Public Sector AVC - Do I have to go through agent specified by Trade Union?

FourPawedDog

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I make monthly contributions to an AVC via my unions group scheme through salary deduction. Having done some research, I believe I can get better service, value and performance from a different AVC administrator to the one utilised by my union and therefore would like to be able to do so.

On the surface, this appears not to be possible, however, after some digging, I gather it may be done on completion of an actuarial report (carried out at the request of a broker acting on my behalf) which compares my current AVC arrangements to a proposed new AVC arrangement. Once done, I am lead to believe I can transfer my funds out of the unions group scheme, without cost to me, and into another fund administrator which provides better service, value and performance. The only significant difference appears to be that if I move out of the unions group scheme, I am unable to avail of contributions being deducted directly from my salary and would therefore need to set up a monthly direct debit instead thus getting any tax relief in the form of tax credits. I understand that this process can be somewhat laborious and take up to six months to complete.

With the above in mind, I would appreciate views on the credibility/feasibility of my proposed actions and if anyone might foresee any significant negative consequence of removing myself from the current union group scheme?

Perhaps others have already done something similar?
 
Interesting question. I often wonder about how the 'preferred AVC supplier' arrangements with the union are done, and are they really in the best interest of the employee. I think you have two separate decisions to make:

1) What do I do with my future AVC contributions?
2) What do I do with my AVC fund made up from past contributions?

You could choose to switch your future contributions to a new fund, while leaving your contributions to date in the existing fund. This would have the advantage of diversification, not having all your eggs in one basket. Having said that, you already have some diversification, as your main pension will be coming from the State pension scheme, with the AVC for a top-up only.

It also seems a bit strange that your employer only allows direct deductions for the union-preferred provider. You might like to explore this issue with your HR dept and see if there are any alternative options.

Would you like to post details of what benefits you expect in terms of cost, service and performance from the new provider, to see if others share your view?
 
Thanks for the input Rainy Day. My understanding is that existing and future contributions are simply moved to fund allocations of my choice which are then managed by my chosen agent.

You raise a good point about checking with my HR Dept. as to whether they can deduct monthly contributions from my monthly salary afterwards. This is something I will check out. My understanding is they may not be inclined to do this as if a lot of staff did this it may be a bit of an administrative nightmare... but worth checking for sure.

In relation to the service, value and performance - it is pretty straightforward really... I'm confident the level of service I would receive from any agent other than the one currently engaged by my union would be superior. On top of this, past performance would suggest that I can avail of better value funds that are more effectively managed by using another agent.

It seems to me that by being tied up in what I see as a restrictive pension product is simply not a good idea.

I would be interested in the opinions of others on this one???
 
Thanks for the input Rainy Day. My understanding is that existing and future contributions are simply moved to fund allocations of my choice which are then managed by my chosen agent.
In general with these kinds of decisions, the decision about future contributions is separate to the decision about past contributions. There may be transfer costs involved in transferring your funds from the old crowd to the new crowd that need to be considered. Don't assume that you have to have to transfer the existing funds, or that you have to do it now. Why not fix up future contributions, and then take your time deciding what to do with the existing ones?

In relation to the service, value and performance - it is pretty straightforward really... I'm confident the level of service I would receive from any agent other than the one currently engaged by my union would be superior. On top of this, past performance would suggest that I can avail of better value funds that are more effectively managed by using another agent.
Fair enough, but it's unusual to have such a clear, absolute difference between any of the providers in this market. I just thought you might like to specify what you're expecting in the way of customer service or fund performance, and see if others have similar experiences. And as all the ads tell you, past performance is no guarantee etc etc etc. But it's up to yourself of course.
 
You should consider leaving your current fund with your existing AVC supplier and setting up a PRSA AVC on an execution-only basis through a broker...there would be a small initial fee involved but you would cease to be skimmed on every contribution. That could save you losing c.5% of your money on the way in.

Of course you need to do your homework if going execution-only.

It is regrettable (although understandable for administrative reasons) that only in the case of the preferred supplier can tax relief be provided automatically and payment submitted to the pension company directly. More alarming though is how poor the deals negotiated by the public sector unions with pension companies are in respect of fees and commission.
 
You should consider leaving your current fund with your existing AVC supplier

Thanks Oysterman...

I am reluctant to leave any of my current fund with my existing provider. Aside from having it for long enough and the other reasons I already outlined, my thinking is that my funds are more likely to perform better with a provider who has a better range of funds that suit my needs and a better/proven performance record over time.

While I am of course fully aware of "past performance not being a guarantee of future performance" to use a crude analogy, I see changing provider as being similar to making a decision on who is more likely to perform better this season... Manchester United or Everton. Based on consistent past performance, I would personally opt for Manchester United. Though I am not a fan, I would see the former as being a more solid decision.

Again, the notion of being locked into a union preferred provider is something I really do not like - I get a sense that complacency (among all stakeholders - including investors) is very present in this arrangement. For me, having the freedom to choose and change provider is critical to ensure ones funds and provider are performing at optimum levels.

Perhaps others have specific experience of moving their Public Sector AVC with a union preferred provider to another provider and could share their experience?
 
Also bear in mind you will not have deduction at source with another provider however you are free to move it around up to yourself, just means ytour tax credits will be altered to reflect your contributions. I used to work for a public sector provider a few years back so give me a shout if you have any specific q's.

Regards
Clearfinance
 
Would you like to give some examples or more detail on this?
Cornmarket/Irish Life taking 5% commission on each contribution in addition to set-up charge and 1% annual management fee - this is way out at the expensive end of the charging spectrum despite the clear scale economies in dealing with thousands of public sector employees whose needs are very similar.
 
In fairness to Cornmarket, it looks like they have a range of options, with no commission or setup charge and just 1% annual management fee for execution only business;

[broken link removed]
 
In fairness to Cornmarket, it looks like they have a range of options, with no commission or setup charge and just 1% annual management fee for execution only business;

[broken link removed]

Agreed. But the whole point about public service AVCs negotiated by the unions with the providers is that they are NOT execution-only; the lack of complexity, the ease of selling and the massive economies of scale should enable the unions to get really good deals on behalf of their members.
 
In fairness to Cornmarket, it looks like they have a range of options, with no commission or setup charge and just 1% annual management fee for execution only business;

[broken link removed]


Pity that level of info wasn't there seven years ago when I signed up for an AVC with my Union's (the PSEU) "preferred broker" - they screwed me for fees & commission in the early years. I haven't the figures in front of me, but from memory, they trousered close to 7% of the AVC contributions that I made over the first couple of years.

Edit - UPDATE.

I've now dug up the figures to back up the above claim:

Cornmarket AVC Policy started mid-2005.

In first 12 months, I invested €7,250 - Cornmarket's charges came to €500 --------> 6.9%
In next 12 months, I invested €15,500 - Cornmarket's charges came to €1,070 ------> 6.9%

I complained - loudly - to Cornmarket about this level of charges and, curiously, the following year's charges came to 3.9%, dropping to a mere 3.0% the following year.
 
Agreed. But the whole point about public service AVCs negotiated by the unions with the providers is that they are NOT execution-only; the lack of complexity, the ease of selling and the massive economies of scale should enable the unions to get really good deals on behalf of their members.

Such as? Is there any benchmarks from other affiliate type schemes?
 
In a company, all the employees will be fed into one scheme, the company's HR department will send the money (employee contribs + company contribs + avcs) to the pension company on a monthly basis. Once it's setup the pension company just needs to watch the money roll in.

In comparison public sector AVCs will seem almost chaotic. Some employees are paid weekly, some monthly, you've some paid directly by government, some paid indirectly, only some workers interested and even when interested it's often only quite close to retirement age (i.e. a short period in which the pension companies can extract their pound of flesh).
 
In a company, all the employees will be fed into one scheme, the company's HR department will send the money (employee contribs + company contribs + avcs) to the pension company on a monthly basis. Once it's setup the pension company just needs to watch the money roll in.

In comparison public sector AVCs will seem almost chaotic. Some employees are paid weekly, some monthly, you've some paid directly by government, some paid indirectly, only some workers interested and even when interested it's often only quite close to retirement age (i.e. a short period in which the pension companies can extract their pound of flesh).

Is this not a bit of an exaggeration? There really isn't that much difference on this issue between public and private sector. Almost every public body has rationalised their payroll timing now. That was possibly a requirement under Croke Park 1. In any given public body, staff have the same status, so this thing about some paid directly and others not doesn't really apply.

It's pretty much the same in public or private. You have a payroll, and you have a pension option or two. Some people take it, some people don't.
 
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