How come the pensions structure results in fees?

W

whytis

Registered User
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56
I'm guessing the answer is "because of regulatory overhead for the middleman", but here goes.

I've read about Vanguard index funds as part of my research into where to invest my pension contributions. In the US, you can buy into one of their funds at a fraction of 1%. (Perhaps they have fees too if it's part of a pension plan like a 401k, I don't know.)

I also read a past post here:
Where can you buy Vanguard ETFs through? - Askaboutmoney.com

The conclusion in that post is that the PRSA pensions structure will result in a 1% annual fee, plus the index fund fee (plus they charge 5% of what you're paying in from my understanding).

Why does it seem like these pensions fees are inevitable? Are they?
 
The costs in operating an "approved " pension plan involve more than just investment.
Typically the costs include:
- structuring advice (unless you opt for no advice)
- administration (collecting contributions, valuing assets, annual reports etc)
- compliance and regulatory costs

It's just not possible to establish an approved pension structure without some administration and record keeping costs. If you opt not to use a Life Assurance structure (where all the services are provided ) then you must use a different formal structure ( e.g. A Pensioneer Trustee service).

So one way or another, you need services more than just investment management.
 
Insurance companies have to be paid. They have to pay for the cost of light, heat, wages, running costs, insurance as well as profit. And there is a massive amount of compliance costs as well as various levies that regulated bodies have to pay.


Steven
www.bluewaterfp.ie
 
I understand that fees need to be charged, but I think that they are excessive.
If we use the example of a person contributing €1000 per month to a pension for 25 years then the charges are €92,157 over the life of the pension plus the contribution fee of 5% (5% of €12000 x 25 = €15000) this equates to 15% of the overall pension at the end

(I am using the calculator soup future value calculator (google it - I can't post the link) for this calculation with pv=0 t=25 R=5 and 6 (6% return before fee, 5% after) m=12 pmt=12000 G=0 q=1 to work this out, if I am making any mistakes please point them out to me)
In this example I have assumed return 6% before the 1% costs and there is no increase in contributions (this can be done with the above website)
 
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