Priorities for Late 30s Onwards

[wherefore]

Hmm. I must be looking in the wrong places in that case. The Zurich options I can see are even more expensive, for instance the Indexed Global Equity (BlackRock) fund available in the Savings Plus scheme has an entry fee of 1.54% & ongoing costs of 1.95%.

Is the entry fee a one-off setup fee, or do they subtract 1.54% from every deposit made?

The Aviva funds have management fees of over 3% for indexed equity funds:
https://www.avivabroker.ie/wp-content/uploads/active/Active/FUND_JSRI251_B58.pdf

 

[Ndiddy]

1.65% is expensive.

The 1% charge is the government levy on life assurance investment funds and protection policies. Still in place and no sign of being taken away. Afterall, only rich people save.

Is this on funds in pension wrappers too? Or just when you invest outside of retirement funds?

 

[Steven Barrett]

Thanks @Steven Barrett - I wasn't aware of that 1% and many of the sites dealing with unit linked funds seem a bit coy about the charges that apply for some reason!

Are there any unit linked funds not structured as life assurance funds and exempt from the levy?

I am not aware of unit linked funds outside of life assurance companies.

 

[Steven Barrett]

Hmm. I must be looking in the wrong places in that case. The Zurich options I can see are even more expensive, for instance the Indexed Global Equity (BlackRock) fund available in the Savings Plus scheme has an entry fee of 1.54% & ongoing costs of 1.95%.

Is the entry fee a one-off setup fee, or do they subtract 1.54% from every deposit made?

The Aviva funds have management fees of over 3% for indexed equity funds:
https://www.avivabroker.ie/wp-content/uploads/active/Active/FUND_JSRI251_B58.pdf

Those are the maximum possible charges that can be levied on the contract. The life company will have a number of different charging structures and those charges won't apply. It's what makes the whole thing worthless.

 

[Steven Barrett]

Is this on funds in pension wrappers too? Or just when you invest outside of retirement funds?

The 1% levy does not apply to pensions. Just insured investment products and risk benefits.

 

[Ndiddy]

The 1% levy does not apply to pensions. Just insured investment products and risk benefits.

Thanks. So if you are not too far from age 50 when you might possibly access Defined Contribution pension plans or the accessibility aligns with when you might need to withdraw ( i.e. college fees, upgrade of home, etc.), shouldn't people just put their extra funds within their pension wrapper rather than invest outside of it and have to deal with complex tax issues? Even if it is more than the percentage that is tax-relieved by age?

 

[NoRegretsCoyote]

So if you are not too far from age 50 when you might possibly access Defined Contribution pension plans or the accessibility aligns with when you might need to withdraw ( i.e. college fees, upgrade of home, etc.), shouldn't people just put their extra funds within their pension wrapper rather than invest outside of it and have to deal with complex tax issues?

This would seem to be simplest and tax efficient for the OP. His kids' college expenses won't start until he's 52 and will peak in his late 50s.

Is there another reason to keep the funds outside a pension wrapper that I'm missing?

 

[wherefore]

Those are the maximum possible charges that can be levied on the contract. The life company will have a number of different charging structures and those charges won't apply. It's what makes the whole thing worthless.

Hi Stephen, sorry for being a bit slow on the uptake. Is there some way for me to see what charging structure would apply in my case outside of ringing the company up directly? I don't quite follow your last sentence...

 

[Steven Barrett]

Thanks. So if you are not too far from age 50 when you might possibly access Defined Contribution pension plans or the accessibility aligns with when you might need to withdraw ( i.e. college fees, upgrade of home, etc.), shouldn't people just put their extra funds within their pension wrapper rather than invest outside of it and have to deal with complex tax issues? Even if it is more than the percentage that is tax-relieved by age?

This would seem to be simplest and tax efficient for the OP. His kids' college expenses won't start until he's 52 and will peak in his late 50s.

Is there another reason to keep the funds outside a pension wrapper that I'm missing?

It's not that straight forward. For one, in a pension you get 25% tax free and the remainder is taxed under the PAYE system. If you have a big pension, you could be paying up to 52% in tax. An investment is taxed at 41% on the gains.

Second, and most importantly is access to the pension at age 50. Most people who avail of this are taking the money from retained pension benefits. As these are from old employment, you cannot add to these plans. If you want to access the funds on a pension scheme that you are currently contributing to, you have to leave that scheme. That could be 15 years worth of contributions you are missing out on.

Don't let the tail wag the dog. Yes, we want to do things as efficiently as possible but don't lose sight of what you want the money for. Sometimes things may be done in a less efficient way but you achieve you goals with less hassle. Sometimes simplicity trumps tax efficiency.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[Steven Barrett]

Hi Stephen, sorry for being a bit slow on the uptake. Is there some way for me to see what charging structure would apply in my case outside of ringing the company up directly? I don't quite follow your last sentence...

You need to ask the person selling you the product what the charging structure is. Zurich Life have a wide range of different structures and it is the advisor selling you the product that chooses the structure to suit the way they want to be paid.

Zurich Life have say 20 different combinations of charging structures. But their disclosure document only shows one, the most expensive. The quote they show will only apply to one type of contract. And in my experience, most people aren't given the most expensive contract anyway.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[ClubMan]

You need to ask the person selling you the product what the charging structure is. Zurich Life have a wide range of different structures and it is the advisor selling you the product that chooses the structure to suit the way they want to be paid.

Zurich Life have say 20 different combinations of charging structures. But their disclosure document only shows one, the most expensive. The quote they show will only apply to one type of contract. And in my experience, most people aren't given the most expensive contract anyway.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

So much for transparency?

 

[Steven Barrett]

So much for transparency?

Regulators spend so much time making sure that everything is disclose, they swamp the consumer with paperwork and forms that only a few people will actually ready. What they really need to do is simplify disclosure down to 1 page. The rest is just ticking boxes that is a cost to the consumer because the advisor/ producer has to spend time in producing these documents, which the consumer will never read.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[ClubMan]

Regulators spend so much time making sure that everything is disclose, they swamp the consumer with paperwork and forms that only a few people will actually ready. What they really need to do is simplify disclosure down to 1 page. The rest is just ticking boxes that is a cost to the consumer because the advisor/ producer has to spend time in producing these documents, which the consumer will never read.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

I thought that that was the idea behind stuff like KIID/PRIIPs etc.?

Key information documents for packaged retail and insurance-based investment products (PRIIPs)

EU rules governing the information provided to investors in financial products.

ec.europa.eu

 

[wherefore]

Much obliged for the further explanation @Steven Barrett

 

[Steven Barrett]

I thought that that was the idea behind stuff like KIID/PRIIPs etc.?

Key information documents for packaged retail and insurance-based investment products (PRIIPs)

EU rules governing the information provided to investors in financial products.

ec.europa.eu

Rubbish. Too much generic information.

ESMA ratings are rubbish too. They give funds ratings based on volatility in the previous 3 years. With 3 years of low volatility, a Managed fund will have a lower risk rating than in a time when there is high volatility. It's the same fund!! But the Esma rating will be different based on the time that you invested your money?!!


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[ClubMan]

I wouldn't put much faith in any ratings agency to be honest. Just look at their track records. E.g.:

Credit rating agencies and the subprime crisis - Wikipedia

en.wikipedia.org

But if a leaflet clearly stated the charges that the customer will pay (not just the highest possible) and maybe the reduction in yield then that's concrete info that can be relied upon. I can't remember if KIID etc. carries that info?

 

[Steven Barrett]

I wouldn't put much faith in any ratings agency to be honest. Just look at their track records. E.g.:

Credit rating agencies and the subprime crisis - Wikipedia

en.wikipedia.org

But if a leaflet clearly stated the charges that the customer will pay (not just the highest possible) and maybe the reduction in yield then that's concrete info that can be relied upon. I can't remember if KIID etc. carries that info?

Get this all the time. I have been in the industry a long time and have deals with some providers that aren't available to every advisor. The generic quote systems that they have don't reflect these deals I can get a client.

All of my statement of suitability documents lay out all the charges that apply to the client. But they get quote with the insurance company logo on it with higher charges, so the question what I have told them. "But it has their logo on it". It's not the clients fault, it's the industries fault for creating such an opaque system. It is slowly moving away from it but Brokers Ireland will keep on lobbying hard to keep the old way for its members (I am not a member of Brokers Ireland).


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)