PRSAs: are lower charges for higher contributions OK?

Discussion in 'Pensions' started by trasneoir, Dec 22, 2016.

  1. trasneoir

    trasneoir Frequent Poster

    Posts:
    298
    From pensionsauthority.ie: "PRSAs are flexible; you can increase, decrease or stop your contributions at any time without any charge or penalty". It's commonly cited as a benefit of the PRSA structure, but I don't think it's true in all cases.

    Lots of the approved PRSA schemes have got a contribution charge which varies based on the size of your contributions.

    Eg. Aviva Simple PRSA
    <€9,600 (pa) 5%
    ≥€9,600 (pa) 3%
    so...
    €800 pm => €776 equity
    €799 pm => €759 equity

    I don't think this kind of pricing structure is unfair, but I'm not sure it should be sold as "penalty free flexibility".

    Semantics aside, isn't a "discounted fee for higher contributions" functionally the same as an "increased fee for lower contributions"?
     
  2. Merowig

    Merowig Frequent Poster

    Posts:
    118
    In my opinion it's not the same. It's like a "volume discount" if you buy one apple the price per apple is most likely higher than you buy 10 apples or a ton of apples.

    That aside - I would not contribute to any PRSA which has a contribution charge - it's robbery in my eyes.
    The only scenario I could see contributing to that kind of PRSA would be if it was set up by the employer and the employer is making matching contributions. Otherwise I would say any PRSA with any contribution charge is a no-go.
     
  3. SBarrett

    SBarrett Frequent Poster

    Posts:
    1,999
    You are not correct in your assumptions trasneoir.

    All PRSA's offer 100% allocation rate as standard. If the advisor is being paid by way of commission, the allocation rate is then reduced. If your contribution is less than €9,600 a year, they will reduce your allocation rate by 5%. If it is over, they will reduce it by 3%.

    If you initially started off with a 97% allocation and then reduced your monthly contribution, Aviva won't reduce your allocation to 95%.

    Steven
    www.bluewaterfp.ie