More into pension fund or over pay mortgage

[Bronte]

I'm surprised trustees have decided that a 100% equity fund is the fund of choice for a pension scheme. They are leaving themselves open to litigation when there is a stock market crash and the fund value falls dramatically.


Steven
www.bluewaterfp.ie

Can you clarify that please Steven, how are the trustees leaving themselves open to litigation? On what grounds?

 

[Steven Barrett]

From the Trustee handbook issued by The Pensions Authority:

trustees must invest with the care which an ordinary prudent person would take in investing for the benefit of other people for whom they felt morally bound to provide. As the purpose of the scheme is the provision of benefits for members and other beneficiaries, trustees must invest solely in their best interests. In this context “best interests” should be taken to mean best financial interests. Trustees must also invest the assets of the scheme in a manner appropriate to the circumstances of the scheme, i.e. they must review the general circumstances, such as the age profile, of the members of the scheme and invest the assets appropriately (par. 3.7)

If the trustees have switched the default investment fund to a 100% equity and the markets tank when old Gill is 1 day from retirement, he can quite easily argue that the trustees didn't take the care which an ordinary prudent person would take in investing for the benefit of other people for whom they felt morally bound to provide.

Even if all the members are in their 30's, like the OP, you could say that a 100% equity strategy is on the risky side.

Steven
www.bluewaterfp.ie

 

[elcato]

Even if all the members are in their 30's, like the OP, you could say that a 100% equity strategy is on the risky side.

Maybe I'm thinking of another thing altogether but isn't the amount of risk decided by the individual at the start and can be changed at any stage ? (Usually when the company decide to call the pension advisor for a chat about once a year).

 

[Steven Barrett]

Maybe I'm thinking of another thing altogether but isn't the amount of risk decided by the individual at the start and can be changed at any stage ? (Usually when the company decide to call the pension advisor for a chat about once a year).

It depends. Under most schemes, the trustees may give a choice of 6/7 funds, ranging from 100% equity to cash. Others, allow the members to chose from whatever funds are available while some just have 1 fund. It's impossible to know the exact situation of the OP's scheme but he did say

our company has now told us that they are switching us to the Zurich Dynamic Fund

It doesn't sound that the member is getting a whole lot of choice.

Steven
www.bluewaterfp.ie

 

[PaddyW]

Hi again guys, sorry to dig up the thread but I was hoping you might help me to understand some of the jargon on my new policy.

They have a heading 'Percentage of Premiums used to Purchase Units at the Ruling Offer Price' - What does that mean
Also, under that they have percentage of 105.25% - Is this the allocation rate?

Also, there is an AMC of 0.75%, would this be a pretty decent charge?

And lastly, they have an Initial Policy Fee of €3.49 monthly, is this deducted from my contributions before purchasing units?

Thanks in advance and sorry for all the questions!

 

[Steven Barrett]

Hi Paddy

Answers below

Percentage of Premiums used to Purchase Units at the Ruling Offer Price' - What does that mean - this is the amount of your money that is invested into your pension e.g. €100 contribution, €105.25 invested
Also, under that they have percentage of 105.25% - Is this the allocation rate? - yes. The high allocation rate and low AMC makes me suspect there is a Bid/Offer spread on this policy. The Bid/Offer spread is 5%. You buy units in the fund at one price and sell them at another, lower price. So you may buy units for €1 and sell them for 95c.

What is 105.25% - 5%? 99.99%. In effect your allocation rate is 100%.

Also, there is an AMC of 0.75%, would this be a pretty decent charge? Yes, decent charge

And lastly, they have an Initial Policy Fee of €3.49 monthly, is this deducted from my contributions before purchasing units? This is deducted from your fund.



Steven
www.bluewaterfp.ie

 

[PaddyW]

Thank you Steven, as always you're very helpful!