Is 1.5% Managment Fee High?

[MBoyle]

I'm trying to set up a pension for myself and the one I've been advised to do by a broker has a 2.5% contribution charge, and a 1.5% managment charge.

I know the 2.5% is taken off eack contribution you make, but I'm not sure how the 1.5% management fee works? Is 1.5% high, and will the management fee affect your final pension more than the contribution charge?

I know you can get cheaper pensions without using a broker, but I think I'd prefer some advisor but I want to make sure they're giving me a decent deal.

Cheers,

J

 

[ClubMan]

Those charges seem high given that you can get pensions with no charge on each contribution and just a c. 1% annual management fee elsewhere. All charges will impact the overall value of your fund.

 

[Conan]

Whether any set of changes is high depends on what you are getting in return. Focussing purely on charges and investing in the lowest charge product can be very costly, in terms of investment return foregone.
It certainly is possible to invest in funds charging 0.75% p.a. and it is possible to invest in funds charging north of 2% p.a.

So is the 0.75% fund automatically better/cheaper than the 2% fund?

That depends on fund performance, risk profile etc. Investing in a Cash Fund at 0.75% or investing in say a multi-manager fund at 1.5% are not comparable on costs alone.

Rather than focussing on cost initially, I would suggest that you focus on what investment strategy you want to adopt, what level of risk you are prepared to take etc. Having reached some conclusion on that, then focus on what manager or combination of managers will most likely deliver that result and then focus on charges.

Focussing on costs purely is a bit like attempting to buy a new car and being surprised that a Punto might cost €15k whereas a Mercedes could cost €150k.

A charge of 1.5% might be good value if it delivers what you want and a charge of 0.75% might be poor value if it does not.

 

[ClubMan]

Can't disagree with the above. All things being equal lower charges are better than higher is what I should have said...

 

[South]

You can get pensions that cover the full range of investment options (low risk to high risk) for a 1% fund management charge and a 0% contribution charge all for a fixed fee at the outset.

This has been discussed numerous times in other threads.

 

[ClubMan]

I know you can get cheaper pensions without using a broker, but I think I'd prefer some advisor but I want to make sure they're giving me a decent deal.

Why not agree a fixed once off fee for any advice rather than just paying higher per contribution and ongoing charges for the privilege? Most of the discount brokers mentioned on and who contribute to this site also offer full advisory services too.

 

[capall]

There is no guarantee unfortunately that higher charges mean a better managed fund which will generate higher returns.

Have a look at poorly performing funds and they are as likely to be a high charge fund as not

Most people take a conservative approach to pension investments,they don't want a high risk strategy so alot of the big pension funds aim for average returns and low risk

For this you want low fees as you might as well be in a tracker fund if you are going for average returns. There is nothing wrong with average returns over the long term.

What are you getting for your 2.5% broker fee ?
You can invest in say a Quinn Life pension,no broker fees and invest in the euro tracker which follows the 50 largest companies in europe for a 1% fee

 

[MBoyle]

Thanks for all replies.

Am I correct in my understanding that all (or at least a portion) of the contribution charge of 2.5% goes to the broker? If this is the case then Clubmans suggestion of a one off fee for some advice sounds good. I might put this to my broker.

Does the 1.5% management fee come off the overall pension value annually, or how is it calculated?

 

[ClubMan]

Am I correct in my understanding that all (or at least a portion) of the contribution charge of 2.5% goes to the broker?

Probably but it depends on how the intermediary is remunerated by the fund provider etc.

I might put this to my broker.

Or shop around. And what sort of broker is this? Authorised advisor, multi-agency intermediary or (worse still unless you already know what you want) tied agent?

Does the 1.5% management fee come off the overall pension value annually, or how is it calculated?

It is calculated on the full value of the fund annually but is actually reflected in the daily unit price - in simple terms 1/365th of 1.5% of the unit value each day is deducted in respect of this management charge. The technical details may differ but that's the gist.