Charges for Executive Pension (Zurich)

[time to plan]

I’m not convinced that we’re interpreting that document correctly.

The 1.56% must include the Annual Management Charge, but at what rate?

And as this is an Investment Bond, is the 1% levy included somewhere which wouldn’t be the case with pension money?

The document looks to me like a worst case scenario, e.g. if there’s an adviser getting 5% upfront, and the management fee is at its highest.

Another way of looking at this is:

Zurich is charging a 0.75% AMC. Aside from some small pension and trusteeship fees, does that 0.75% cover all costs including commission Zurich pays to the Tied Agent, Zurich costs and profit for the pension, and the Blackrock costs and profit for the fund? Or are some additional costs (which impact on my RoI) hidden in these ongoing costs (and if so, how much?)

 

[Sarenco]

Can you show verbose workings for your .86% please?

Sure.

PRSA wrapper cost of 0.50%, advisory cost of 0.25% and fund cost (OCF) of 0.11% (per Marc's later post).

There would also be non-material tracking error (gross of the fees) - it was 0.076% last year.

 

[Marc]

This thread has once again captured the essence of the frustrations of many investors in Ireland today.

Trying to arrange a pension isn't straightforward and you really should take some competent objective advice.

Charges with Life Companies

This is my 27th year as a Financial Adviser and I can tell you this. I don't know what you are really paying for an Irish Insurance Company Pension.

We know what the contract fee is, for example 0.75%pa
But we don't know what the fund expenses are or if they are included in the contact fee or if they are in addition, or a combination of the two. We just don't know. This is why we call it a bundled contract. Its opaque.

So, therefore we really don't know what the real total cost is to the end investor because there is no ex-ante disclosure document for Irish Unit-linked pensions which is equivalent to that available for an Investment Bond.

So, its pointless debating the ex-ante cost -we just don't know what it is but it isn't 0.75%pa do we all at least agree on that point yet?

However, we can look ex-post (after the fact) which is like looking at footprints in the snow that all funds leave behind. So that when the Insurance Company says;"no, we didn't walk across your lawn" you can at least point to the footprints.....

We can assess what the impact of tracking error is on a particular index fund for example this is the Zurich Emerging Markets Index vs the benchmark MSCI Emerging Markets index



So we can see that over 6 years the Zurich fund under performed the benchmark by 0.79%pa annualised

But all funds under perform their benchmarks due to trading costs, brokerage commissions, bid offer spreads, stamp duty, dividend withholding taxes etc.

So, let's compare with the Vanguard fund that our clients invest in




To my mind, this thread is really about the fallacy of trying to avoid seeking advice to arrange something as important as a pension.

"I've decided I'm going with "x" because I've heard of them, they advertise on TV and everything."

So what exactly do you get for the might of the big company you've heard of?

Well, in this example at least an additional drag on performance of 0.22%pa plus some additional volatility for the same underlying index.

This is a very common theme I've seen on askaboutmoney over the years.

Posts along the lines of "I don't need advice, I know what I want" very often turn into the longest threads because in reality this really is a very complex subject and as some of the more informed posts will tell you. It really is worth paying for advice to get this right.

 

[Zenith63]

This thread has once again captured the essence of the frustrations of many investors in Ireland today.

Trying to arrange a pension isn't straightforward and you really should take some competent objective advice.

To my mind, this thread is really about the fallacy of trying to avoid seeking advice to arrange something as important as a pension.

Firstly to say I really appreciate the time you've taken to provide the information you have in this thread and others Marc.

Unfortunately though the overriding sense I've come away from this thread with is that no matter which way I go, it is all fairly opaque and it's unclear how much of this is necessary or by-design. Accusations of lying and grubby hands getting hold of commission leave me feeling I should not trust anybody. Maybe that's just me...

 

[Sarenco]

Well, in this example at least an additional drag on performance of 0.22%pa plus some additional volatility for the same underlying index.

Wouldn't that suggest that you would have come out ahead if the AMC on the Zurich contract was at least 0.22% lower than the cost of the unbundled wrapper (including advisory costs)?

 

[time to plan]

Wouldn't that suggest that you would have come out ahead if the AMC on the Zurich contract was at least 0.22% lower than the cost of the unbundled wrapper (including advisory costs)?

It's a very interesting discussion. Marc's figures suggest that for these particular funds, you would get a 0.22% better return with Vanguard inside PRSA than you would within a Zurich EPP, but with a 0.08% more costs, so 0.14% better return p.a. allowing for costs. This assumes I can get a competent broker for 0.25%. Any recommendation as to this? I'm not sure Marc is offering to do this for 0.25% p.a. but happy to be wrong there!

 

[time to plan]

Another probably newbie question. Does the pension structure Marc describes (PRSA?) work as an Executive Pension with the high rates of maximum contributions (employer + employee combined) or would I be limited at age 50 to a maximum tax relief limit of 30% of earnings up to maximum earning limit of 115k p.a. (so maximum tax free contribution of 34.5k). An attraction f an Executive Pension as I understand it is the ability to pile large sums of cash out of the company without attracting CT, PRSI, income tax, USC etc. I'm trying to understand if that can be replicated in Marc's structure.

 

[Marc]

All my calculations assume an exec pension (0.40%pa)
A PRSA is 0.50%

But I think all this is clearly demonstrating that you actually need advice.

To be clear: Asking questions on AAM is not the same as receiving regulated and insured advice.

Like many people you are seeking the holy grail of stripping out the “middle man” and I totally get that who doesn’t want to get the best deal?

But you are funding your pension here not buying a TV and it’s very clear to me that you clearly require a lot of advice.

As Stephen says in an earlier post this requirement won’t go away just because you establish a pension. There are obligations created by Regulation. These add costs and those costs need to be paid for. Ireland has about the same population as Greater Manchester so making comparisons with our insane neighbours over the water only goes to demonstrate a complete lack of understanding of basic economics.

The regulatory definition of “execution only” is actually quite a high bar and there is no way you’d manage it. We would only consider an execution only transaction from a qualified Professional investor. Otherwise we would simply be abandoning our fiduciary responsibilities to someone trying to save a few Euro.

happy to advise a fee-paying client and absolutely certain we would cover the additional costs just on the basis of the fund picks from an earlier post.

all the best

 

[Conan]

Marc’s graph is interesting. But that‘s looking back at how two or three funds (indices) have performed. What’s much more difficult is to estimate how these funds might perform in the future or which funds to might perform closest to the Index return.
By their very nature, most indexed funds will tend to underperform the Index (since the Index has no costs included).

 

[time to plan]

All my calculations assume an exec pension (0.40%pa)
A PRSA is 0.50%

Thanks again Marc. So assuming I can find a broker for 0.25% p.a., who is the trustee of the pension and what is the charge for trusteeship? I'm trying to get my head round what it "looks like" if you take it out of the hands of a pension co. like Zurich.

 

[time to plan]

Marc’s graph is interesting. But that‘s looking back at how two or three funds (indices) have performed. What’s much more difficult is to estimate how these funds might perform in the future or which funds to might perform closest to the Index return.
By their very nature, most indexed funds will tend to underperform the Index (since the Index has no costs included).

Marc has already been generous with his time and advice, but it would be interesting to see the equivalent Blackrock Emerging Markets tracker fund plotted alongside Zurich and Vanguard.

 

[Sarenco]

But I think all this is clearly demonstrating that you actually need advice.

You are obviously entitled to you opinion but I fundamentally disagree.

In the UK, I could open a Self Invested Personal Pension with Vanguard with an account fee of 0.15%, capped at £375, and invest the lot in a target date fund with an OCF of 0.24%. So that's 0.42% in total. Or less for a larger portfolio.

Meanwhile in Ireland we get to choose between insurers with opaque costs or expensive unbundled pension wrappers.

 

[SGWidow]

Fair play, Sarenco

Nail on the head.

What this thread shows is that people in Ireland seem to have to pay an agent's fee for an on-going service whether they need it or not!

 

[time to plan]

When you say unbundled, you're referring to a Small Self-Administered Pension Schemes (SSAS) right? My understanding when I setup my Exec pension, from posts here and articles elsewhere, was that the costs of these schemes meant your pension pot needed to be €200k or higher to cover the fixed annual costs. I guess you wouldn't agree? I understand the big cost of a SSAS is the annual trustee fee which can be a few thousand, is that included in your figures or have I got that wrong?

My take at the time was I should setup an Exec pension, build the pot up to €200-300k and then consider a SSAS if I wanted to go that route.

And thanks again for your input!

I’m going back a few posts here. Is the SSAS a necessary component of Marc’s structure and are their fees involved (e.g. trusteeship) that are required on top of the 0.40% and 0.18% and 0.25%? If so, what to these fees work out at?

Thanks again.

 

[Marc]

The 0.4% is for Trusteeship and custody combined

Incidentally, all our clients receive a comprehensive fee disclosure document in both percentage and Euro terms including
Custody and pension trustee charges
Adviser charges
Fund management charges including transaction costs
investment management charges if appropriate

This is a full MIFID II EU regulation disclosure document customised for the actual portfolio costs incurred by a particular investor

It saves a lot of time trying to figure all this out

 

[time to plan]

The 0.4% is for Trusteeship and custody combined

Thanks Marc.
So practically speaking, who would I pick up the phone to, to get such a pension (and I’m not even sure what I’m asking for) at the costs you describe. Passive funds / trackers suit me fine so this might be a good option. I’m not fussed if a minimum charge of 300 in year 1 breaks the % cost barrier as I’m looking to put in just shy of 50k p.a. so it’s a short term hit and not huge in absolute terms.