Key Post The Single Public Service Pension Scheme

[CharlieMac]

@Ent319

From my calculations you can get better value going the PRSA AVC route but I like your approach because by choosing a mixture of funds that amount to a low weighted AMC you get the convenience of the AVC route (AVCs via employer payroll deductions and tax relief sorted) but still have relatively low overall fees.

Can I confirm how you calculated your weighted AMC?

70 % Indexed Ethical Global Equity / 20% Indexed Emerging Markets Equity / 10% Indexed Fixed Interest.

Indexed Ethical Global Equity fund - (0.75% AMC)
Emerging markets - (0.65% AMC)
Indexed fixed interest fund - (1% AMC)

Weighted average AMC across all funds will be:
0.75% on amounts <€40,000
0.5% on amounts between €40,000 and €140,000
0.25% on everything above €140,000.

Calculation:
70% of 0.75 = 0.525
20% of 0.65 = 0.13
10% of 1.00 = 0.1

0.525 + 0.13 + 0.1 = 0.755 (AMC on amounts < €40,000)

As an alternative, Standard Life offer a PRSA AVC. All their funds you can invest in have AMC 0.9% that is reduced to 0.4% once the value of your pension pot is > €100,000. The 0.4% applies to all of your money not just the amount in excess of €100,000.

The Cornmarket/Irish Life sliding scale AMC looks appealing but the first €140,000 of your money is always being "taxed" at an AMC that is higher than you could get via the PRSA AVC route and that will add up to many €1,000s over a long time frame.

But I agree your approach might be a best compromise for convenience sake. With an AVC fund you also have the certainty of being allowed to used "part of it" to purchase additional Single Pension scheme benefits at retirement and not have to forfeit any remainder of the fund. That option might appeal to those who are more risk averse and won't come close to having "full service".

 

[Ent319]

Hi @CharlieMac,

Your methodology for working out the weighted AMC is correct (I rounded down a bit) but I disagree slightly with your conclusions.

To get to the €100,000 on the Standard Life option (to get the rebate) most people would have to save in an AVC / AVC PRSA subject to fees unless they were starting with a very large lump sum / had lots of tax relief to use up.

If they started their pot in a SL PRSA AVC they could be at 0.9% AMC for a fairly long time and this is much higher than the starting AMC available on some of the Cornmarket products. We've established that members of the AHCPS scheme can get the world equity indexed fund at 0.65% AMC with the tiered reductions scaling down to 0.15%, for example.

Even taking 0.75% base AMC on a Cornmarket product as an example: SL is slightly ahead on fees from €100,000 to €300,000 but after that Cornmarket pulls ahead. So at €200,000 fees on SL are €800 and Cornmarket is €940. Flashforward to €300,000 and its €1200 for SL and €1200 for Cornmarket. Every year after that Cornmarket wins.

So it depends on your starting sum, how much you're putting into your pension and how fast you plan on getting it in there.

If someone's employer belonged to a public sector scheme with Cornmarket that didn't have good index funds around 0.8% or less, Royal London via Execution-Only would be the clear winner over Standard Life in my view to start off an AVC. The person could decide later whether they wanted to switch out of it to the SL product.

Edit: The compound interest calculator here is pretty good for guesstimating how big your fund might be for certain periods of time based on how much you're putting in.