How high are Irish pension fund charges?

[redwing]

I’m curious about pension fund charges in Ireland, partly in anticipation of the results of the government review into them. If that review is as revealing as I think it could be, the 0.6% government levy for 4 years might be a very small price to pay for shining a light into this area.

For a long time I assumed that the annual management charge (AMC), is the charge. From looking at articles on UK pension funds, who I’m assuming the Irish ones are modeled on, this is unlikely to be the case.

The AMC is the advertised charge; on top of that there are custodial charges, stamp duties, trading costs and more charges. In Ireland I don’t believe these figures are revealed by providers, in the UK there’s been a push to reveal a bit more of them so now they quote an AMC and Total Expense Ratio -TER (not sure if the TER accounts for trading costs).

There might be total charges of between 3-4% on a heavily traded equity fund, where the advertised charge would be as low as 0.75%-1%.

Perhaps I’m being harsh and this is the normal cut and trust of business simply hiding profit levels from competitors, but to me these hidden charges seem misleading as people are incorrectly choosing funds that look cheap but might not be. You’ll see an Irish provider have one of their own brand funds for 0.75 and resell another company’s for maybe 2%. Which is cheaper, overall? There’s no way of knowing.

 

[Marc]

Hi

I looked into this question in detail and you are on the money here.

It isn't possible under current legislation to know what you are really paying

[broken link removed]

 

[redwing]

Interesting link, Marc. Ties into what I've read about UK schemes.

The Sunday Business Post ran a full page story on pension costs this week headlined "The cost of pensions - Getting to the bottom of pension scheme fees".

It said that the report into charges is due within "a few weeks". The writer also wrote about the need for an APR or TER figure to work out charges.

Unfortunately there was nothing new about what the schemes really cost, the writer despite talking about the need for a TER was using the industry figures for the charges of around 1%.

I hope that the government now being the owner and future seller of Irish Life won't be affected by having something to lose by a full disclosure of charges. Inevitably the report will be disappointing to some degree, I can't see them explicitly revealing exact charges as there might be competitive concerns.

Also the report could get sidelined into the even more heavily charged PRSA schemes which have extra charges on top of normal group schemes, the industry might sacrifice some profit there to protect the group schemes.

If the report doesn't arrive, or is a whitewash of some kind I intend to try to figure out some charges by examining Irish unit prices of tracker type funds where I can find international comparisons. In fact, it's complaints from owners of these types of funds that brought about my interest in the topic - they had simple trackers but they could see that the returns were well short of what they expected when including the advertised charge.

 

[Marc]

This is the best way to approach this question in my opinion.

I think it is clear that we don't know what a typical investor in an Irish pension is currently paying and even if we had full disclosure of TERs in the morning this still wouldn't get to the bottom of it since most funds are actively managed and are therefore exposed to high trading costs which are not included in a TER figure.

So as redwing says the most reliable method is to run the returns of any given fund from the published net asset value figures against an appropriate index series and the difference between the two should represent a meaningful measure of the real "cost" of the scheme.

Now obviously any fund is going to suffer from some tracking error so even this isn't a perfect solution but as a reasonable guide to the real costs of investment it's a good starting place.