Pension linked to an index with low charges

Carolina

Registered User
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75
Hi there
I want to take out a pension. I am a shareholding company director/employee. I asked my bank who suggested I take out a pension with them whereby I pay 5% of my contributions as a charge plus a 1% annual fund management charge. This sounds amazingly high to me. Is it?

Also, I don't believe that fund management works. (I don't believe that fund managers perform better than random share picking) so I don't want to pay for fund mangement- I just want a fund that is linked to a stock market index, or a group of indexes. Is this easy to obtain and if so, is it cheaper than a managed fund?

To what degree is a pension fund protected from the managing company going bust? If I invest in a pension for 30 years, I don't want the pension company to do an enron and sink with my savings.

Thanks,

Carolina
 
Hi Carolina

Why don't you consider an execution-only style PRSA if you are happy to choose your own investment manager and funds.

You can set-up such funds for a fixed set-up fee, they would carry a 1% investment manager charge and no other charges.

If you own your own company, would a small-self administered scheme be of interest to you, thereby you can control your own investments right down to investing in the property or business across the road!

5% of your contributions may or may not be expensive - all depends on the size of your contributions.
 
As South says, a lot depends on the size of your proposed contribution. You could set up an Occupational Pension Scheme for a once-off fee - the only ongoing charges would be a flat €4.25 per month policy fee and 0.75% of the fund per annum.

Or South's suggestion of a fund with no charge per contribution and 1% of the fund per year may work out cheaper depending on the anticipated size of your fund, contributions and length of time to retirement.

In most scenarios, either of the above options will work out cheaper than 5% per contribution and 1% of the fund per annum.

Assuming you invest with a company that's regulated by the Irish Financial Regulator here, such companies have to pass fairly strict solvency tests on a regular basis to maintain their Financial Regulator authorisation.

Liam D. Ferguson
www.ferga.com
 
Why don't you consider an execution-only style PRSA if you are happy to choose your own investment manager and funds.

You can set-up such funds for a fixed set-up fee, they would carry a 1% investment manager charge and no other charges.
Would I do this through my bank?

If you own your own company, would a small-self administered scheme be of interest to you, thereby you can control your own investments right down to investing in the property or business across the road!
I would prefer not to manage my own fund. I just want to buy an index. The FTSE-100 or whatever.

5% of your contributions may or may not be expensive - all depends on the size of your contributions.
To me it sounds crazily expensive. The bank doesn't charge me 5% for deposits. I don't get it. I could understand a fixed fee but not a %.

As South says, a lot depends on the size of your proposed contribution. You could set up an Occupational Pension Scheme for a once-off fee - the only ongoing charges would be a flat €4.25 per month policy fee and 0.75% of the fund per annum.
Liam, what is the difference between a PRSA, an 'executive pension' and an 'occupational scheme'? Say my contributions are 20K PA, inflating for 25 years. Why would I pick one rather than the other?
 
Would I do this through my bank?

To me it sounds crazily expensive. The bank doesn't charge me 5% for deposits. I don't get it. I could understand a fixed fee but not a %.

Liam, what is the difference between a PRSA, an 'executive pension' and an 'occupational scheme'? Say my contributions are 20K PA, inflating for 25 years. Why would I pick one rather than the other?

No you could not do an execution only deal through your bank.

A pension scheme is a more complicated vehicle than a bank deposit account, 5% of an annual contribution of €1,000 is only €50 while 5% of €50,000 is €2,500...as I said, whether or not 5% is expensive depends on size of contribution.

An Executive Pension and Occupational are the same thing, a PRSA is an individual account with lower maximum contribution limits than an Occupational Pension.

For a given level of contribution and the same fund choice, the expected fund would be the same between them...main difference is higher max contribution under the Occupational Pension.
 
Say my contributions are 20K PA, inflating for 25 years. Why would I pick one rather than the other?

For this level of contribution and term, the estimated fund whether you go for a PRSA with 100% of each contribution invested and 1% per annum charge or an Occupational Pension Scheme (OPS) with €4.25 monthly policy fee and 0.75% annual charge is pretty much the same, all other things being equal. The Occupational Pension Scheme charges work out marginally lower over after 25 years.

There are several differences - an OPS is set up under Trust and relates only to your employment in your current company. A PRSA is your personal property and can be carried with you through different employments. This may or may not be an issue for you.

Your company can contribute a greater percentage of your salary to an OPS than to a PRSA. Again, this may or may not be an issue for you.

 
I would prefer not to manage my own fund. I just want to buy an index. The FTSE-100 or whatever.

I think most investment managers have Consensus Funds, which attept to track the performace of certain idicies.

They may also have specific Indexed Funds.

Irish Life have a few, but I'm not sure if they are available for Pension porducts? Click on the link and scroll down to the Indexed Funds Section, there are links from here to the various fund fact sheets. Other IMs may have something similar?

[broken link removed]
 
Hi Boaber

Consensus Funds usually take the asset allocation mix of the typical Irish Pension Managed Fund - something like 75% equity, 15% fixed interest, 5% cash, 5% property...I think the OP is looking for a vanilla equity index tracker.
 
Irish Life have a few, but I'm not sure if they are available for Pension porducts? Click on the link and scroll down to the Indexed Funds Section, there are links from here to the various fund fact sheets.

Irish Life have a choice of nine index-tracking funds available for pension investors, apart from the Consensus Fund, which itself is a mixture of index-tracking funds.
 
The Consensus Fund is based around an Active Investment Manager's Asset Allocation strategy in a Pension Managed Fund, it is most certainly not an equity index tracker.
 
The Consensus Fund is based around an Active Investment Manager's Asset Allocation strategy in a Pension Managed Fund, it is most certainly not an equity index tracker.

Correct. As I said in my earlier post, it is a mix of index-tracking funds. The Consensus Fund is a mixed fund (invested in equities, bonds, property and cash); the assets of which are invested on a consensus basis, replicating the average asset allocation of the Irish fund management industry. Having implemented the average asset allocation, the fund then pursues index tracking stock selection.
 
So it is certainly nothing similar to the OP's comment of something like the FTSE 100 index.
 
Correct again. I'd say one (or a combination) of the other available index-trackers would suit Carolna's stated requirement more closely.
 
A full investment strategy, perhaps with a core and satellite should be put together for a €20K annual contribution.

The plan should be set-up nil commission to make sure that 100% of each and every contribution is invested.

If Carolina is a 5% director than an Exec Pension would suit fine because she could ARF the money at retirement.

If she is not a 5% director then the PRSA may be more suitable because she can ARF the money at retirement.

I get the feeling that she is a 5% director, so I would be inclined to recommend a nil commission Executive Pension.
 
I'd agree in general terms but Carolina may not, as she stated above "I just want to buy an index."
 
There is absolutely nothing in my post above that suggests using anything other than an index strategy.
 
I agree 5% charge on contributions is a joke,

Have a look at Quinn Lifes website. you can set up a company pension scheme with them ,no brokers charges,invest what you like when you like and you have a choice of tracker funds to invest in

If in 10 years time for example you wanted to take more direct control of your pension investment you could always then transfer into one of the self administered schemes where you make all the investment decisions.

Also alot of company directors ,self employed don't know whether they will always be self employed or whether they might end up back as a PAYE worker. It is vital then that your pension investment is flexible and low /no charges on entry or exit
 
There is absolutely nothing in my post above that suggests using anything other than an index strategy.

A core and satellite approach is not consistent with buying an index. By definition it means investing in more than one.
 
Yes of course it is consistent with an index strategy - for example the core could be an index to track European Equities (let's say 70%).

The satellite could be a combination of a commodity and a property index (for this example 30%).
 
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