self administered pensions?

C

cossieh

Registered User
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hi

i am an owner of a new sme trying to set up an executive pension fund

based on a few conversations with friends, my basic idea is to set up one which is self directed but to put the initial investment (approx 50k) in cash / deposit accounts until i figure out in a few years time whether equities or property appeals to me

i haven't a clue what to do next. most imporantly what fees apply to this versus a managed fund? Is there a lot of work to do? - how knowledgeable or hands on do i need to be to go self administered? can i change my mind in a few years and take my money into a managed fund?

can anyone recommend any books where i can get up to speed?

do i turn to a pensions advisor - or a pensions company or where?

any / all advice would be greatly appreciated.
 
My opinion has long been that if you have reason to believe you can obtain a better return after charges than the fund managers, you should go self-administered or self-directed; if you don't, stay with Managed Funds of one form or another.

Given that a self-administered fund costs usually costs upwards of €2,500 to establish, which represents around 5% of your initial contribution, perhaps you could start by accumulating funds in an insured policy for a few years and then transfer to a self-administered scheme in years to come. You should be able to negotiate lower charges on an insured scheme.

It is possible to set up a self-directed policy with Standard Life or Irish Life which will have lower charges initially than a self-administered scheme, but which still allows you to choose your own deposits, shares or property. You can also mix and match between self-directed investments and Managed Funds within the same policy.

Liam D. Ferguson
www.ferga.com
 
Thanks a million liam

I have a couple of follow up questions based on what you have said

1. what is the difference between self directed and self administered?
Is self directed a question of picking up the phone to a manager and giving instructions? What then is self administered?
2. What is an insured scheme? Is that the same as a managed fund? Or is it a managed fund with guaranteed returns?
3. Apart from set up costs, what is self administered or self directed likely to cost on an ongoing basis?
4 If one can switch from insured polict to self administered, can you do the reverse also? Are there limits to the amount of switches you can make?
5. It is possible to set up a self-directed policy with Standard Life or Irish Life which will have lower charges initially than a self-administered scheme. Is this to suggest that charges would rise after an initial period?

Many thanks

cossieh
 
1. what is the difference between self directed and self administered?
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With a self-administered scheme, you set up a trust and appoint a professional pensioneer trustee to oversee the trust with you. You control every espect of the trust, e.g. you can use any stockbroker you want; can use your own solicitor for property transactions etc.

With a self-directed arrangement, you start a policy with a pension company e.g. Standard Life or Irish Life and they take on the role of pensioneer trustee. You can still direct them to purchase your chosen investments but you must use their professional team e.g. stockbrokers, solicitors etc.

2. What is an insured scheme? Is that the same as a managed fund?
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Yes - the customer chooses a suitable Managed Fund or Index-Tracking fund but the day-to-day investment decisions are made by the fund manager. It's another term for "not self-administered or self-directed", I suppose.

3. Apart from set up costs, what is self administered or self directed likely to cost on an ongoing basis?
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Cost of self-administered depends largely on the individual pensioneer trustee used. Typically €1,000 per annum plus around €750 every three years for an actuarial report.

Self-directed tends to be around 1% of scheme assets per year.

Transaction costs (e.g. stockbroker fees) will be additional in either case.

4 If one can switch from insured polict to self administered, can you do the reverse also? Are there limits to the amount of switches you can make?
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Yes you can move your fund from an insured scheme to self-administered and back again. There's no restriction on how often you can do this, but you'd need to be mindful of the cost of doing so, and convinced that the potential benefits will justify the cost.

Is this to suggest that charges would rise after an initial period?
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No, but the Standard Life / Irish Life percentage-based charging model (1% of scheme assets per year) will effectively get dearer as the fund grows. Self-administered schemes tend to have a flat fee charge, so if your fund builds to €1,000,000 the 1% per year starts looking expensive compared with a flat charge.
 
thanks liam - that's great and much appreciated

so, if one desides to go with an insured scheme - can one still shift between available funds?

For instance, if I put in 60k annually, could I specify - for example - that 20 goes to a cash fund, and 40 to international equities fund?

or in 2008, put 60 into a mixed managed fund? and if things are still uncertain on 2009, put that 60k into cash?
 
Yes with an insured scheme, you can vary what fund(s) each contribution goes into, and also switch existing fund choices from the range available from your chosen provider.
 
Cossieh, LDF has given you a very comprehensive reply and follow up. This is AAM at its best - free professional advice.
:)
I will add my tuppence worth. Self Admin is quite a hassle, appointing those professionals etc. and definitely a certain critical mass needed here, I'd say 0.5M at least. I understand that the main attraction of Self Admin is to allow people to chose their own properties (arms length) especially on a geared basis.
 
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