cavanman said:
I checked my current charges. They are quite confusing.
Do you have any documentation from when you took out the pension? If so this documentation should enumerate all charges in detail.
The person on the other end of the line was confused too. I pay a 0.75% annual management fee.
An annual management fee of 0.75% levied on the full value of the fund and reflected in the daily unit price is not unusual or exorbitant. In fact it is at the lower end of the scale as far as I know since annual management charges of 1% and higher are not unusual.
I pay 2.80 per month on the monthly amount (although a month ago a different operator said this was 5.80/month).
Again a monthly policy fee of this amount is not unusual. Note that this is charged even if you stop making contributions to your fund.
104% of my monthly amount is invested but there is a 5% bid/offer spread so 99% approx is invested?
104% x 95% = 98.8% so your are effectively losing 1.2% of each contribution between the allocation rate of 104% and the bid/offer spread of 5%.
Again the operator said this is over-simplfying the charges.
Ask them for the charges in writing if you don't already have the documentation mentioned above.
I have a 'With profits' fund of 4%. I was informed this means I have a guaranteed increase in the pension value of 4% regardless of stock market performance. Can this be correct?
Possibly but you should check if it is, in fact, guaranteed. Bear in mind that
With Profits funds (pension or otherwise) are often not that transparent in terms of additional charges and day to day valuations. For example the 4% return may only be guaranteed under certain conditions and may or may not be reflected in the current valuation. Also - the 1% gain over 6 years that you mentioned earlier may not tell the full story about stuff like With Profit guaranteed/non guaranteed/terminal/maturity bonuses which may or may not be included in the current valuation.
With Profits funds are also generally at the lower end of the risk/reward scale and may not be suitable in all cases for people with a good while to go to retirement. They aim to smooth out underlying fluctuations in asset values and deliver, within constraints, certain capital and growth guarantees. The cost of this is usually lower actual growth over time compared to a more pure equity investment which will have a higher risk/reward profile and exhibit more volatility in value along the way.
Perhaps you might be better off with something at the other end of the risk/reward scale. Why did you choose a
With Profits pension fund in the first place and this one in particular? Not saying that there's anything wrong with it per se but just wondering what your motivation/criteria were in selecting it.
I am still temped to switch to Eagle Start PRSA - mainly because it seems to be progressing well currently. The charges will also be more clear. It seems to be a choice between a steady 'with profits' fund or something with more upside exposure (and downside!). Later on I should move back to a more steady fund.
While the charges may be clearer there is no guarantee that they will be lower than what you currently pay - in fact a
Standard PRSA charging the maximum 5% on each contribution and 1% annual management fee would presumably be charging more than you are currently paying. On the other hand it is possible to get lower
Standard PRSA charges than the max 5%/1%. Apart from charges make sure that other stuff like choice of funds/investment strategy, customer service etc. meet your needs. Don't get mislead by past performance since it is no guide to future returns.
But seriously don't assume that my choice of these represents any sort of major insight into them other than the fact that I'm happy enough with the charges on my PRSA (sub 5%/1%), the selection of funds availaible to me (I'm currently 100% in their Dynamic Pension Fund - 75%-100% equity content) and Eagle Star's administrative performance and general solidity as a company. Other than that I just make the contributions and leave the markets (and Eagle Star's fund managers) to do their job and hopefully generate growth. We'll see how I've done in a few decade's time!