What real return are you getting through Irish investment funds?

[ryaner]

Most people know the Irish tax system and deemed disposal already impact returns, I'm not, at least directly, asking about the impact on that. I am really curious about what returns anyone using an Irish based investment unit fund is actually getting net of fees and expenses?

With unit funds, the AMC is only part of the fees. There are transaction costs, other on going costs and in some cases entry costs even if the product doesn't have them listed. Take a look at some of the KID documents for funds and see impact of return per year values of 3-5% after a 7 year holding period, much higher values before that.

As a more concreate example, I recently got to see some figures from a 15 year old Quinn fund which ended at a little over 3% EAR, and this is before the second deemed disposal event. Seeing similarly low returns from my own pension, although those are admittedly much harder to calculate.

 

[GSheehy]

KID's are generic. They represent the worst possible charging structure from the provider. You'd be very unfortunate these days to buy one of those.

The fund calculators on provider websites should give you an accurate % on the return as they should include all charges (reflected in the unit price) except the AMC or, in some cases, part of the AMC.

Companies deduct the AMC by unit cancellation and/or included it in the unit price.


Gerard

www.bond.ie

 

[Smoneen]

My regular premium unit linked Savings Plan with Zurich is currently achieving 7.03% annualised. Thats after accounting for exit tax, levy and charges. Its running since July 2018.

Before accounting for exit tax thats 11.916% annualised. Fingers crossed they reduce the rate before July 2026!

 

[jpd]

The S & P 500 is up from 2900 to 4140 since July 2018 - that's an annualised rise of around 12%

 

[Dave Vanian]

My regular premium unit linked Savings Plan with Zurich is currently achieving 7.03% annualised. Thats after accounting for exit tax, levy and charges. Its running since July 2018.

Before accounting for exit tax thats 11.916% annualised. Fingers crossed they reduce the rate before July 2026!

Which Zurich Life fund(s) are you investing in?

 

[ryaner]

KID's are generic. They represent the worst possible charging structure from the provider. You'd be very unfortunate these days to buy one of those.

Sure, and I know they have to list on the higher end, however it did start showing the extra built in fees that were dragging on returns. People may have originally assumed the AMC covered the fees while there are also additional transaction fees that the fund has internally that drag on the returns. So it has been a very useful document overall, even without concrete figures.

 

[RedOnion]

As a more concreate example, I recently got to see some figures from a 15 year old Quinn fund which ended at a little over 3% EAR

I don't know if this means much as an example, without saying which fund it was. Is the poor return down to high fees, poor returns on underlying investment, or both.

From memory one of the funds was an Irish top 20 - they would have been very heavy weight in Irish banks which haven't faired too well over the last 15 years.

 

[ryaner]

I don't know if this means much as an example, without saying which fund it was. Is the poor return down to high fees, poor returns on underlying investment, or both.

From memory one of the funds was an Irish top 20 - they would have been very heavy weight in Irish banks which haven't faired too well over the last 15 years.

Yeh of course. Was simply a stand alone example which made me go back and review my own pension from the years. It had years of advertising 10%+ gains while not returning anything close to that.

I'm just really curious about what net returns people have been seeing in relation to the advertised rates. It wasn't intended on being anything close to a discussion around the funds themselves.

As an aside, I do particularly like how Zurich advertise their returns on their calculator, using conservative return figures. Hopefully a case of under promise and over deliver.

 

[Smoneen]

Which Zurich Life fund(s) are you investing in?

Current split is approx:
50% Intl Equity
25% 5*5 Global
25% Performance

 

[Dave Vanian]

The S & P 500 is up from 2900 to 4140 since July 2018 - that's an annualised rise of around 12%

That's not comparing like with like. @Smoneen has said that their figure is after accounting for the Government Levy (1% per contribution), Exit Tax (41% of growth) and charges (probably >1% per year). And the fund split is across three global funds, one of which is multi-asset and includes bonds and cash. An all-American index of shares taking no account of taxes or charges is a very different proposition.

That said, I'd like to see Exit Tax reduced to 33% like CGT and the levy abolished to level the playing field on investing of different types and encourage more people to get off negative-interest deposits.

 

[GSheehy]

That said, I'd like to see Exit Tax reduced to 33% like CGT and the levy abolished to level the playing field on investing of different types and encourage more people to get off negative-interest deposits.

Should be lower IMHO, as it's not self-assessed and therefore there's less risk of tax evasion.

I think if folk perceived exit tax as 'fair', Government would benefit down the road with more investors in the products and more gains to tax.

In 2007 Life Assurance Single Premiums were €5.4bn - tax was 23%

In 2018 that figure was €1.35bn - tax 41%

Gerard

www.bond.ie

 

[Dave Vanian]

Should be lower IMHO, as it's not self-assessed and therefore there's less risk of tax evasion.

I think if folk perceived exit tax as 'fair', Government would benefit down the road with more investors in the products and more gains to tax.

In 2007 Life Assurance Single Premiums were €5.4bn - tax was 23%

In 2018 that figure was €1.35bn - tax 41%

Gerard

www.bond.ie

Good points. Government are getting negligible DIRT tax these days as there's no interest to tax. So to replace it, ditch the 1% levy, reduce Exit Tax and get more people investing. Maybe squeeze the providers to lower their charges a bit and simplify/cap the charges like Standard PRSAs.

 

[GSheehy]

I suppose we have to remember that 2007 would have been the heyday of the ol' Tracker Bonds, so that would distort the figure.

In 2005 the figure was €2.8bn.

I'd say that providers (that are covering the cost of the Levy with 101% allocations) could reduce their AMCs by circa 0.1%/0.15% pa and still retain same margin on the product.

Gerard

www.bond.ie

 

[Steven Barrett]

The Revenue are currently updating their Tax Manuals in relation to investments in Irish funds, offshore funds and life policies with a view to streamlining them, particularly in respect of EFTs. They expect this review to be completed shortly.

Don't @ me. I don't know anything else about this

Steven
www.bluewaterfp.ie

 

[Steven Barrett]

Yeh of course. Was simply a stand alone example which made me go back and review my own pension from the years. It had years of advertising 10%+ gains while not returning anything close to that.

I'm just really curious about what net returns people have been seeing in relation to the advertised rates. It wasn't intended on being anything close to a discussion around the funds themselves.

As an aside, I do particularly like how Zurich advertise their returns on their calculator, using conservative return figures. Hopefully a case of under promise and over deliver.

The returns advertised are all gross of fees. It's the norm in the investment industry. There are so many different contracts and charging structures available. For instance, with one insurer, you can have a contract from as cheap as 0.35% up to as expensive as 2% (and if you invest in some of their more exotic funds, you could pay up a total of 2.5%). The charging structure can literally go up in variations of .01%. The KID documents that they issue show the most expensive option. they also include the impact of early exit penalties, which is not relevant to most people as they don't cash in their policy during those years.


Steven
www.bluewaterfp.ie

 

[Sarenco]

The returns advertised are all gross of fees. It's the norm in the investment industry.

That’s not really true Steven.

Mutual funds always disclose past performance net of costs. In fact, they are legally obliged to do so.

Ireland is an outlier in that personal pension savers are effectively forced to invest through life companies or use expensive intermediaries.

In the UK, a self-invested personal pension account can be opened with a fund platform for as little as £90pa.

 

[Dave Vanian]

That’s not really true Steven.

Mutual funds always disclose past performance net of costs. In fact, they are legally obliged to do so.

Are you talking about funds available to Irish investors? This is an Irish website aimed primarily at offering advice and information to people in Ireland.

 

[Sarenco]

Are you talking about funds available to Irish investors?

Yes.

 

[Marc]

I actually like this line of reasoning.

Its virtually impossible to establish the ex-ante real cost of investing in Ireland for most investors because the charges are generally opaque and in many cases misleading.

However ex post results are capable of being benchmarked against a reference index or fund.

So if a real investor makes an actual investment of €10,000 in say a Vanguard Global Stock index fund offered by an Irish provider at the end of any period it is possible to establish their return vs the realised return on a more transparent version of the same investment and thereby establish the real cost of investing.

I did a similar exercise a few years ago measuring the published returns of various Irish unit linked funds vs their UCITs counterparts and established that the charges for an Irish investor were much higher than the published AMC in the past. In some cases investors had been paying over 3%pa and in the worst case we found was over 5%pa.

[broken link removed]

Obviously not everyone wants to pay an adviser in order to get the best investment outcome but I’m confident that our non-EU ETF offering is about the best option on the market for taxable accounts.

Similarly with pensions we are seeing an increase recently in inquiries from dyed in the wool DIYers who frequently say “I didn’t know that “ and the penny drops that penny pinching for something as important as your retirement fund is probably not a good idea.



Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie

 

[garbanzo]

Very interested in this too. Say I have €10k to invest for retirement in 7 years time. I already have a decent amount in my pension scheme and am already making AVCs.

Option 1: Put in pension. With higher rate tax relief that is actually €16,666. Add a rate of investment return of 5% pa that becomes €23,600. However, if I take 25% tax free I get €5,900 in tax free cash and the balance drawn down as an ARF at say 4% pa.

Option 2: Put in a Zurich Life Prisma Fund, Prisma 3, 4 or 5 or Irish Life MAPS for the same seven years. Say you get 5% return after taxes and charges. Net return is €14,180 less tax !

Which is better? Just to be clear I’m very much pro-pensions but I find this scenario interesting. Not trying to hijack the thread but I would welcome peoples’ thoughts.