Be careful about Zurich's directly owned unit-linked funds

S

Steven Barrett

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And Zurich Life's policy of starting a new plan for every once off contribution is hugely annoying.

Moderator's note: While this also applies to some pension products with Zurich Life, it has no tax implications for pension products as there is no exit tax on pension products. Would posters please stay on topic as this is an important issue.
 
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Steven Barrett said:
And Zurich Life's policy of starting a new plan for every once off contribution is hugely annoying.
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What?

Are you saying that if I have €100k in a Zurich Life direct fund and I invest another €30k, they issue a new policy and now I have two policies and the gains on one can't be set against the losses on the other?

So if both funds decline after I invest the €30k but the first fund is still ahead, I can't set the losses on the second fund against the profits on the first?

I am not a fan of these life policies so I had not thought about it before. Is it the same with other life companies?
 
Brendan Burgess said:
What?

Are you saying that if I have €100k in a Zurich Life direct fund and I invest another €30k, they issue a new policy and now I have two policies and the gains on one can't be set against the losses on the other?

So if both funds decline after I invest the €30k but the first fund is still ahead, I can't set the losses on the second fund against the profits on the first?

I am not a fan of these life policies so I had not thought about it before. Is it the same with other life companies?
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It's a systems thing apparently to do with their early exit penalties. The €100,000 has early exit penalties in the first 5 years. When the €30,000 is invested the year 2, the 5 years starts from the beginning for that amount but the €100,000 has 4 years left. It has been going on for years and they haven't fixed it. Not all life companies are the same and you can make top ups into the same account.
 
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Hugely misleading thread.

You can buy products without early exit charges that you can make top-ups to. Same in the pensions sphere.

Remember, the reason why the early exits are there is because i) intermediaries choose to sell those ones that pay upfront commission so that the provider has to recoup it over the next 4/5 years or ii) the provider is paying the 1% Government Levy for you via a 101% allocation.

Even providers have to protect themselves.

Gerard

www.bond.ie
 
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GSheehy said:
Hugely misleading thread.

You can buy products without early exit charges that you can make top-ups to. Same in the pensions sphere.

Remember, the reason why the early exits are there is because i) intermediaries choose to sell those ones that pay upfront commission so that the provider has to recoup it over the next 4/5 years or ii) the provider is paying the 1% Government Levy for you via a 101% allocation.

Even providers have to protect themselves.

Gerard

www.bond.ie
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The reason for the thread is that other providers don't have the same issue in adding increments even if they have early encashment charges.
 
Why would you top up a lump sum investment? I certainly wouldn’t if the plan was in positive territory. Perhaps maybe sensible to do so if the value had gone negative, as Brendan suggests, to offset the loss but if it was positive i’d be making sure my money was kept separate as otherwise i’d be fast-tracking the payment of exit tax on myself.

A chargeable event on a life policy is on 8 years from the date of inception of a plan, not the date of investment of subsequent tranches. So if top up a lump sum investment in year 4, assuming no other chargeable events occur, exit tax is due on the full amount at the end of year 8. Same way that regular contribution plans work. I wouldn’t want to be adding a sizeable contribution to a plan in years 4/5+ for a chunk of it to disappear at the current exit tax rate much earlier than expected.
 
I think that having separate policies where the loss on one can't be set against the gain on another, trumps the "early" payment of exit tax.

Let's think this through.
Year 5. Original investment: €60,000. Current value : €100,000 €40k of new money to invest.

Scenario 1: 20% fall in market over the next three years
Separate investments: tax = 40%(to make the maths easier) x €20k = €8k
Combined investment:
Original investment: €100k
current value : €140k - 20% = €112k
Gain: €12k
Tax @40% = €4.8k

Scenario 2 : 20% rise

Combined: Early payment of extra tax: €40k @20% = €8k @40% - €3,200

Looks worth it to me.

Of course, it would be better overall to buy shares directly and pay no exit tax after 8 years and no CGT if you still own them when you die.
 
So I believe we agree, only worth it when you are in a negative position. When you are positive why would you want to pay over 11,200 when you only are due to pay 8,000.

Now of anyone can figure out when you are going to be positive and when you are going to be negative we’d be onto a winner.

I know for the last 6 years i’ve been in positive territory much longer than I have been negative. And here’s hoping Mr McGrath can have made some favourable changes to the rate in the next 24 months. I certainly won’t be adding any lump sum to my current gains (and yes, i’m banking on favourable market conditions for the next 24 months also - fingers crossed!).
 
Smoneen said:
So I believe we agree, only worth it when you are in a negative position.
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I don't agree with you that we agree on this.

I can't predict the future. Unit linked funds could go up or down. But going down is a real possibility. I would like to retain the right to set the losses over the next three years against my historical gains.

So if I owned a New Ireland Fund with gains in it, I would not buy an Irish Life fund which I could not set against it. I would top up my New Ireland fund.

Brendan
 
Is there a benefit from not having all your eggs in one basket in this case if it is a long term play - what if (unlikely) New Ireland get into financial difficulty? Or obviously fund choice and products play a part too
 
If you want to keep it on subject @Brendan then delete ALL of the posts that refer to pensions, not just a select few, becuase there are no tax implications for pensions.

Also, your caution is about offsetting potential losses by adding new money to an existing lump-sum only investment that has early exits in one particular scenario , becuse we know it doesn't apply to topping up a regular savings plan in the same fund/s or lump-sum only investments without early exits. And we're disregarding things like i) the original investment having 100% allocation and an AMC of (say) 1.25% and the new one having 101% allocation and an AMC of (say) 0.75% or ii) that a partial withdrawal was made in year 3 of your example (where exit tax was paid) and some of that might now have to be added back to the plan because of the drop in value.



I still think the attached is the best Guide to Exit Tax in the market
 

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  • exit-tax-faq (1).pdf
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Sorry, you're trying to create a thread for debate on products you don't like with inaccurate information which was clarified already.

Apologies if you're offended by that.
 
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