Do you pay into a pension of ETF index funds?

whytis

Registered User
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I could have asked this over at Pensions, but I think this is a more relevant audience for this question.

Do you pay into a pension which invests primarily in ETF index funds, and in doing so reducing the costs associated with your investment compared to a standard unit fund from the insurance companies?

I ask since I haven't been able to so far. Perhaps it will be more possible as I build up my fund over the years.

I looked to find such a pension investment plan, but ended up with what I would call a "McDonald's" personal pension: an actively-managed Zurich fund with a 1.5% annual management fee.

The financial planner who provided this personal pension steered away from the possibility of lower-cost investment in index funds within a pension. That's understandable, since his whole business model is based on commission from the insurance company.

From previous posts I've asked over at Penions, its seems you'd want a relatively large pension fund to be able to economically take advantage of more custom pension schemes that allow you to do a self-directed pension.
 
My company pension scheme doesn't have any ETFs as an option, but it does have various equity indices which I'm happily invested in.

I'm looking into ETFs for personal savings investments however. Let me know how you get on.
 
Out of interest, are the index funds you're buying offered by one of the main insurance companies in Ireland?

The funds I've seen so far are quite specific indexes, rather than "whole market" index funds I'm mostly interested in. To be honest, I should now go back and read more on it.
 
The pension is administered by Mercer. My previous employer's pension was administered by AON Hewitt. The index linked equity funds they offer are from large international investment fund houses such as State Street, Blackrock, Standard Life, Pioneer, etc.

There's index tracker funds for All World, European, North American, Emerging Markets, Asia Pacific ex Japan, etc.
 
Just to follow up for the sake of anyone else trying to figure this out.

I had already started a Zurich policy through a financial advisor. (The cooling-off period has lapsed).

I asked Zurich if I switch to index funds would my annual management charge of 1.5% drop. They answers saying no.

How it works is that your policy has a set charge. If you want lower fees, you have to say it up front.

Zurich said to contact my financial advisor if I wanted a separate policy with a lower charge. Of course, my financial advisor at the time said there wasn't a way to make the charge lower ;)

Edit: I'll stick to this first five years of pensions investment. After that I won't have penalties for closing the policy. I'll have a much better feeling for it by then.
 
The annual management fee is nothing to do with passive or active funds, it is to do with Zurich Life's charges and profit and whatever remuneration structure your policy was set up under.

The actual cost of the fund is deducted from the unit price of your funds. It is called the Total Expense Ratio (TER) and is not disclosed by Irish insurance companies.

The TER on ETF's is typically 0.3%, with active ones not far behind it. Active funds get more expensive with the greater amount of equity investment and you can expect to pay 0.6% - 0.8% TER.




Steven
www.bluewaterfp.ie
 
Hi Stephen,

I didn't even realise there were further costs outside of the management charge.

But it makes sense. Zurich Life pay the administrators of whatever funds, be they actively managed, or index funds.

So my TER is closer to 1.5+0.5%=2%. If I'm understanding correctly.

The costs associated with saving for a pension do hurt when calculated over decades of lost compound interest :)
 
Hi Stephen,

I didn't even realise there were further costs outside of the management charge.

But it makes sense. Zurich Life pay the administrators of whatever funds, be they actively managed, or index funds.

So my TER is closer to 1.5+0.5%=2%. If I'm understanding correctly.

The costs associated with saving for a pension do hurt when calculated over decades of lost compound interest :)

It is around that because the insurance companies do not disclose the TER.

I would cut the insurance companies a bit of slack though. It is expensive to run a pension fund, with compliance costs, staff, fixtures & fittings etc.

Steven
www.bluewaterfp.ie
 
Sure, I agree with you that costs don't naturally go lower.

But it does seem like there's room for a more efficient pensions marketplace.

I don't want especially to pay my financial advisory €1,000 or whatever it is in first year's commision in return for giving the advice "Go with the Zurich lifestyle funds".

I want to be able to take the liabilty of designing my pension investment, and pay much lower fees. We're talking tens of thousands of euros in difference over my investing lifetime.
 
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