PRSA Query-investment amount lower at maturity

I

Isabel S

Registered User
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Hi, asking the knowledgable folks here if they could help explain why initial investment for AVC PRSA would be projected to be lower at maturity? I realise this is a projection only. Fees are 1.25% and 100% allocation. I am still in the cooling off period if I wanted to changed fund. Thanks.

 
The investment growth is very small.
Much less than the fees, so your PRSA is devalued each year.

You need to invest into a fund with a higher risk level if you want to stand any chance of your PRSA increasing on value.

You can change the risk level of your PRSA at any time.
The cooling off period only applies if you want to cancel your PRSA.
 
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Also - an annual management fee of 1.25% is very high - you should be able to do better than that. 1% if not even lower (e.g. 0.75%) from an execution only intermediary. E.g.:

PRSA Ireland | PRSA.ie

Low Cost Pensions Ireland Zurich LIfe The Value Pension Website Execution Only PRSA AVC PRSA Pensions www.prsa.ie
www.prsa.ie

Ferguson and Associates

Pensions (including Self Administered) Life Assurance - Income Protection Savings - Investments
ferga.com
The difference may look small but it has a huge eroding effect over the years.
 
That looks like an annual return of something like 0.25% which is awful. It must be in cash or something equally ultra-conservative?

What you're gaining in tax efficiency is evaporating in inflation. You need to be more adventurous...
 
SquirrelChaser said:
That looks like an annual return of something like 0.25% which is awful. It must be in cash or something equally ultra-conservative?

What you're gaining in tax efficiency is evaporating in inflation. You need to be more adventurous...
Click to expand...
With an AMC of 1.25%, you're almost guaranteed to lose money. With the low projected annual return, I'd expect that amc includes a trail commission. Not sure one could argue the advice is being earned by putting the PRSA in a low return fund.
 
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Bizarre quote.

Surprised that the actuaries let that go out. It looks like a mix of a product whose growth rate is calculated in increasing increments of 0.25% pa and a Vested PRSA
 
GSheehy said:
Bizarre quote.

Surprised that the actuaries let that go out. It looks like a mix of a product whose growth rate is calculated in increasing increments of 0.25% pa and a Vested PRSA
Click to expand...
Just curious, where on the document does it suggest a vested PRSA?
 
It doesn't, but if the growth rate was a conservative 5% and the AMC + drawdown was 5.25% it might explain the decreasing value. Purely theoretical as I can't follow it as it is.
 
Basically, it looks as though the assumed gross investment return (the figure cut off in the bottom-right hand corner of the photograph) is about 0.25% per annum. So what we have here is a single premium contract in which €15,677.04 has been invested. Each year the fund is projected to grow by 0.25% but to suffer a 1.25% management charge, mean that when both are taken into account the fund shrinks by about 1% a year.

The 0.25% growth assumption is extraordinarily low. Either it's a flat-out mistake or its a projection for a PRSA which has been invested in some very low-return (and presumably low-risk) asset class, like a bank deposit.

The annual charge of 1.25% is high and you can do better by shopping around. But investing the fund in cash or near-cash for 23 years would be a bizarrely inappropriate decision, Most products do offer a cash option, because there are times when it;s the right one. But those are very short times. For example, if you're retiring in 3 months time and you want to take your tax-free lump sum and use it to clear your mortgage. You might move a large chunk of your fund to cash or similar asset classes because you don't want to be affected by maket volatility over the next three months, and missing out on 3 months of share market investment returns is a price you're willing to pay for that stability.

But hold your retirement savings in cash for 23 years? No; I struggle to think of circumstances in which that is the right decision for anyone.

In a sense, this projection is doing what it should do, and telling you something important, which is that holding your retirement savings in cash or near-cash for 23 years is a really bad idea, and you shouldn't do it.

The heavy mangement charge simply underlines the point. But of the the two errors being made here — choosing a product with an uncessarily high management charge, and investing the fund in low-volatility, low-return asset classes — the second error is the one doing more damage.
 
Thanks for all the feedback. I received clarification from my broker that AVC funds was initially 100% in cash but that the first of 4 tranches has been moved to 100% equities as agreed with them.

I am not clued in enough to choose an equity/bond fund via an executions service as advised above. The broker advised on most suitable fund and help set up the pension account in this instance. Is the best way to research fund and go execution only?
 
In this case, you would need to request a new statement of reasonable projection from the PRSA provider once the switch to equities is completed. That projection will be much more relevant than the one you have which assumes you'll always be invested in the cash fund.
 
You've chosen all equities via the broker. You could easily do the same on an execution only basis by opting for a low charges all equity index tracker fund.
 
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