Can an employee dictate who the pension provider is?

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FCBC12

Registered User
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When starting a pension through employer, and where they match your contributions to a certain %, does the employee have any flexibility in choosing who this pension provider is? Reason for the question is the pension provider my employer use has an allocation rate of only 99.275%, and they take also charge 1% management charge on the fund balance. Over the course of a working life, this could end up costing €125-150k in charges.

My initial thoughts are:
(i) there's no flexibility in choosing this portion of my pension and to just suck it up as a 'cost of business' and acknowledge the employer contribution will more than make up for the mgmt fees above
(ii) I can make AVC's with another provider, with a more attractive mgmt fee.

Is this the right way to look at this or am I missing something? Thanks.
 
The employer generally chooses the pension provider.

An allocation rate of 99.275% is not as bad as I have seen elsewhere.

1% AMC is not high in Ireland. It's not low, but it's not high.


Bear in mind that, in general, pension fees are really high in Ireland.

The two fees you quote are by no means the worst I have ever seen.
 
From my experience, the best you can get on PRSA-AVC is maybe:

100% allocation
0.75% AMC
 
FCBC12 said:
When starting a pension through employer, and where they match your contributions to a certain %, does the employee have any flexibility in choosing who this pension provider is? Reason for the question is the pension provider my employer use has an allocation rate of only 99.275%, and they take also charge 1% management charge on the fund balance. Over the course of a working life, this could end up costing €125-150k in charges.

My initial thoughts are:
(i) there's no flexibility in choosing this portion of my pension and to just suck it up as a 'cost of business' and acknowledge the employer contribution will more than make up for the mgmt fees above
(ii) I can make AVC's with another provider, with a more attractive mgmt fee.

Is this the right way to look at this or am I missing something? Thanks.
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No. u

From an employer point of view, imagine trying to administer a "scheme" where everyone got their own individual plan.

The 99.275% allocation may be because the total going into the scheme is quite low. Or it could be because the advisor fees are being paid for by the members. If it is the latter, you can ask your employer to pay the scheme fees instead of the members.

If there are low level of contributions going in, you also have to be wary of a lot of the master trust structures which have monthly policy fees, which can equate to a large percentage charge of the monthly contribution.


Steven
www.bluewaterfp.ie
 
Steven Barrett said:
From an employer point of view, imagine trying to administer a "scheme" where everyone got their own individual plan.
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Employers done administer it, do they? Usually the outsource that?

Why is it beyond the realms of possibility for individuals to be able to choose a pension scheme , given its importance? Surely it would be easy to have a selection of options from which to choose? What would be the additional admin burden?
 
FCBC12 said:
Over the course of a working life, this could end up costing €125-150k in charges
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Is this correct?

Seems to me to be a lot to pay in fees for the 'management' of my pension fund. Why so expensive? Is that considered good value?

Are people made aware od this by pension funds? Is there proper transparency regarding this?
 
jim said:
Employers done administer it, do they? Usually the outsource that?

Why is it beyond the realms of possibility for individuals to be able to choose a pension scheme , given its importance? Surely it would be easy to have a selection of options from which to choose? What would be the additional admin burden?
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They have to sign off on each application. The administrator has to ensure payments are made to each provider, so higher fees charged. Bigger schemes are completely administered by the admin companies such as Mercer, Unio etc (I doubt they are involved in this case) with the life companies just getting a lump of money.
 
jim said:
Is this correct?
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Utterly impossible to make any meaningful comment without knowing the amounts involved, age of the person etc.

jim said:
Are people made aware od this by pension funds? Is there proper transparency regarding this?
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Yes - first when they sign up and then every year on their annual statement. The projected expense figures are calculated and shown to them on a Statement of Reasonable Projection.
 
But 1% of a 1m fund is 10000 fee per annum. That seems excessive on top of whatever other fees they take. Obviously not everyone has a 1m fund. Eveb 5k in annual fees on a 500k fubd (again, not too mention whatecer other fees they take) is imo excessive.

What would be a reasonable fee, you might ask... well something like 0.5% in my opinion is plenty.

Btw can anyone shed light on what additional fees one pays over and above the 1% fee that might be in place?
 
LDFerguson said:
Yes - first when they sign up and then every year on their annual statement. The projected expense figures are calculated and shown to them on a Statement of Reasonable Projection.
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I have seen this come up before on AAM. I really cant recall seeing anywhere on my annual statement the fees they took for that year. Im not talking about their fee structure/percentages etc. Im talking about brass tax - how many euros did pension fund take off me in the last year. Is this information one can expect to see or get?
 
GSheehy said:
It's a common feature of this forum to default to €1m fund sizes.

The average pension fund at maturity is still less than €150,000.
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But that irrelevant to my observation.

For larger funds, and 500k at retirement isnt huge, the annual fee is 5k?! Thats excessive.

What additional fees are there along with this? Arent there other fees as well?

My annual statement simpky does not transparently tell me fees charged. Itd be helpful if it did
 
If you think it's excessive you can choose to pay less. Or is there some reason you think you can't move it?

You must have bought the pension through a regulated entity. Is there some reason you cannot ask that entity what the annual costs are on the specific product, specific fund/s you bought? Or, have you asked the regulated entity and they've refused to answer you?
 
My pension is through my employer. I will ask these questions as itd be good to know. Even better if it was provided up front.
 
Ah, it's an Occupational Pension Scheme (as opposed to a PRSA Scheme) so there are no regulatory disclosure requirements.

On the off chance that that you get fobbed off with the above reason you'll probably find an ally with the Pensions Regulator (some recent commentson Occupational Pension Schemes).

You know the AMC/Allocation/Policy Fee so what you're looking for are the Other Ongoing Costs (OOCs or CIVS) of the fund/s you're invested in. Adding the AMC and OOCs will give you the Total Expense Ratio. The Portfolio Transaction Costs (PTCs) are harder to get a handle on as they're not explicitly disclosed by any passive or active fund manager. They'll be higher for active but that still doesn't mean that that's bad, but that will depend on the fund manager or fund. OOCs and PTCs are variable so you may get a snapshot of a particular date, in hindsight.

Depending on the pension provider, a zero, partial or explicit AMC will be included in the fund price/performance figures. The OOCs and PTCs are also included in the fund price/performance. That's probably your best bet at 'comparing' how your fund is doing as any one of these charges, in isolation, isn't worth a dam to you unless you know what they all are for the fund you're comparing it to. What I mean is, if you're in a multi-asset fund (where asset split is very similar) and the PTCs are 0.25% on one fund and .5% on another but the 0.5% one is doing better than the 0.25% one by more that 0.25% pa then the more expensive one is 'better' (based on historical performance only).


Gerard

www.prsa.ie
 
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jim said:
But that irrelevant to my observation.

For larger funds, and 500k at retirement isnt huge, the annual fee is 5k?! Thats excessive.

What additional fees are there along with this? Arent there other fees as well?

My annual statement simpky does not transparently tell me fees charged. Itd be helpful if it did
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Yes, life companies make a lot of money off large funds. But it takes them 6-7 years to break even on pension plans. Look at Ger's average pot of €1,500 in fees at maturity. It had to start at some point and the life company received a few of euro in fees. Even someone who has €1m in their pension started at €0 at some point and the life company got next to nothing. It's not as if they have always received €10,000 a year from your pension.

Is a flat fee the solution? How will that work for people starting off their pensions?
 
Steven Barrett said:
Is a flat fee the solution? How will that work for people starting off their pensions?
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A lower percentage fee especially on pots above a certain value. More transparency around how many euros they charge. Per Gerards post , its confusing.

Of course if charging a percent then its small initially but pension funds grow large over time as those the associated fee.
 
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