"Six in every ten euro in a pension pot being consumed by charges"

Green_Thirteen said:
My DC pension fund's TER is 0.19%.
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Are you sure that's not the annual management charge (AMC)?

It's unusual for pension providers to disclosure a fund's TER or OCF (pretty much the same thing as the TER).

The OCF includes the AMC, registration fees, custody safekeeping and transaction fees, audit fees and regulatory fees.

Here's further details on the methodology for calculating the OCF of UCITS funds -
 
Zenith63 said:
To be fair I think they're talking about the average pension Joe Public have, no doubt cheaper is available but most people just take what is given when they move to a new job. Somebody sophisticated enough to be building a self administered pension is probably able to look after themselves on fees.


Not really sure what the outrage is about the person being anonymous, the report is either relevant or it isn't, knowing who it was written about won't change that.
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the structure they seem to be referencing is a self administered pension, talking about the cost of a trustee and custodian. for most insured schemes, the employer is the trustee, so the cost is zero.

There is no way that Joe Public is paying 3% in charges for their pension. There is no source to where they got this information.

It is wholly relevant who wrote the paper. It has got a lot of attention with articles written about it in national newspapers and on the RTE website. The headline charges of 3% is not sourced. There is reference to a 9 year old Pensions Authority paper alright but the industry has changed a lot over that time and a 9 year old report would be obsolete at this stage. Is this someone with experience in the industry? Or are they someone just making it up. Who they are adds to the creditability of the report.
 
Zenith63 said:
To be fair I think they're talking about the average pension Joe Public have, no doubt cheaper is available but most people just take what is given when they move to a new job. Somebody sophisticated enough to be building a self administered pension is probably able to look after themselves on fees.
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A self-administered pension is often dearer than an insured scheme. The figures Steven quoted are for self-administered. The actual figures - breakdown of costs - are lower for an insured scheme. If the scheme is large and has many members, the true figures are lower again.

Zenith63 said:
Not really sure what the outrage is about the person being anonymous, the report is either relevant or it isn't, knowing who it was written about won't change that.
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True. I suppose the outrage should be directed more at those who would publish or quote from this report as if it were fact, when the figures it uses to make its points are wildly exaggerated and simply fictitious.
 
This reads like nonsense to me (the original piece). It’s a cousin of what’s been happening elsewhere on AAM. People taking the “worst case” disclosures produced by life companies and applying those universally.

I’ve some pension money in a life company equity fund. The AMC is 0.45%. Do I think that’s all I’m paying? Of course not. But I’m not paying much more than that.
 
Roughly how many members as a matter of interest? I've been encouraging our trustees to negotiate lower AMCs based on the significantly increased volumes in our scheme.
 
The problem is not the fees, a Mondeo is €30k a BMW €55k but people know what they are getting for their money and can make their choice

The problem is lack of transparency, and that is deliberately cultivated,

In this thread alone we have in order from the beginning

PRSA, brokerage commission, bid offer spread, actively managed fund, turnover, AVC, IRIS, ARF, SSIA, annual charge, AMC, transaction fee, other internal management fees, TER, MiFID, passive index tracking, allocation, benchmark index, index tracker, KID, iShares, entry costs, worst available charging structure, exit charges, portfolio transaction costs, maximum commission, RIY, RAC, EPP, Occupational Pension, ETF charges, compliance costs, ongoing charging fee, unit linked policy, UCITS, DC Pension, service provider fees, registration fees, custody fees, safekeeping fees, audit fees, regulatory fees, trustee costs, insured schemes.
 
Right, I've read the whole report and everything in it is on the belief that the total charges of a pension is 3%. Anyone on here who has done business with me will know that I highlight all the fees charged under their pension and it comes nowhere near 3%.

The basis of the 3% seems to be a Pensions Authority Report from 2012 which says the average charge is 2.18% (report is 290 pages) and a subsequent Trinity paper (9 pages thankfully) that says it is higher.

When the fundamental assumption of the work is clearly wrong, everything else is also incorrect.

the last thing in the paper was about the importance of owning your own home, which as we know is something the @Brendan Burgess likes to say on here ;)

It also says that people should have legal ownership of their own pension fund like a bank account. Good luck regulating that and watch the con men get to work on that!

An in their example, they took auto enrollment where employer and employee pay 6% each and the State contributes 2%. The employee also got tax relief on the 6% contribution. Under auto enrollment, the 2% State contribution is the tax relief.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
joe sod said:
@GSheehy thanks for your analysis, just out of curiosity and to make it simple, if I open a prsa with 1% annual management charge and I just have one fund in it for example Zurich eurozone equity fund, 100% allocation, what are the total charges for that prsa?
Thanks
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Would love to know this also
 
k06351000 said:
Would love to know this also
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This is exactly why the legislation is needed, there should be no guess work.

Just look at the UK where Vanguard doing the following:
Investors with £50,000 or more will be able to access the financial planning service at an ‘all-in’ annual 0.79% price tag, which will include fund charges, transaction costs and platform fees
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Okay, numbers may apply to a portion of pensions. As matter of fact, fees are not transparent and very difficult to understand for someone with no finance background. How do I compare plans if I don't fully understand the details. Documents provided by them makes hardly any sense to a common punter.
 
1618949098816.png


This is the 10 years ending March 2021.

The difference in reported performance between the MSCI EMU Index and the Pension fund is 0.74%pa
The disclosed charge is 0.40%pa

This is just the fund not the pension contract. Lots of brokers have been told that the additional cost over and above the quoted AMC is only 0.01% so don't worry about it, and of course its convenient to just accept, and repeat, that answer.

But in reality we need to separate out

What are you paying for a fund?
What are you paying for a pension?
What are you paying for distribution and advice?

Most pensions in Ireland are still arranged with Insurance companies where all of these costs are bundled together and you therefore simply can't work out what you are really paying.

Allocation rates and AMCs are simply a way of concealing the distribution costs

How much of this under performance is due to explicit charges ?
How much of this is due to transaction fees (brokerage commissions, bid offer spreads, stamp duty etc)?
How much of it is down to other factors such as dividend withholding tax?
If a fund is really made up of underlying securities, what is the stock lending policy?

I know all these answers with a UCITS fund, I genuinely have no idea for a unit-linked policy and we have an Actuary on staff!


The real culprit here are the contracts that are not required to fully disclose these charges and therefore just don't

Naturally this approach only works with a direct comparison with an index fund. Any actively managed fund will be either above or below an index and those that are above are typically guilty of bad bench marking since the "alpha" goes away when bench marked against a 5 factor beta model.

Not to labour the point but here is another example

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In this example over 15 years we see underperformance aginst the benchmark QQQ ETF of 0.87%pa


The QQQ Trust charges an expense ratio of 0.20%


Here is another example this time from Irish Life vs the actual UCITS fund we use in our client's portfolios

1619004336595.png



I know that the ongoing charge for the Vanguard fund is 0.16%pa and I can see that over the last decade that the Irish Life Index has underperformed by an average annualised 0.74%pa.

I can therefore conclude that the EFFECT of the ongoing charge for the Irish Life Fund must be in or around 0.90%pa


We can test this by comparing the reported performance of the fund against the actual MSCI Index that it tracks

1619005113203.png


Now we can see that the real difference between the index and the fund is 1.42%pa

We can conclude that some of that underperformance is "tracking error" things like dividend withholding taxes, transaction costs etc which will impact on all funds

Note that they actually don't bother putting any information about charges on the fact sheet


You have to go digging through 40 pages of another document to find the disclosed charges

1619004923090.png



As we can see with a platform consumers can access an unbundled Emerging Markets equity index fund in an Irish pension on a like for like basis for a wholesale cost of

0.40 Pension trust (0.50% PRSA)
0.16% OCF
0.56% Total

Advice and investment management are costed separately unlike the case with a life company contract which pays for advice and distribution by manipulating allocation rates and AMCs and early surrender penalties.
 
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Marc said:
1618949098816.png


This is the 10 years ending March 2021.

The difference in reported performance between the MSCI EMU Index and the Pension fund is 0.74%pa
The disclosed charge is 0.40%pa

This is just the fund not the pension contract. Lots of brokers have been told that the additional cost is only 0.01% so don't worry about it.

But in reality we need to separate out

What are you paying for a fund?
What are you paying for a pension?
What are you paying for distribution and advice?

In the example of 100% allocation and 1%AMC you might assume a margin to Zurich of 0.60% and the disclosed fund cost of 0.40% but as you can see you would be understating charges by around 0.34%pa

How much of this under performance is due to explicit charges ?
How much of this is due to transaction fees (brokerage commissions, bid offer spreads, stamp duty etc)?
How much of it is down to other factors such as dividend withholding tax?

This is just one fund that is meant to replicate a publicly available index.

The real culprit here are the contracts that are not required to fully disclose these charges and therefore just don't
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You’ve selected a different fund. That Eurozone fund you’ve used is a BlackRock fund and non-Zurich funds on the Zurich platform (naturally) attract additional charges.

The query relates to Zurich’s Eurozone Equity Fund.
 
Marc said:
The real culprit here are the contracts that are not required to fully disclose these charges and therefore just don't
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That has been my main issue. All of the pension funds I have available through my occupational scheme don't list fees beyond the 1% AMC, and even that is buried in the initial documentation only. Zurich so far has been the most transparent with some of their index funds, and full disclosure, the application fees are here beside me for their savings product for my partner - the fees while high relative to my own self directed funds, are the cost of doing business.

Really I'd like to see an accurate RIY figure, against the funds benchmark. Or even as a direct example, if I took 1k a month and invested it into the Indexed fund, and another 1k an bought the ETF directly, after 7 years what would the balance difference be.
 
ryaner said:
Really I'd like to see an accurate RIY figure, against the funds benchmark. Or even as a direct example, if I took 1k a month and invested it into the Indexed fund, and another 1k an bought the ETF directly, after 7 years what would the balance difference be.
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It's not apples with apples. A pension fund is a highly regulated savings product with a lot more regulation and reporting requirements than an investment product, so the cost is obviously going to be higher (something completely ignored in that published paper who seemed to suggest that there is no terms and conditions to the management of a pension fund). The insurance company is usually the administrator of the pension, which they will also charge for (just a computer system in a back office that costs very little to run according to the paper).

Part of the opaqueness is that part of the cost of running the fund is included in the annual management fee that you pay. How much is it? With a self administered pension there is a clear separation of costs and you can clearly see what they are for each element of the pension, not so with insured products. Some insurance companies have shares the additional fees with me (don't ask me to disclose them) and they are not very high, so don't think that there is an additional 1% - 2% in fees being levied against your pension, it's simply not true.

As Marc said above, a start would be abolishing the allocation rates. Seeing as you are paying for it anyway through higher management fees, it would be a start in making things clearer by reducing the amc from the getgo.


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