New Ireland charging AMC of 2.75% on AVCs!

[Amsel26]

Moved from another thread to highlight. These charges are scandalous and are set out in this post

Brendan

When you started the AVC, you selected funds into which to put your savings.

Yes, or rather, they were selected for me, on the basis of my risk profile. The fund hasn't performed that well, but possibly because I went with medium risk. The big advantage is in the tax back. The fund management/admin fees were quite high, and this made me wonder about the wisdom of investing into the future, as there would also be significant tax to be paid.
Thinking of additional savings and where to put them, I looked at a projection of returns on a fund with a mix of assets, fitting a similar risk profile, and the returns (not guaranteed, of course) didn't seem that much better than putting money in a deposit account with a good interest rate, when you considered all the taxes and charges, at least over the first 10 to 15 years. But maybe there is something I'm overlooking.

 

[Protocol]

The fund management/admin fees were quite high

What are the fees on your AVC?

Allocation rate / AMC / policy fees, etc.

 

[Amsel26]

What are the fees on your AVC?

This is what I've been told: "2.75% Regular Premium management fee and 0.75% Single Premium. The charge is on the value of the fund at any given time".
We are also given this example, which I don't understand at all:
"Bid/offer spread of 5% on unit prices. Example:€250 per month, gets 101% allocation , before the 5% bid/offer is applied, this in effect means that member gets (5% of 101=95.95 or 96%) 96% of their Gross AVC contributions invested OR, alternative way of looking at it is that there is a contribution charge/fee of 4% ( not invested)."
There is also a monthly admin fee of €3.50.
With a total amount invested over 6 years of about €80K, I guess I would have expected to make more than €1800 on it, but maybe I was unduly optimistic, and I know 2022 was a bad year, and the type of fund was, I think, based on a risk level of 3 - 4, so maybe my expectations were unrealistic. I do think, though, that the charges are high?
I think there may be a bonus at the end of 5%.

Think about walking up a hill whilst using a yo-yo! It goes up more than it goes down over time

I like this analogy! Thank you for the advice; it's clear and helpful.

if you are say 25years to retirement

You are lucky if you are this far from retirement and have time to plan wisely. I was seeking advice because I'm only 2 years from early retirement and could perhaps have taken the advice of senior colleagues years ago and not left things so late.

 

[ClubMan]

Those AVC charges sound awful to me.

 

[Protocol]

At first glance, the fees are extremely high.

No wonder you aren't impressed with the return, as most of it is going into somebody else's pockets!!!

I will reply again later.

 

[Amsel26]

Those AVC charges sound awful to me.

I thought so too. Where I work, we didn't have a choice - this is the "approved" scheme.

as most of it is going into somebody else's pockets!!!

Thank you. Yes, that's what really annoys me, and there have been other issues that I won't air here, but overall I am not happy at all with it. And this bad experience is another factor contributing to my wariness about investments.

 

[Protocol]

Where I work, we didn't have a choice - this is the "approved" scheme.

This is false.

Any public servant is free to start an AVC with any broker.

There may be one broker/lifeco offering salary deduction, but PS are free to move to any other broker/lifeco.

The brokers/lifecos who have a monopoly over salary deduction exploit this, and have extremely high fees.

Staff should vote with their feet, and use alternative providers.

Cornmarket and IPF brokers are well known for high fees.

This will only change if workers like you actually switch to other lower-cost providers.

 

[Protocol]

This is what I've been told: "2.75% Regular Premium management fee and 0.75% Single Premium. The charge is on the value of the fund at any given time".
We are also given this example, which I don't understand at all:
"Bid/offer spread of 5% on unit prices. Example:€250 per month, gets 101% allocation , before the 5% bid/offer is applied, this in effect means that member gets (5% of 101=95.95 or 96%) 96% of their Gross AVC contributions invested OR, alternative way of looking at it is that there is a contribution charge/fee of 4% ( not invested)."
There is also a monthly admin fee of €3.50.
With a total amount invested over 6 years of about €80K, I guess I would have expected to make more than €1800 on it, but maybe I was unduly optimistic, and I know 2022 was a bad year, and the type of fund was, I think, based on a risk level of 3 - 4, so maybe my expectations were unrealistic. I do think, though, that the charges are high?
I think there may be a bonus at the end of 5%.

Let us do some sums.

• Allocation rate of 96% (even Cornmarket brokers aren't this bad!!)
• €3.50 per month €42 per year policy fee
• 2.75% AMC - this is astonishingly high

These are extremely high fees. You should stop contributions as soon as possible.


€80,000 saved over six years / 72 months

(1) Allocation rate fees = (0.04)*(€80,000) = €3,200 in fees
(2) Policy fees = €252 in fees

(3) 2.75% AMC, let us assume 1,000 contribution each month, and average the holdings

year 1 average holdings 6,000, fee = 165
year 2 average holdings 18,000, fee = 495
year 3 average 30,000, fee = 825
year 4 average 42,000, fee = 1,155
year 5 average 54,000, fee = 1,485
year 6 average 66,000, fee = 1,815

Total AMC is approx 5,940

Total fees over six years = 3,200 + 252 + 5,940 = 9,392 approx


If you had chosen an alternative EO provider

(1) allocation rate 100%, no fee
(2) no policy fee
(3) AMC of 1%, although 0.75% is possible

At 1% AMC, the fee would be approx 60 + 180 + 300 + 420 + 540 + 660 = €2,100

You could have saved €7,000 by using a different AVC provider. The €7,000 would be in your fund.

 

[Amsel26]

Staff should vote with their feet, and use alternative providers.

I appreciate this advice, and your comments. I was offered the opportunity a few months ago to switch to another provider on more favourable terms, but unfortunately I got cold feet as my colleagues here with AVCs are all happy with the current "official" provider (or rather, I suspect they haven't investigated it too much and see the tax relief as a sufficient gain). I was afraid to go out on a limb, especially given that I am not very knowledgeable about these matters (though I'm trying to educate myself).
The pensions office here was not encouraging either and told me I would then have to do my own tax return for contributions to the "alternative" scheme (which is perhaps not that complicated). I guess I could enquire again and see if the alternative offer still stands. It would essentially mean reducing the contributions to the current provider to a minimum, leaving the existing funds where they are, and starting a new scheme with the other provider - am I right? Or is it even worthwhile with only 2 years (slightly less) to planned retirement date? Are there other potential pitfalls?
Thanks in advance for any guidance. It is very difficult to get independent advice.
oops, I've just seen your latest post that arrived while I was typing this - let me read that, sorry!

 

[Fortune]

Those charges are so bad that it's worthwhile moving to a new product even if it's just for 2 years.

 

[Protocol]

Starting a PRSA-AVC to avoid the high fees of the existing provider is nothing to do with the local HR office.

Yes, you must claim the tax relief yourself, this is simply, five minute job, do with your normal tax return.

 

[Duke of Marmalade]

This is what I've been told: "2.75% Regular Premium management fe

Can you quote verbatim where it says this. It is stratospheric.

 

[Protocol]

Yes, I agree.

You should first confirm with the existing broker / lifeco what exactly are the charges.

This is so high, as to be nearly unbelievable.

 

[Amsel26]

You could have saved €7,000 by using a different AVC provider. The €7,000 would be in your fund.

That's actually shocking. Thank you for explaining it all in such detail. I was about to put a large lump sum amount into the fund at the end of the last tax year to bump up the total towards the ultimate goal of 1.5 x final salary, but something made me pause and reduce that figure, as I felt that the more that was in there, the more I would end up paying.
Besides this there are (in my view) serious customer service issues with the provider, at least with their online so-called customer support team. Totally unsatisfactory.
I really hope that people read this information, so that at least some other, younger people might think and consider where they hold their AVCs.

I advise sending an e-mail to this broker, and asking his terms for a PRSA-AVC?

It's good to have this lead, thank you. I might also approach the alternative provider from a few months ago and see if last year's offer might still stand. But I see these LABrokers have good reviews, so certainly worth checking out. I'm just afraid of making a bad decision, but I know I need to act on this.

There is mention of age 63, but that seems to apply to just lump-sum contributions.

Unfortunately it says minimum 5-year term. I have just under 2 years left to early retirement.

Can you quote verbatim where it says this. It is stratospheric.

When I enquired some time ago, the local rep checked with Head Office and reported as follows, I quote
"This member is on the Finance plan so it’s a 2.75% Regular Premium management fee and 0.75% Single Premium. The charge is on the value of the fund at any given time
However the Finance plan also carries a 5% bonus that is added at the end when a person retires."

The "bonus", assuming it's on the final value, might compensate in some way for the huge charges, but at the rate things are going, they are going to make more money from me each year as the fund value increases towards that 105K or so. And to be honest, I'm worried that there could be some loophole that'll make them not give me the bonus.

This is so high, as to be nearly unbelievable.

This is really worrying, seeing it like this.

 

[ClubMan]

As others have pointed out, the charges seem very high and it's worth seeing if you can get a better deal as you seem open to doing. But, on the flip side, it's good that you have been contributing to your pension even with the seemingly high charges, rather than not contributing at all and missing out on the benefits (tax relief, tax free growth, etc.). So don't beat yourself up and don't dwell on sunk high charges costs, but do look for better value elsewhere going forward.

 

[confused87]

@Amsel26 To OP, as comparison my amc on my avcs is 0.21%, granted its a big company but yours seem absurdly high.

 

[Duke of Marmalade]

This is so high, as to be nearly unbelievable.

I put it to Gemini that these were Cornmarket's fees. It couldn't say for sure but suggested 0.75% for fund management plus 0.5% for collection through payroll plus 1% - 1.5% for Cornmarket ongoing services.

Edit
Gemini got that all wrong.

 

[Amsel26]

So don't beat yourself up and don't dwell on sunk high charges costs, but do look for better value elsewhere going forward.

Thank you for the encouraging words. I'm going to see if I can switch to another provider for the time that remains. These outfits are profiting from the paralysis that many people feel when it comes to choosing financial products, combined with having too much trust in schemes that their employers push them towards. This thread has been very educational for me.

granted its a big company

Oh, mine is a big company too! You're right, seen in detail, the charges are absurdly high.

I put it to Gemini that these were Cornmarket's fees

The plot thickens. It hadn't occurred to me that Cornmarket could be involved, as this was never mentioned in any information materials we received about the AVC, but now that you mention it, Cornmarket have been behind some other schemes my employer promotes, such as the particular income protection plan we were more or less obliged to buy. So you are saying that Cornmarket are getting a cut out of the AVC fees, as well as the actual AVC provider? I'd love to know what the "ongoing services" are. And who is getting the 0.5% for "collection through payroll"?

Considering the lousy customer service, the fees are outrageous.

 

[Protocol]

You should know exactly who the broker and lifeco are, as their names and logos should be on your paperwork.

 

[Amsel26]

You should know exactly who the broker and lifeco are, as their names and logos should be on your paperwork.

Cornmarket isn't mentioned anywhere, but neither is any broker, only the actual provider, yet I'm sure a large public sector organisation must use a broker, and this might account for part of the charges, as suggested yesterday by Duke of Marmalade.
There does seem to be a close relationship between my employer and Cornmarket and I've often seen emails from them promoting health insurance, car insurance, etc.