Best Value Pension Plans
th Nov 2020 |
Best value pension plans, are those that offer you the right underlying investment fund options, coupled with the lowest investment costs including set-up and ongoing 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 already in your employer’s group pension scheme, it’s the job of your employer and the Pension Scheme Trustees to choose and monitor the investment strategy and ensure the best value for money.
However, when it comes to Private Pension Plans, which include; Executive Pension Plans (EPP’s), Personal Retirement Savings Accounts (PRSA’s), Personal Pensions, Personal Retirement Bonds (PRB’s) and Approved Retirement Funds (ARF’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 fully aware of the costs associated with your 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 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 (AMC) an annual fee on your accumulating fund value.
- The third and final charge is an advisory charge which is payable to your financial broker or advisor (typically built in the total AMC).
- Investment Allocation depends on the AMC, as well as the level of set-up commission paid to your advisor.
- Fund manager charges will vary dependent on plan type and fund choice.
- Investment advisory fees may be arranged as an annual trial commission that is built into your pension costs, typically up to 0.50% PA of your fund value (request and carefully read your chosen advisors 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, for both employees and the self-employed. They can accept transfers from most other pension arrangements and be transferred into an employer’s 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 than a PRSA. Although not obliged to do so, a future 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 also called Director Pension Plans are pension plans for directors of limited companies including contractors, 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.
Low-Cost Pension Plans through One Quote Financial Brokers
Now that you have a better understanding of how pension charging works, I have set out below the best value charging structures on offer on regular payment pension contracts through One Quote Financial Brokers:
Advice Based – Pension Charges – Except PRSA’s
- Annual Management Charge:
From 0.50% PA on PRB’s and on ARF’s.
From 0.65% PA on Executive Pension Plans.
From 0.65% PA on Personal Pensions.
- Investment Allocation: 100%
- 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.
- No direct fee.
- Annual Management Charge: Standard 1% PA.
- Investment Allocation 100%
- Once off fee: *€320
*Terms & Conditions Apply
Key Take Away
If you already have an existing pension contract or are about to set one up, be careful of any financial advisor or broker who recommends lifestyle funds (automatic high to low-risk investment with increasing age) and then charges a trail commission of 0.50% PA for their support. If choosing lifestyle funds your AMC should be between 0.90% and 1.00% PA inclusive of ongoing broker support.
This may not be obvious, but if the AMC shown on your policy documents or quoted at the point of sale exceeds 1% PA its time to ask the question, what level of trail commission will you be taking each year? Also ensure you have 100% investment allocation, meaning no renewal commission is payable to your advisor in addition.
One Quote Financial Brokers provide a no fee, no obligation discussion on your pension requirements and will outline the best value pension plans on offer (including a free audit of your existing plan), so why not call us directly on: 01 845 0049 or make an enquiry.
Ken O’Gorman – QFA – Pensions Consultant
OneQuote.ie – Smart Pension Planning