I think that people really need to understand the difference between an execution-only service (no advice) and advice. (In the interest of full disclosure, my firm can arrange financial products on execution-only terms or with advice so I'm agnostic and not trying to push one side or knock another due to any bias of my own.)
But using
@Nova1919 as an example, here are a few points:
- Depending on the nature of the contracting work, a contractor should look at both a PRSA and an Occupational Pension Scheme (OPS). Neither one is automatically better for a contractor. Company contributions to an OPS attract more favourable PRSI and USC treatment than PRSAs.
- A company can put a higher percentage of salary into an OPS than into a PRSA.
- At retirement, an OPS has extra options as to how the tax-free lump sum can be calculated which may or may not be to your advantage depending on your circumstances. For example, it is possible in certain circumstances to withdraw 100% - an entire OPS fund - as a tax-free lump sum at retirement.
- The annual charge on a PRSA is usually 1%. On an OPS it can be as low as 0.4%.
- While the above points would seem to suggest that an OPS is always better than a PRSA, that's not the case either. An OPS requires a trustee; a PRSA doesn't. An OPS is obliged to make a small annual contribution to the funding of the Pensions Authority; a PRSA is not. A PRSA can be transported from one employment to another; that's not as simple with an OPS. A Standard PRSA conains legally-enforced caps on charges; an OPS or a Non-Standard PRSA do not.
I also agree with Steven's point above about investments. The Zurich Life lifestyle strategy has been mentioned and it's as good as any. Puts you in one of their higher-risk, higher potential return funds in the early years and then gradually switches you into lower-risk funds as you approach your selected retirement age. (Of course the strategy assumes that you are going to retire at the age you initially chose - in reality how many people actually retire at 65 just because they chose that on a pension application form 20 years previously? If your plans change, do you remember to change the lifestyle strategy on your pension?)
If it was 2008 and you were many years off retirement age, you'd have been in the Dynamic Fund. It dropped by 37.8% in 2008. At the time, the media was gleefully writing stories about billions being wiped off stock markets and how this time it was different, that a fundamental shift had happened and that the financial system was broken. So you're reading such stories along with all the other bad news about the banking crisis, property price drops and huge job losses everywhere. You're wondering if the media is right and this time it's different. You've watched the value of your fund drop through 25%, through 30%, through 35% and still going. You start to wonder if you should cut your losses. Maybe switch into cash for a while and go back if/when things have stopped falling. If you're an execution-only customer, you won't have anyone to talk to about that.
As I say, I have no quibble with execution-only services at all and think they have an important place in the market. But I believe that you should only avail of an execution-only service if you really know what you're doing. Otherwise you run the risk of investing money into an inappropriate financial product, or at the very least being unaware of another product that would have suited your specific needs more efficiently. You also run the risk of making investment mistakes.
Regards,
Liam
http://ferga.com