PRB or leave as is

Hi all

I’ve recently changed employer and signed up to the new company pension plan (with Zurich). I also have an existing Zurich plan c. €250k with my old employer (old plan)

Zurich have advised I can,

A) leave old plan ‘as is’ albeit no contributions
B) get a PRB
C) transfer to the new plan

I’m happy enough with the old plan fund choice. Charges are competitive (0.55- 0.65%) and Zurich provide a good service. The old employer is a large MNC. As a result, I can’t see the merit in a PRB but maybe I’m missing something?

So either I leave ‘as is’ which will provide a separate bucket when it’s time to execute a retirement plan (at least 15 years away) or transfer to the new plan (maybe if fees were lower but this is unlikely). I also have a sizeable plan from previous employers with Irish Life so separate bucket there too.

All advice welcome but if fees under Zurich old and Zurich new are the same then I’m inclined to leave the two Zurich plans separate.

Thanks

Yep, you’re better off with multiple pots that you can retire at different times, all other things (e.g. fees) being equal.

If you think you might leave your new employer's scheme within two years and lose your employer's contributions as a result, that's an argument in favour of transferring the old into the new. Service is also transferred.

Otherwise, you're better off leaving them separate, all other things above being equal.

Agree to leaving them separate in general. But I would consider moving the old one to a PRB. If you leave it "as is", then you will need to contact the trustees to draw it down when you want to do so. There was a thread here some time ago by some person who was unable to get any response from the trustees for the best part of a year, meaning that he couldn't draw down the pension. By putting it in a PRB, you just need to contact the life insurance company, but not any trustees. So you have more independence/control.

Persius said:

By putting it in a PRB, you just need to contact the life insurance company, but not any trustees.

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You will, however, need to contact the trustees in order to transfer to the PRB in the first place.

Fortune said:

You will, however, need to contact the trustees in order to transfer to the PRB in the first place.

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Yes indeed, but any delays at this stage won't affect you so much as delays when trying to actually draw down the pension. Better to get it out of the way ASAP IMHO.

I left mine, as is, invested in a Zurich Dynamic fund back in in 2017, when I left my job in Dublin. It was then worth 93k. As of yesterday, that was worth 223k. Some food for thought, perhaps.

Persius said:

Yes indeed, but any delays at this stage won't affect you so much as delays when trying to actually draw down the pension. Better to get it out of the way ASAP IMHO.

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Also, it's better to get salary and service details signed off on the form at that point, rather than years later

This was an analysis I did for a client with deferred benefits in an occupational scheme


I took a deep dive into some deferred occupational pensions for a client recently.

Using analytical software I compared the risk and return characteristics of several “risk rated” strategies compared to the equivalent UCITs strategies of low cost index funds I would use for some or my clients pensions. The period covered is the longest period where I had data for both sets which was 8 years.

To my surprise the two sets lined up perfectly but not how I would have expected.

The two sets of data formed an almost straight diagonal line from low risk to higher risk suggesting a common construction methodology and incremental increases in risk (as measured by standard deviation from the mean) resulting in incremental increases in realised return.

However, the most interesting aspect is that all the occupational pension strategies fell to the left side of the analysis meaning that they were all lower risk than the equivalent strategies of UCITs funds.

This also meant that every occupational pension strategy produced less return than some of the UCITs strategies.

For example the highest risk occupational pension strategy, labelled “adventurous” underperformed a low cost global equity portfolio by over 2.5%pa for the last 8 years.

Now I must stress I only looked at the portfolio options of one employee benefit consultant and this isn’t a comprehensive analysis of all the schemes in the Irish market.

It would therefore be wrong to jump to conclusions or make generalisations that this exact pattern of returns holds true generally without further analysis.

However, if we consider the way “risk” is communicated to members of occupational pension schemes we may be able to infer some conclusions since these schemes are, by their very nature, long term investments and are the classic example of where investors should generally be taking on as much investment risk as possible for the highest expected returns.

However, occupational pensions are also generally not somewhere where an investor has a full-time financial adviser guiding them on their investment choices and many people pick a fund choice or, often, allocate a little to several portfolio options based on the labels used to describe the strategies.

I think it’s reasonable to conclude that many, if not most investors, in these strategies are probably taking far too little investment risk with their occupational pensions if their term to expected retirement is 10 years or more (generally speaking people in their 50s or younger).

We can estimate the likely impact of this by taking the mean of the sample which was 6.58%pa and comparing it to the realised equity return over this period which was 10.54%pa.

If investors are normally distributed across the risk return spectrum you would expect most people to fall in the middle and therefore an average occupational pension investor is probably under performing the market by 4%pa and some by anything up to 7%pa with their fund choices.

Thank you all for your comments.