That's only the case of they have a sufficiently large book that can cover their fixed costs to allow for these marginal pricing cases.
Advice needed on moving PRSA
- Thread starter aine45
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Steven Barrett
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If the value goes above €100,000, the price of the Standard Life contract goes down by 0.5%, that is the long term strategy. Many of the self directed PRSA providers have tiered pricing structures based on AUM.
It is a calculated risk by RL to offer such low amc for all contracts. It benefits consumers alright, not sure how it will work out for RL in the long term.
These insurers are required by regulation to hold capital to ensure they can administer their contracts out to the policyholders retirement date in loads of different severe scenarios. That capital has to be raised on equity markets where shareholders expect double digit returns and then tied up over long periods in cash type assets that earn negligible return. In other words, for an insurer, it's not just sell a contract and bank the charges immediately.
This may help to explain some market trends. Regulation brings benefits, but at a cost.
I think there are basically two ways it could go:
A) Royal London bet that some/many clients will eventually bump up their contributions, and over the course of a decade or two will accumulate €100,000+, which means they could earn €400+ per year from each of those clients. They could also then count on low customer attrition (no better deal to be had). So eventually, they accumulate a very big chunk of the market, say 100,000 clients paying €400 each = €40 million per year.
B) They jack up their fees at some point
For new business? Isn't the AMC quoted when taking out a policy binding?
If they wanted to cut costs/boost profits then the first thing that they would probably do is withdraw or zero rate the discretionary ValueShare bonus?
ValueShare - Royal London IE
Here you'll find out about our unique ValueShare feature. As well as providing you with excellent products, a range of investment options and good service, we also will aim to give your savings a potential boost. This is called ValueShare.
www.royallondon.ie
Interesting. But in over 20 years with PRSAs (since in or around when they were first introduced in 2002) and even longer with other pension vehicles, I don't ever remember any pension provider changing the charges once the pensions were set up.
Discussed here too:
Increase in Davy Pension fees (from May 1st 2024)
Increases announced: PRSA: Fund value Current Charge New Charge €0-€49,999 0.75% 2% €50,000+ 0.75% 1% Executive Pensions/Master Trusts No change to 0.9% annual charge but minimum annual fee €1,000 and a change to how this will be calculated. They are to start checking balances monthly...
www.askaboutmoney.com
So can every PRSA customer
Indeed. And at least they had options on the transfer of the smaller pots of money that some providers have taken the decision not to compete for.
Every now and then it's good to remind folk on here that the average privave pension maturity is (probably now because of recent growth in fund values) circa €200K, so it takes a long time for that to build up. Fortunate that all providers haven't chosen not be competitive for the €10K, €20K, €30K transfer pots and accept the couple of hundred euro a month for relatively low AMCs. I can't be the only one that sees this as good for the consumer.
Gerard
www.execution-only.ie