5% contribution charge... why is nobody complaining?

E

extopia

Guest
Seems like a poor deal to me. It only seems like a good deal because of tax relief. And your PRSA has to make 6%p.a. to break even. If you ask me, it's tax relief subsidising the banks, and as far as I can see, nobody seems to think it's a rip off.

The ONLY prsa I would buy would have 0% contribution rate. Management charges are OK, as long as they are reasonable. 1% seems high enough considering the amount of lousy management out there.

What do you folks think? Is there something wrong with my reasoning?
 
I agree extopia. I couldn't believe when I heard that each and every contribution is subject to a 5% charge .. seems like robbery to me. Did you see the myadviser offer that was available up until last week? They were offering a one off 50 euro charge to set up the fund and then just a 1% annual management fee, no contribution charges. Seemed like the best offer around to me.
 
While it is a common misconception, PRSAs are not necessarily low cost pensions. However it is possible (as mentioned above) to get a better deal than the max standard PRSA charges of 1% p.a. and 5% on contributions. Shop around for the best deal. As usual, caveat emptor.
 
ClubMan, I KNOW it's possible to avoid the 5% charge. However, my point is that the "maximum" 5% rate is being ignored by everyone, as if it's not worth even worrying about.

I'd expect a hell of a performance from any fund that levies such rates, then management fees on top of that!

As usual, the marketing of these products is made easier by the public's general financial naivete -- all to easy to bamboozle the customer with bullsh*t.

Except here at AAM, of course!
 
However, my point is that the "maximum" 5% rate is being ignored by everyone, as if it's not worth even worrying about.

Not by me! ;) I raised the issue of the arguably high standard PRSA charge caps (5%/1%) several times in the past here on AAM, particularly when people mistakenly assumed that PRSAs were de facto low charges pension vehicles. I'm not sure what, if anything, can be done about reducing these charge caps.
 
In defence of the 5% charge......

and I'll be shot for my opinion but here goes.

There are three types of individual in the market for a PRSA.

A) One that doesn't need advice. this person can purchase a PRSA with a 0% up front charge for a minimal fee.

B) One that needs advice and is prepared to pay an agreed cost for that advice. Again a PRSA is available with a 0% up front charge.

C) One that needs advice but doesn't want to or can't afford to pay up front for it. Because a pension provider can charge 5% up front they can afford to pay an introducer commission which can be used as an offset against the cost any advice given.
 
Re: In defence of the 5% charge......

I won't shoot you but...

this person can purchase a PRSA with a 0% up front charge for a minimal fee.

I personally don't consider €100 minimal whatever about others...

I would agree with those who assert that the Standard PRSA charge caps are too high in general.
 
Is 100 euro minimal?

Think we'll agree to disagree.

I personally think that 100 euro is very reasonable. Most people taking out pensions will aspire to having a pension fund in the 100's of thousands. By paying the 100 euro the client saves 5,000 for every 100,000 of a pension fund. A bargain.

I wish other industries were the same. For e.g wouldn't you like to be to buy a new car on an execution only basis. Cut out the middle man and pay someone 100 euro to process the order on a nil commission basis.
 
Re: Is 100 euro minimal?

personally think that 100 euro is very reasonable

I didn't say that it was unreasonable just that I don't consider it to be minimal! ;) I agree that it's worth paying €100 to save the 5% "bid-offer" spread but I can't understand why, in the context of any unit linked type vehicle - be it a pension or a regular investment - the annual management fee of c. 1% shouldn't be more than sufficient on its own to remunerate all interested parties (manager/underwriter, intermediary etc.). It's reasonable to expect people to be paid for a service but I just think that charges, while generally lower these days than in the past, are still laid on a bit thick and justified by unreasonable guff (not yours I might add) about "added value", "full service" etc. Maybe I'm just naive...?
 
"are still laid on a bit thick"

Not sure this is the case with PRSAs. Can't see them generate huge profits for the insurance companies. However I do think that costs will come down over the years once the provides have recouped some of their initial set up costs. We'll all switch to these probably when they arrive.
 
1% management charge more serious

From what I can see the 1% Managment charge generates alot more for the insurance companies over the life of the Pension.

Assuming contributions of 10,000 a year rising in accordance with inflation of 3% per year with growth of 5% per year, contribution charges of 5% and a management Charge of 1% over 35 years you end up with the following:

All Net present Values
Total Contributions = 350,000.00
Contribution Charges = 17,500.00
Management Charges = 70,000.00
Fund Value = 405,000.00
 
You might want to check those figures.....

I make the figures out to be a lot different using your assumptions.

Anyhow, I would however agree that if someone were to make contributions to a PRSA over 35 years at a rate of 10K a year that the insurance company will be quids in.

The reality is that your average PRSA policyholder (in my experience) will do 100-200 per month. I also expect the life span of PRSA policies to be a lot shorter than previous pension policies. People will transfer from provider to provider or join companies where the employer already has a scheme. I reckon the average term could be as low as 10 years.

If you reckon you will be in for longer, it would be worth looking at PRSAs that lower the annual management charge the longer the policy goes on or the larger the fund becomes.
 
Think I've figured out where your figures come from.....

... they are based on a most pessimistic (over 35 years anyhow) net growth of 1%?

Would concur that the insurance company would do well out of this example. But if you take Joe Soap that puts in 50 euro a month over 10 years the upfront charge comes to 300 euro and the management charge collects just over 300 euro.

Not bad if the client has received advice, benefit statements and an investment services for 10 years.
 
Re: Think I've figured out where your figures come from.....

Assuming contributions of 10,000 a year

€800+ p.m.! Fair play - I just wish I could afford that! :|
 
ADVICE

I have a personal pension for over 5 years and am paying high charges, I have never received any advice since starting this pension. Could you give me an example of the kind of advice I should have received for my money ?

Whilst my figures maybe pessimistic - actually net growth over inflation of 2% - The larger the growth, the bigger the slice of the cake the insurance company gets.

While your assertion is correct that people will change plans over the years they will however just move the money to a different plan and at the moment the PRSA's seem to be the best deal
 
HIGH

Clubman - 10,000.00 per year is a bit high actually but I was just using that figure for the sake of the calculations surely the principal is the same if it is for 100 euro per year.
 
Management charges

POAP, sorry if this is a daft question but I'm still getting my head around all these charges, but from your calculations would I be right in thinking that the management charge is 1% of the fund value at the end of each year? Jeez I didn't realise how easy these guys make money out of us!! So even if they don't make any profit for you on your contributions and you pay in 5000 a year, they will still have made 7450 of you after ten years? This would mean on year ten alone they would take in 1000 and it would just get better the longer the it went on! Good God I'm in the wrong business!! I thought the 1% was on your contributions!
 
Management Charges

That is my understanding, in effect if the charges are 1% then your fund needs to growing at inflation +1% for you just to stand still in real terms.
 
Re: Management Charges

So even if they don't make any profit for you on your contributions and you pay in 5000 a year, they will still have made 7450 of you after ten years?

Yes - but there is an obvious incentive for them to make sure that they generate the best returns possible on your fund. I think that this charge is fair enough. My point above is that I don't really understand why the annual management charge isn't sufficient to cover the full cost of an investment produce - underwriter, manager, intermediary, execution only or maybe even basic advice based service etc.? I guess it's a possible "great debate" rather than something that has any single correct answer.... one for the Great Debates perhaps...
 
Re: Management charges

Ceist Beag,

I'm not sure where you got the 7450 figure from. By my calculations it should be 5113.

Is mise le meas.
 
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