Best value pension plans, are those that offer you the right underlying investment options (aligned to risk and ESG preference), coupled with the lowest investment plan costs which are inclusive of setup and long-term specialist investment advice.
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 to ensure the best value for money.
However, when it comes to Private Pension Plans, which include; Executive Pension Plans (EPPs), Personal Retirement Savings Accounts (PRSAs), Personal Pensions (PPPs), Personal Retirement Bonds (PRBs), and Approved Retirement Funds (ARFs), it’s down to you to 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 investment strategy, 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 (FMC) 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 (combined with the FMC to create the 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, depending on plan type. there is a base charge, plus a nominal operational charge dependent on the funds chosen.
- Advisor Service Charge is arranged as an annual service payment that is built into your pension and can typically cost up to 0.50% PA levied against your total fund value (request and carefully review your intended advisor’s terms of business and charges).
Pension Plans Types
PRSA’s are suited to employees where a company pension scheme does not exist, or to the self-employed including owner-directors of small limited companies.
They fall into 2 categories Advice based and Non-Advice based PRSAs, with advice referring to ongoing investment advice, provided over the course of your pension plan, once it’s set up.
A PRSA offers 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 change jobs and wish to do so. They are also worth considering as an alternative to a Master Trust Executive Pension for company directors.
Personal Pensions – An alternative to a PRSA, this plan type generally offers better allocation 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 by 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.
Master Trust – 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 directors themselves can also make personal contributions with full PAYE tax relief. These plan types are subject to strong regulatory and audit rules and must be set up under Trust.
Post Retirement – 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 make withdraws on a regular, or ad hoc basis, although once you reach age 61 you must withdraw a minimum of 4% in each calendar year.
Low-Cost Pension Plans
Now that you have a better understanding of how pension charging works, I have set out below the best value base AMC charging structures on offer, on regular payment pension contracts through One Quote Financial Brokers, where no contribution charges apply:
Advice Based – Pension Charges
- Base Annual Management Charge:
From 0.50% PA on ARFs
From 0.60% PA on PRBs
*From 0.75% PA on Master Trust – Executive Pension Plans.
From 1.00% PA on Personal Pensions.
- Retained Advisory: 0.25% PA, with no contribution charges.
- No direct fee.
PRSA’s – Pension Charges
- Annual Management Charge: Standard 1% PA.
- Investment Allocation: up to 98%, dependent on contribution level.
Key Take Aways
If you already have an existing pension contract or are about to set one up, be careful of any financial advisor who recommends lifestyle funds (automatic high to low-risk investment with increasing age) and then includes a service commission.
If the base AMC shown on your policy documents or quoted at the point of sale exceeds 1% PA on PRSAs, Personal, or Executive Plans, it’s time to ask questions.
Check out your advisor’s investment advisory credentials from the start. Not all financial advisors carry the same experience or qualifications and most will seek to charge 0.50% PA as an ongoing support charge, try to lower this.
If you not getting proper risk management advice on setup and throughout the course of your pension to include detailed annual reviews, ask how the financial support charge is justified.
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 8450049.
Ken O’Gorman – QFA, SIA, MCIBS
Phone: +353 (0)1 845 0049 | Mob +353 87 665 8516
OneQuote.ie – Smart Pension Planning