

I'm no expert, but there's a lot more to fund management that just stuffing your money in a bubble. Plus the people who make the final decisions are not the mid-twenty pension manager.

There should be but have a look at most Irish Asset Managers allocation and see how many have gone very overweight the ISEQ in so called diversified global or European funds because it was easy money for a couple of years and they didn't have to do any work.

I don't agree with the title of the thread but I would have some sympathy for the people who complain about the quality of asset managers and level of fees and charges involved in pensions for very little service and performance.

 

[LDFerguson]

I agree with MMilken's posts.

The title of this thread is a wild over-generalisation. There are undoubtedly reasons why certain individuals can be disappointed with their own pension arrangements, including, but not exclusively: -

• The performance of their chosen fund was poor. Make sure always to check this over a meaningful time period, not just a short three or five year period.
• The charges on their scheme were excessive. It's undeniable that greedy elements in the pension industry, in both the sales and product provision ends, have produced some appaling contracts over the years.
• They didn't understand that your retirement may last from 20 - 30 years and putting away a small amount of money for 10 years pre-retirement isn't going to fund an amazing lifestyle for 25 years afterwards.

But to jump from having a complaint about your own pension arrangement to branding the whole pensions industry a gimmick is throwing a whole family of babies out with the bathwater.

If you're a 41% taxpayer, you can get up to 47% relief on your contributions. Your chosen funds grow free of capital gains tax or tax on rents/dividends. When you retire a sizaable portion of your fund (typically 25%; perhaps more in certain circumstances) will be tax free. The balance will be taxed at less than the high-rate tax for all but the largest pensions.

That's why pensions are not a gimmick.

 

[boaber]

I agree that there should be more to fund management than following the herd. I just don't see any evidence of it. The evidence that I do see (that trackers outperform managed funds) shows that they follow the herd up and down and hope to look good on a long-term average.

According to a press statement by Mercer yesterday

2007 also saw a significant divergence in the performance of Irish Managed Funds with a swing of 9.5% between the top and bottom performers. Over the 12 months, the top performing managed funds were AIBIM (1.3%) and Eagle Star (0.6%) while the bottom two were New Ireland (-8.2%) and BIAM (-7.6%). Over 3 years Eagle Star and AIBIM take top position with a return of 12.3% p.a. each while BIAM and New Ireland were bottom at 6.4%. Over 5 years, Eagle Star remains at the top returning 12.1% p.a. with AIBIM a close second at 11.8%.

Hardly evidence that all investment managers are following the herd.

There should be but have a look at most Irish Asset Managers allocation and see how many have gone very overweight the ISEQ in so called diversified global or European funds because it was easy money for a couple of years and they didn't have to do any work.

I agree a lot of "Managed" Funds were/are hevily weighted in Irish Equities. Indeed some investment managers were stating this when their managed funds did not perform as well as others during times of growth. They claim to be somewhat justified in their approach as their managed funds have not fallen as sharpely as others invested heavily in Irish Equities.

 

[ClubMan]

For people who baulk at paying intermediaries unless the investments are gaining in value would self directed/self administered schemes be an alternative option - i.e. do you pay lower or no charges on these compared to more common unit linked funds with a specific annual management fee charged on the gross fund value?

For the record I also believe that it's silly to expect the fund managers not to be paid simply because the fund does not grow over a specific period. There are few if any markets/assets which will not exhibit some (sometimes significant) volatility over time so this goes with the territory. In any case if a fund value remains static but all similar funds/assets/markets nosedive then surely the fund manager deserves to be paid because they have done relatively well?

 

[LDFerguson]

Because they are doing their job - if you did not earn money for your company in a given day do you think you should not be paid?

Yes.

Yoganmahew - your ideas are unworkable in the extreme. Do you accept that (a) a fundamental feature of any investment above the level of deposit accounts is that investments will fall as well as rise in value and (b) it is impossible to predict which fund managers will outperform each other into the future?

If so, you are suggesting that all fund managers should take on a job in the knowledge that they will not be paid from time to time due to circumstances outside of their control.

 

[Betsy Og]

....errr, getting back to pensions

I point I want to bring up is the notion of "phased fund switching" which basically means that as you approach retirement more and more of your fund goes into deposits, government gilts, bonds etc. (i.e. very secure assets that are unlikely to fluctuate much).

This means that you shouldnt be totally screwed if you happen to retire during a bad year in the markets. I know its a basic statement but I think people may have this fear.

Diversification is key to avoiding big losses - dont put all your eggs in one basket (more basic commonsense). In my own case I've a AVC PRSA scheme with Eagle Star (together with a recent employer scheme) and so far I've diversified goodo into high risk stuff around the globe, its doing ok so far and maybe it'll tank some year or other but its got 20 years before I even start thinking about retirement. So on average across a wide portfolio I should be ok.

Also, when markets are down you buy in cheap - now you might also be "catching a falling knife", but with 20 years to play with then, on average, history would show that you should make returns above deposits/more secure investment.

With the tax relief involved I think its undeniable that pensions should form part of someones financial picture, notwithstanding the misgivings people have about various aspects of the industry (& I'm not in the industry myself).

 

[dodo]

Re: Most Tax efficient renting?

Seems to be or is? And what rates of tax and social insurance apply there?

On what basis do you think this?

Many occupational funds offer a range of funds investing in a range of assets. Many offer bond/cash funds but these are arguably not a good idea other than for those nearing retirement.

You have totally ignored inflation. 3% gross or net could well be a zero or negative real return when you take it into account.

EG of Finnish Pension ,FIL get gross 3,400 euros a month of this he gets 2,350,MIL gets gross 2,400 a month of this she gets 1,900.euros,
If the Irish markets where down 24% in 2007 as stated on the news this morning ,how does this effect Irish pension's in general ,I know pensions also invested abroad. It is a bit like 4 guys play poker all night together and when you ask them all how did it go they all say they are up or broke even on the night.I have seen to many people burned when they go to collect their big promised pension only to be told that due to markets been down and things like 9/11 we cant give you what we promised. Ask around and see for yourself. How many times have people been told to add to their pension or face a bleek retirement,and still 20 yrs or more to go.

 

[ClubMan]

As already mentioned your comparison of the Finnish state pension system with occupational/private pensions in Ireland is meaningless.

 

[dodo]

As already mentioned your comparison of the Finnish state pension system with occupational/private pensions in Ireland is meaningless.

Just remember if it sounds to good to be true you know the rest,