Best Value Pension Plans
th Apr 2018 |
Best value pension plans, are those that offer you the right underlying investment fund options, coupled with the lowest investment and advice related charges. This may sound a little complicated, but once you get a handle on charges it’s not so confusing!
If you are in your employer’s group or executive pension scheme, it’s the job of the pension scheme trustees to choose or monitor the investment strategy and ensure the best value for money.
However, when it comes to Private Pension Plans, which include; Executive or Directors Pension Plans, Personal Retirement Savings Accounts (PRSA’s), Personal Pensions, Personal Retirement Bonds (PRB’s) and Approved Retirement Funds (AFR’s), it’s down to you seek and ensure the best value.
Best Value Pension Plans – Understanding the Charges
Where to start? The key is to make yourself aware of the costs associated with your Private Pension Plan, as together with your ongoing investment returns, it is these long-term charges that will ultimately govern the value of your “Pension Pot”, come retirement!
All private pension plans have 3 distinct ongoing charges associated with investing your money, which you should discuss in detail with your chosen financial adviser:
- The first is your investment allocation rate i.e. the percentage of your money that actually gets invested each time you make a payment into your pension plan, this is best understood as a contribution charge.
- The second is the fund manager charge (FMC) an annual fee on your accumulating fund value, this is sometimes also called the AMC or annual management charge.
- The third and final charge is an investment advisory fee’s which are set by your financial broker or advisor and can include a renewal commission plus a trail commission paid by the product provider and or a separate invoiced fee, that you may pay directly to your chosen pensions advisor.
- Investment Allocation depends on the FMC and the level of commission paid to your advisor.
- Fund manager charges will vary dependent on plan type.
- Investment advisory fees may be arranged as an annual trial commission that is built into your pension costs, typically 0.25% PA of your fund value, whereas direct fees are dependent on your chosen advisors rates ( request and carefully read their terms of business).
Individual Pension Plans – By Pension Plan Type
PRSA’s are suited to employees where a company pension scheme does not exist, or to the self-employed excluding owner-directors of small limited companies.
They fall into 2 categories Advice based and Non-Advice based PRSA’s, with advice referring to ongoing investment advice, provided over the course of your pension plan, once it’s set up. PRSA’s offer the most flexible and transferable individual pension plan type. They can accept transfers from most other pension arrangements and be transferred into an employers scheme, should you wish to do so.
Personal Pensions – An alternative to a PRSA, this plan type generally offers better allocation with a lower fund management charge. Although not obliged to do so, your employer may contribute to your PRSA, whereas an employer cannot contribute to a Personal Pension Plan.
Personal Retirement Bonds – A personal pension contract, that is set up an individual past employee and with the approval of the trustees of a pension scheme, to provide retirement benefits for a former member of the scheme. This basically means that if you leave a pension scheme you can bring your pension benefits with you, by having the value of your fund invested in a Personal Bond. If you’re planning to leave the company that you currently work for and you are part of the group pension scheme, a Personal Retirement Bond known as a PRB, could be the right option for you. A PRB will also be suitable if you decide to leave a company pension scheme for any other reason, or if the scheme is winding down.
Executive Pension Plans as called Director Pension Plans are pension plans for directors of limited companies, these allow the company to foot the bill of funding for the company directors retirement, whilst receiving corporation tax relief. The director themselves can also make personal contributions with full PAYE tax relief.
Approved Retirement Funds – An ARF allows you to invest all, or part of your pension fund after you retire. You can decide on the type of fund you would like to invest in, together with the amount of risk you’re comfortable with. With an ARF you can still withdraw from your fund on a regular, or ad hoc basis.
To set up an ARF you must have a guaranteed pension income of at least €12,700 per annum or have invested €63,500 in an Approved Minimum Retirement Fund (AMRF) and/or Annuity. These days for most people the old age pension will fulfill this requirement.
Advice Based Pension Charges – Except PRSA’s
- Annual Management Charge: From 0.50% PA on PRB’s and ARF’s and from 0.75% PA on Executive Plans.
- Investment Allocation: 100%
- Optional Retained Advisory Fee: 0.25% PA
PRSA’s – Advise Based Pension Charges
- Annual Management Charge: Standard 1% PA.
- Investment Allocation: up to 98%, dependent on contribution level.
- Renewal Commission: 3% PA
PRSA’s – Execution Only Pension Charges
- Annual Management Charge: Standard 1% PA.
- Net Investment Allocation: 100%
- Renewal Commission: Nil
One Quote Financial Brokers provide a no fee, no obligation discussion on your private pension requirements and to outline the best value pension plans that we offer, so why not call me directly on: 01 845 0049 or make an enquiry.
Ken O’Gorman – QFA
OneQuote.ie – Smart Financial Protection