Are we getting the best value?

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maura

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Just a quick question, my husband has a pension, which he pays €100 into each month. He is on the 20% tax rate, and will possibly be still there at retirement. The pension he has is with Hibernian and last year the total growth in our funds was €130, while the servicing charges were €108, is there something better we could invest our money in, or is this the best there is. The total amount in the fund to date is €6,000, so would we lose this if we were to change to anything else?? Any answers much obliged.
 
Are you saying the the charges on total contributions of €1,200 were €108 or 9%? What is the charging structure as outlined in the original documentation - e.g. what percentage of each contribution goes in charges and what is the annual management fee? On the face of things the charges look very high especially when you can get PRSAs or possibly even personal pension plans with no deductions on each contribution and only a 1% annual management fee. What Hibernian fund is the money invested in? It's impossible to say if €130 in growth is good or bad without some information about what the money is invested in. Also past performance is no guide to future returns. If the current value of the fund is €6K then how much has been contributed to date?

Should your husband be contributing to a pension at all? Do you have any debts including a mortgage that might merit more urgent attention? IS he likely to get into the 41% bracket any time soon (when the tax relief is much more generous). Is this a personal pension plan and if so is he claiming PRSI relief separate to tax relief?

There are so many questions to be asked and answered. I think you should consider getting independent professional advice.
 
Hi Clubman, thanks for looking at this for me, my husband only started this pension 4 years ago and we have put €100 into it each month, so that is the total amount put in by us. The fund is "pensions uwp(client)" whatever that is, I am not sure. I was thinking that the fees looked high myself.

I am not sure if a pension is the best for us considering he is on the low tax band of 20%, so I was just looking for ideas, I won't be holding anyone to ransom for their advice, yet can't afford to go and see a financial advisor, if there is an answer staring anyone in the face as to what we should do that would be great or any suggestions.

We do have a mortgage and try and overpay when we can. We don't have any other debts. He is not likely to move to the top tax bracket ever, lets put it that way. It is a personal pension and we are getting tax relief, but I didn't know you could get prsi relief too, I must check that out.

If anyone has any ideas for us, we'd be grateful to hear from you.
 
In the AAM Guide to Savings and Investments Brendan seems to have strong opinions on the inadvisability of those on 20% saving though a pension. Not everybody would agree with him, at least such a sweeping statement, but it's food for thought.
[FONT=Verdana, Arial, Helvetica, sans-serif]FOUR SITUATIONS WHEN A PENSION FUND MIGHT NOT BE ADVISABLE

...

[/FONT][FONT=Verdana, Arial, Helvetica, sans-serif]IF YOU ARE PAYING TAX AT THE LOWER TAX RATE[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Pensions are only attractive if they save you tax at the top rate of 42%. If you are on the 20% band, don't bother with a pension. You might end up in a situation where you save tax at 20% only to pay it at 42% on your retirement.[/FONT]
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If you do feel that a pension is the right thing for you then you can definitely do better on charges by the sound of things - e.g. a PRSA with 0% deduction on each contribution and only a 1% annual management fee. See here.
 
Thank you clubman, you confirmed my doubts about our pension. Thank you for going to the trouble of helping me, it is much appreciated.
 
In your statement, a management charge would apply to all contributions made since inception and any contribution charge would only have applied to the contributions made in the last 12 months. If 100% of your contribution is invested in the UWP, the management charge would not apply as it is reflected in the price of the units. Therefore, the €108 may just have been for policy fees and contribution charges.

The 'UWP' is the Unitised With Profit Fund and the bonus rates on these have been pretty pathetic over the last number of years. You should study the policy explanation of this fund as it is a different investment animal. I presume that someone had a reason for recommending/choosing this type of fund, perhaps something to do with attitude to risk(?).
 
I've recommended him before but would recommend talking to a financial advisor or two. Let me know if you want and I'll PM my advisors details to you.
 
Hi, I have spoken to a financial advisor and he advised me to keep the pension as he said it was a guaranteed 20% (as that is our tax bracket) , I said what about putting money into a regular savings account like Halifax at 6.6% currently, he said after tax on that account had been deducted it would only be worth 4% or so to me. Would anyone else agree with that?

Also, does anyone know at the end of paying your pension what happens? The financial advisor mentioned an annuity or something like that and drawing it down, but I didn't really understand and didn't want to seem stupid. As with a savings account you just withdraw the money.
 
maura said:
Hi, I have spoken to a financial advisor and he advised me to keep the pension as he said it was a guaranteed 20% (as that is our tax bracket)
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Are you claiming PRSI relief as well?

Note that it's not necessarily a "guaranteed 20%" since you could end up paying tax on your pension income. It's likely to be more of a tax deferral than a tax exemption in the long run. Worst case would be to get tax relief at 20% but end up paying tax at the high rate on pension income. But then there's also the 25% tax free lump sum to be considered as well...
I said what about putting money into a regular savings account like Halifax at 6.6% currently
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Note that the headline rates can be a little misleading when it comes to regular savings. See here.
he said after tax on that account had been deducted it would only be worth 4% or so to me. Would anyone else agree with that?
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No - 6.6% CAR is 5.28% after deduction of DIRT. But bear in mind the effect on returns of drip feeding amounts into such an account as I mention above.
 
Thanks Clubman for your speedy response, it is much appreciated.

I see what you mean about the regular savings accounts.

I was thinking I'd be taxed on the pension income, government have to make money on everything we do.

Forgot to check the prsi relief, thanks for reminding me.
 
So he should be getting 4% PRSI and 2% health levy relief on pension contributions too but he'll have to claim this separate to the tax relief as I mentioned earlier.
 
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