Key Post In search of a low cost Executive Pension

I started a different thread a couple of weeks ago - https://www.askaboutmoney.com/threads/charges-for-executive-pension-zurich.222415/ - around costs for a Zurich executive pension, after I had approached Zurich directly and got contacted by one of their tied agents. There was a good debate on hidden costs and some good advice. After a lot of shopping around, I thought I'd report back on what I found, starting a new thread as it's not really about Zurich pensions any more.

For info: I'm looking for my company (I'm a proprietary director) to contribute 4,000 per month, and I'm 48 years old, with no pension lump sum. Options I found were:

1. Zurich: as per advice on the thread I started, it was possible to get a better deal via a low cost broker. Essentially it removed the early exit charges that the tied agent had in the pricing, which is valuable. I couldn't get the AMC to below the 0.75% the tied agent was charging, although there may be the potential to get it to 0.65% if bringing a big enough lump sum. There were no other monthly charges.

2. Aviva: 0.3% AMC, but they require a financial adviser. I found a good one who would do it for 0.25%. There are 9 Statestreet funds via Aviva that have no additional AMC, and they would have suited me fine in terms of passive trackers.

3. LEAP Self-administered small pension (joint venture between ITC and Conexim): 0.4% (minimum 300 p.a.) + fund costs (Vanguard global index tracker 0.18% as an example) + required financial adviser. I did find a financial adviser who would do this for 0.15% but with a minimum of €300 p.a. and a €1000+VAT set up fee. A different financial adviser would do this for 0.25% with no minimum and a €600+VAT set up fee. The first approach would obviously make more sense with a large lump sum. I found another adviser who insisted I would need fund managers (an additional 1%) which wasn't an approach / cost that works for me.

I settled on the LEAP with the adviser @ 0.25%. The €300 p.a. minimum charge pushes up the AMC % in the first couple of years, but in absolute terms, it's not a huge cost. At a visible cost level, the Aviva option is cheaper, but I am convinced (hopefully not erroneously) of the analysis that there are hidden costs (Marc has posted around this) in funds via pension companies, which materialise in underperformance against an equivalent Vanguard tracker fund. Another option would be to spend a couple of years in the Aviva structure and then move to LEAP, but I can' be bothered with doing this twice, and you would still have the hidden costs to contend with. Or alternatively to spend a couple of years in the Zurich structure, and then removing the early exit charges becomes valuable.

I hope this is useful to someone. Everyone has been really helpful on this forum so I wanted to give something back.

Dear @time to plan,

Thanks a lot for sharing your findings. is it possible to set-up Self-administered small pension foe regular employees.

These are often called directors pensions which makes many people believe you must be a director of a company to qualify.

In reality they are available to any PAYE employee who can persuade their employer to sponsor a single member scheme.

We recently established a series of these for a company with several highly paid executives who would have been effectively penalised by a PRSA scheme.

An occupational scheme provides the same tax benefits but lacks the transparency and extensive investment choices of a single member scheme.


Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie

Thanks @Marc for your quick reply. I am reading into the links on your company. I am on a standard PRSA not on any occupational Scheme.

what’s the problem you are trying to solve?

I am in decision paralysis after reading some threads here. After many days of research, I narrowed on investing in a low-cost world index tracker for low-risk and diversification purposes. Then the confusion came from the fact that there are so many costs in selecting the platform to invest and comparisons are not looking apples to apples. Previously, I was thinking of Davy as a broker and their low-cost for non-standard PRSA was attractive. But then Davy went down. Then I read about Zurich and your suggestions there lead me to read about Small Self-Administered Pension Scheme. I yet to come across a good resource on comparison of costs in a way non-financial experts can understand.

sparkdev said:

I am in decision paralysis after reading some threads here. After many days of research, I narrowed on investing in a low-cost world index tracker for low-risk and diversification purposes. Then the confusion came from the fact that there are so many costs in selecting the platform to invest and comparisons are not looking apples to apples. Previously, I was thinking of Davy as a broker and their low-cost for non-standard PRSA was attractive. But then Davy went down. Then I read about Zurich and your suggestions there lead me to read about Small Self-Administered Pension Scheme. I yet to come across a good resource on comparison of costs in a way non-financial experts can understand.

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How much is involved?

Better to take any action and set on autopilot.

Over time you can review and fine tune.

You might lose out on 1p.c. p.a. due to sub optimal cost, but that is nothing compared to losing the losing out on the 40% tax relief, and the future market returns.

For what it's worth I'm using davy prsa .75% amc to buy ETFs and I'm happy enough what that. For prsa I think it is fairly competitive. On 100k it's 750 euro p.a. cost. best case I can find something that is maybe one third cheaper and save 250 euro per 100k p.a.

How secure and stable is Leap?

Gordon Gekko said:

How much is involved?

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I have 20K in a standard PRSA which I would like to move asap. I am planning to contribute 10K p.a

SPC100 said:

How secure and stable is Leap?

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Same question and is it regulated by central bank?

There are a couple of strands of questions on this thread

1) Can I have an Exec Pension?

This is a common problem we see with US Multinationals. The legislation says that they MUST establish a PRSA for their staff - so they do.
We then have to point out that an occupational pension is more suitable for highly paid executives as the contribution levels are higher.

So the first question is do you want to contribute more than the PRSA maximum limits? In which case you should explore leaning on your employer to either establish an Occupational Pension or if they won't do that for everyone, and you are senior enough, to get them to sponsor a single member scheme just for you. We do this all the time to facilitate larger tax relieved contributions for key staff.




2) Can I have a more transparent Pension?

Most people (including many financial advisers) are confused by pension charging in Ireland. As Upton Sinclair said; "its difficult for a man to understand something when his salary depends on his not understanding it"

Many if not most people in Ireland have their pension(s) administered by an Insurance Company and there is currently no legislative requirement for clear charge disclosure for Irish unit-linked pensions. This is the subject of the original thread started by @time to plan


This is almost certainly the source of much confusion for many people and I'm sure it causes some people to delay getting around to starting a pension. However, as @SPC100 says, the most important factor in your financial security in old age is how soon you start saving and how much you contribute. Charges and investment risk become increasingly critical as you get older and the size of your pension fund grows until in the final year your contribution is almost irrelevant compared to the impact of poor investment decisions.

As I briefly set out in this thread https://www.askaboutmoney.com/threads/arf-options.222865/post-1711400
Davy has been like Marmite to many investors and advisers. The events of recent days have only served to reinforce the view that we took to steer well clear.

That said, the Davy pension structure has generally better transparency than a life insurance company but still has some "commission" elements. For example, Financial Advisers receive an upfront commission payment paid by Davy which is a clear conflict of interest.

There are also some "incidental" costs which are not regulated consistently and provide opportunities to profit from the unwary. The main one that we focus on and a massive source of hidden profit for Stock brokers is Foreign Exchange. FX is not regulated in the same way as other elements of a Stock broker service so naturally some use it as an opportunity to make super-normal profits.

If you regularly trade non Euro ETFs in your pension account you are potentially exposed to high transaction costs.

It is for these reasons that my firm prefers the clean, transparent nature of the LEAP service which has been intentionally developed from international best practice.

The limitations are there is a minimum annual fee of €300pa (does not apply to PRSAs) and you must appoint a Financial Adviser to use the service. If you are a dyed-in the wool DIY investor then the LEAP service, which is specifically designed to leverage the significant benefits of working with a competent adviser, probably isn't what you are looking for.

Just to put that last point into context in numerous studies an investor working on their own generally under performs an investor working with an adviser by as much as 3%pa. Some on here dispute and even try to debunk these studies and that's fine but our own data suggests that simply through asset allocation we cover our costs for most investors. If we didn't we wouldn't still be in business.


So, this service is better suited to larger pension funds (€100k+) and our consulting business (www.globalwealth.ie) is generally better suited to those who are in the mid 40s or older.

For those with very small pension accounts and or with small regular savings, you may find that the convenience of an Irish retail Insurance contract is better suited. Our business Ethical Financial (www.ethicalfinancial.ie) specialises in providing advice to younger investors.

3) How safe is LEAP?

Two separate regulated entities provide Trustee and Custody services. This is simply good practice on the foot of the Custom House Capital scandal.


LEAP is an exciting new entrant into the Irish Market and is an association between Conexim and Independent Trustee Company Ltd who have launched a connected Pension and Investment Platform known as LEAP. Founded by a group of experienced and highly respected individuals in the Financial Services Industry, they have developed a unique offering in Ireland.

The financial services industry is constantly evolving and impending changes to regulation have brought platforms into the spotlight. Historically, a lack of automation, transparency and functionality has driven the need for the development of a diverse platform for the Irish market which is perfectly suited to the operational needs of our business and the portfolio requirements of our clients.


Conexim

Conexim Advisors Ltd.

www.conexim.ie

Conexim was established in 2010 to provide an innovative investment platform and trading service for Advisors and trustees. Conexim is a wholly owned subsidiary of Irish Life.

All on-platform assets are held with Pershing Securities International Limited (a Bank of New York Mellon company). Pershing’s global custody operations service as of end December 2017 over $1.7 trillion in global client assets. The parent company, Bank of New York Mellon has $33.3 trillion in assets under custody and/or administration as of end December 2017.

Conexim Regulation​

Conexim Advisors Ltd. is regulated by the Central Bank of Ireland under Regulation 11 (1) of the European Communities (Markets in Financial Instruments) Regulations 2007, and as an insurance intermediary under the European Communities (Insurance Mediation) Regulations, 2005 (as amended).

The Financial Service Provider Profile for Conexim with the Central Bank is provided here: Central Bank Register.

The firm is authorised to provide the following services and with the following instruments.

Investment Services (MiFID)
1.1. Receiving/transmitting orders
1.4. Portfolio management
1.5. Investment advice

Ancillary Services (MiFID)
2.4. F/X re Investment Services
2.5. Research

Investment Business Services (IIA)
(f) Deposit Agent/Broker

Financial Instruments (MiFID)
1. Transferable securities
2. Money market instruments
3. Unit/Shares in UCITS
4. Units in a unit trust
5. Shares in an Inv Co.
6. Capital Contributions to an ILP
7. Units in a CCF
10. Financial CFDs
(8A) Securities, currencies, interest rates or yields etc.
(8B) Commodities that must be settled in cash etc.
(8C) Commodities that can be physically settled etc.
(8E) Climatic variables, freight rates, emission allowances etc.

Investment Instruments (IIA)
(kk) Tracker Bonds
(m) Insurance Policies
(n) PRSAs


Independent Trustee Company Ltd

The independent trustee is appointed by Revenue (or in the case of a PRSA by the Pensions Authority) to oversee the rules of the Pension trust and ensure that it continues to qualify as an exempt pension structure.;

Hey @Marc Thanks for your detailed reply. So, according to your analysis above, LEAP for me is not suitable as I have less amount in my pot. So from the analysis of @time to plan, only Aviva is suitable for me. So, now I am looking at their funds.

@time to plan - are you saying the Aviva option if you had gone with the financial adviser would be 0.25% AMC in total? Or the 0.3% + 0.25%? Thanks!

0.3% + 0.25%.

My experience with the Aviva may be of interest

I opened an Aviva SDIO, execution only last year.
I was advised that the charges would be 0.5%pa plus the broker charges which I am paying directly myself, not from the policy.

I received the policy schedule in July this year, 10-11 months after the account was opened.

In the policy schedule there was an additional Fund Management Charge of 1% on top of the 0.5%
There was no annual policy fee of €120 in the schedule which I've seen mentioned on another thread about the SDIO

Three charges are being applied separately each quarter for Aviva, Friends First and Cantor.
There is also a 0.25% loyalty bonus rebate being applied each quarter.

I can only see charges which are applied to funds held in my Cantor account - any movement in the fund value for cash held in the Aviva account is unexplained and I can't see any history of the balance.

Once I had 100% of my funds held in Cantor I can see the charges being applied for Q3 which work out as

0.2% Cantor fee
0.55% Friends First fee
0.5% Aviva product fee
0.2% Loyalty rebate

So looks like I'm actually paying approximately 1% in charges after the rebate.

In summary
I was advised the annual charges would be 0.5%
The policy schedule said 1.5% (1.25% after rebate)
The charge transactions being applied are 1%

PensionPlans said:

My experience with the Aviva may be of interest

I opened an Aviva SDIO, execution only last year.
I was advised that the charges would be 0.5%pa plus the broker charges which I am paying directly myself, not from the policy.

I received the policy schedule in July this year, 10-11 months after the account was opened.

In the policy schedule there was an additional Fund Management Charge of 1% on top of the 0.5%
There was no annual policy fee of €120 in the schedule which I've seen mentioned on another thread about the SDIO

Three charges are being applied separately each quarter for Aviva, Friends First and Cantor.
There is also a 0.25% loyalty bonus rebate being applied each quarter.

I can only see charges which are applied to funds held in my Cantor account - any movement in the fund value for cash held in the Aviva account is unexplained and I can't see any history of the balance.

Once I had 100% of my funds held in Cantor I can see the charges being applied for Q3 which work out as

0.2% Cantor fee
0.55% Friends First fee
0.5% Aviva product fee
0.2% Loyalty rebate

So looks like I'm actually paying approximately 1% in charges after the rebate.

In summary
I was advised the annual charges would be 0.5%
The policy schedule said 1.5% (1.25% after rebate)
The charge transactions being applied are 1%

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Were you dealing with an Aviva direct sales employee or a broker from a separate brokerage firm?

Dave Vanian said:

Were you dealing with an Aviva direct sales employee or a broker from a separate brokerage firm?

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Through a brokerage firm, didn't know Aviva offered direct sales as I called them to ask that question beforehand

PensionPlans said:

Through a brokerage firm, didn't know Aviva offered direct sales as I called them to ask that question beforehand

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Thanks. They used to, but I don't know if they still do.

It sounds like your complaint is with the broker that sold you this. If you have it writing from them that the charges would be 0.5% all-in, I would go back to them to point out that they're not.

PensionPlans said:

0.55% Friends First fee
0.5% Aviva product fee

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It seems very odd that there is a Friends First fee and an Aviva fee, seeing as they are one and the same entity these days.

Are you sure you are reading that correctly?