50 y.o. public servant, no mortgage: AVCs, notional service or something else?

P

Polestar

Registered User
Messages
22
Personal details
Age: 50
Spouse’s/Partner's age: Divorced
Number and age of children: 2 (14 and 12)

Income and expenditure
Annual gross income from employment or profession: €80,000 at the top of the scale
Annual gross income of spouse: n/a
Monthly take-home pay: €4,000
Type of employment: e.g. Civil Servant, self-employed: Public sector

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving €2,000-€2,500 per month

Summary of Assets and Liabilities
Family home worth €350,000 with no mortgage
Cash of €50,000 + €6,000 for emergencies in two regular savers accounts
Defined Contribution pension fund: n/a
Company shares: n/a

Family home mortgage information: N/A
Lender: n/a
Interest rate: n/a
If fixed, what is the term remaining of the fixed rate? n/a

Other borrowings – car loans/personal loans etc.:
None
Do you pay off your full credit card balance each month? Yes, when I use it.
If not, what is the balance on your credit card? n/a

Buy to let properties: N/A
Value:
Rental income per year:
Rough annual expenses other than mortgage interest :
Lender
Interest rate
If fixed, what is the term remaining of the fixed rate?

Other savings and investments:
Do you have a pension scheme? Public sector, defined benefit (pre-2013) + UK (eventually)
Do you own any investment or other property? No

Other information which might be relevant:
Life insurance: n/a

What specific question do you have or what issues are of concern to you?

I have recently cleared my mortgage.
I have €6,000 for emergencies growing by €2,000 every month (2x regular savers accounts).

My ex and I share the children’s costs 50/50. They will probably go to college starting in 2028/2029. I would like to think we will be able to cover reasonable college costs between the two of us with our salaries and savings if necessary.

Long story short, I started working and paying PRSI in my 30s so at age 65 I will have approximately 30 years of PRSI contributions.
Same situation with public sector pension: At 65 I will have 30 years. I am already buying 5 years of notional service.

I have set aside €20,000 in an AIB 1 year fixed term deposit to buy back UK NI contributions when they send me the information (I doubt I will qualify for class 2).
I have entertained the idea of retiring early but I suspect that I will have to work at least until I am 65.

What do you think I should do with the €50,000 I have in cash and my monthly savings when I reach a comfortable emergency fund of €10-12,000?
I am leaning towards a fixed term deposit (AIB 3 year) for the €50k plus increasing my DB pension contributions with the monthly savings.

I know little about investments, pensions, AVCs, ARFs, etc., and can’t find the time and motivation to learn more about them at the moment so that I can make the right choice of investment and/or advisor.

In general I would prefer to keep things simple, e.g. buy more years of notional service as opposed to AVCs and keep savings in AIB fixed term deposits as opposed to Raisin, etc.

Having said that, I got a quote for AVCs from Cornmarket a couple of years ago. They quoted €495 set up fee, €25 per month for the first 12 months, then a 1% annual management charge for the value of the fund. I have seen threads here discussing notional service vs AVCs and AVCs alone, but I still don’t know if the quote I got is reasonable.

I would really appreciate your thoughts.
 
I have an updated quote from Cornmarket for AVCs:
  • €595 consultancy fee
  • 1% annual management charge, which reduces by 0.25% on any amount in the AVC between €40,000 and €140,000 and by a further 0.25% on any amount greater than €140,000
  • 0% contribution charge if regular, 4% if single premium
Does this look reasonable or competitive?

Also I have overcome my reluctance and opened an account with Raisin. I was surprised when an actual person rang through the ID app and started to ask me questions. The whole thing was actually very straight forward, unlike with Revolut (I still haven't been able to open an account, as they say they can't verify my identity?). I think I may put the €50k in a 1 year deposit for the time being.
 
Polestar said:
Does this look reasonable or competitive?
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Not to me. Specifically...
Polestar said:
  • €595 consultancy fee
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Polestar said:
  • 0% contribution charge if regular, 4% if single premium
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I don't really understand this:
Polestar said:
  • 1% annual management charge, which reduces by 0.25% on any amount in the AVC between €40,000 and €140,000 and by a further 0.25% on any amount greater than €140,000
Click to expand...
Does it mean that if the value was, say, €200k then the AMC would be (€40k @ 1%) + (€100k @ 0.75%) + (€60k @ 0.5%)?
 
Polestar said:
I have an updated quote from Cornmarket for AVCs:
  • €595 consultancy fee
  • 1% annual management charge, which reduces by 0.25% on any amount in the AVC between €40,000 and €140,000 and by a further 0.25% on any amount greater than €140,000
  • 0% contribution charge if regular, 4% if single premium
Does this look reasonable or competitive?

Also I have overcome my reluctance and opened an account with Raisin. I was surprised when an actual person rang through the ID app and started to ask me questions. The whole thing was actually very straight forward, unlike with Revolut (I still haven't been able to open an account, as they say they can't verify my identity?). I think I may put the €50k in a 1 year deposit for the time being.
Click to expand...

Personally, I would not pay the 595, but I know a bit about AVCs.

If somebody wants a broker to hold their hand, and guide them through the process, then maybe 595 is okay. Plus Cornmarket do a lot of AVC for the PS, so I presume their staff are knowledgeable.

But I would use an execution-only broker, to avoid the 595 fee.
 
Thank you all very much for the responses.

It turns out that the set up fee is tax deductible, so the net cost would be €357.

The annual management charge applies to the whole fund as it decreases. If I could make contributions of around €1,000 per month, I would arrive at the €40k in a little over 2 years unless I got this completely wrong.

Does this sound like better value now?

I agree that the 4% seems very high, but I don't envisage making any lump sum payments any time soon. Having recently cleared the mortgage, I plan to put more money into my pension, save another bit and enjoy the rest on holidays and other things with the kids. Plus I still have the other €50k.

The other big question is what do I do about the notional service? At the moment I am buying 5 years at €67 per year per month. From reading other threads it doesn't sound like it is good value. Would I be better off putting that money towards AVCs?
 
Polestar said:
Monthly take-home pay: €4,000
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Polestar said:
Saving €2,000-€2,500 per month
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Is saving 50% to 60% of net income feasible long term? At your admirable level of frugality your retirement income would cover your needs absent any AVCs. But at some point you may want or need to enjoy your income a bit.


Polestar said:
Having said that, I got a quote for AVCs from Cornmarket a couple of years ago.
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Avoid Cornmarket. Public service unions always recommend them for unclear reasons but cheaper options are out there.
 
Polestar said:
The annual management charge applies to the whole fund as it decreases. If I could make contributions of around €1,000 per month, I would arrive at the €40k in a little over 2 years unless I got this completely wrong.
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1,000 * 24 months = 24,000 saved.

Where are you getting 40k from?
 
Avoid Cornmarket at all costs. There are a number of agents who post here that can get you a better deal eg Liam Ferguson.

Just make the contribution per month and claim the tax back every month via my revenue.ie.

If you hurry you might be able to claim for 2022 if you it before the end of the month.

Best,

Opus2018
 
It's an AVC as opposed to a PRSA AVC so there won't be any disclosure on it. It states that Cornerthemarket will receive inital and renewal commission from your contribution of €12,000 pa. I'd ask if there are penalties (at any stage) if you wanted to transfer the value of this AVC to a PRSA AVC (within the same employer scheme). Ask them straight up, before you buy, what those commission figures are and then ask yourself if the service is worth those payments on top of the €595 fee. Maybe it might be if they gave you a full (unbiased) analysis of the cost of purchasing notional service Vs AVCs, before you buy. Otherwise, you're just going to have to request the figure for notional service yourself, from HR/Pension Dept.

It also states that the AMC isn't 1% (probably for the Cash Fund only) but 1.1% - 1.2% but I doubt that's the end of it from a Total Expense Ratio point of view.

Gerard
 
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Thanks again for you input. I am learning a lot!

Protocol said:
But I would use an execution-only broker, to avoid the 595 fee.
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I would too if I knew what I was doing. I will look more into it.

Dr Strangelove said:
Is saving 50% to 60% of net income feasible long term? At your admirable level of frugality your retirement income would cover your needs absent any AVCs. But at some point you may want or need to enjoy your income a bit.
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It may not be feasible saving 50-60% every month going forward, but 20-25% would. The kids are getting older which means their expenses are growing too. I didn't think I was frugal at all, but paying off the mortgage has freed up a lot of money.

Protocol said:
1,000 * 24 months = 24,000 saved.

Where are you getting 40k from?
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Sorry, I meant 3 years.

Opus2018 said:
If you hurry you might be able to claim for 2022 if you it before the end of the month.
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I don't think I can hurry, I don't know what I am doing yet!

GSheehy said:
Otherwise, you're just going to have to request the figure for notional service yourself, from HR/Pension Dept.
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I can ask for a new quote for notional service like I have done in the past. This is last year's:

1698390241363.png

Any thoughts on this?
 
Polestar said:
Any thoughts on this?
Click to expand...

Just some figures for comment/correction.

If I run a quote for a person 50 next birthday, to age 65, €76 per month , AVC PRSA with 100% allocation & 1% AMC


Estimated Fund At Retirement from Table Above:
€19,716.99​
​
Option One
Members Pension per month:
€57.55​
THESE ILLUSTRATIONS ASSUME AN INVESTMENT RETURN BEFORE RETIREMENT OF 4.60% PER ANNUM AND INFLATION OF 3.00% PER ANNUM. THESE RATES ARE FOR ILLUSTRATION PURPOSES ONLY AND ARE NOT GUARANTEED.

In relation to the pension figure(s), the assumed annuity rate which assumes 2.00% escalation, a 5 year guarantee and is payable monthly in advance. The actual annuity rate will depend on the selection of dependant's pension, guaranteed period and the escalation rate, as well as interest rates prevailing when the annuity is purchased. For policies where the remaining term to retirement age is greater than or equal to 5 years the annuity rate used in the illustration is a long-term average rate. Where the remaining term to retirement age is less than 5 years current market annuity rates as at 24/04/2023 are used in the illustration. The actual annuity rate at retirement is likely to differ from the annuity rate used in the illustration.

The annuity rate at the moment for a M65, single life, monthly in advance, escalating at 2%, guaranteed 10 years is 4.52821% - So, €19,716 minus €2,863.65 = €16,851.35 x 4.52821% = €763.06 pa

M65 , F65, joint life, 50% spouses, no guarantee, 2% escalation, monthly in advance = 4.29155% = €723.18 pa. (€637.99 pa if I change escalation to 3% on this example).



Gerard

www.prsa.ie
 
GSheehy said:
It's an AVC as opposed to a PRSA AVC so there won't be any disclosure on it. It states that Cornerthemarket will receive inital and renewal commission from your contribution of €12,000 pa. I'd ask if there are penalties (at any stage) if you wanted to transfer the value of this AVC to a PRSA AVC (within the same employer scheme). Ask them straight up, before you buy, what those commission figures are and then ask yourself if the service is worth those payments on top of the €595 fee. Maybe it might be if they gave you a full (unbiased) analysis of the cost of purchasing notional service Vs AVCs, before you buy.


Gerard
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I presumed the 595 is the initial set-up fee / commission?

There can be initial commission on top of the 595?

(I understand that some of the annual AMC is paid by the insurer back to the broker, okay, as annual commission.)
 
I honestly don't know for certain but OP should ask. For a contribution of that size I'd say there's some scope for additional initial as I suspect there are early exits on that plan. What happens if contribution is €50 pm? Zero allocation in year 1, or you get a 95%/1%+ PRSA AVC?
 
I went with cornmarket because everybody in my job uses them. not the best reason! I started my avcs with them a couple of years ago. 595 fee broken into 12 payments. same charges as the OP. 1% AMC.
 
@GSheehy, thank you for the figures, but I don't understand the figures or the language. My knowledge in this area is very limited.

I could try and set up an AVC with an execution only broker, but then I wouldn't know where to invest or which fund to choose?

So at the moment it looks like either Cornmarket or an advisor...

Any recommendations for a fee based advisor in or around South Dublin please?
 
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