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What are typical charges on Personal Pension Plans?

Personal pension plans apply to self employed individuals or individuals who are in employment but invest in a pension personally. Personal pension plans can take one of two forms - a Retirement Annuity Contract (RAC) or a Personal Retirement Savings Account (PRSA).

ITSYOURFUTURE believes ALL costs should be transparent and disclosed fully to you as a pensions investor. However it is important that you understand some of the key terms.

There are a number of key questions you should ask your pensions or product advisor BEFORE you sign the pensions application form and submit it as this will impact the initial and on-going amounts invested after you pay them across.

These questions also serve as a checklist to ask your advisor the next time you are reviewing your policy.

Note

You are advised to get the answers to these questions in writing, and keep them with your other financial planning documentation.

To help you assess this, consider the following questions:

1. What is the bid/offer spread (if any) which will apply to my pension policy?

This is an investment charge and refers to the difference between the buying and selling price of a unit in an investment or pension fund. A typical bid-offer spread would be 5%. For example, if you invest €100 in a pension or investment fund, its value would become €95 (€100 less 5% OR €100 X 0.95) if you withdrew the money immediately. The buying and selling price of the units in a fund depend on the value of the assets in the fund.

2. What is the allocation rate which will apply to my pension policy if I affect the policy with you?

This is the percentage of your money that is used to buy units in a pension policy or other type of investment fund. For example, an allocation rate of 100% means that for every €100 you invest, €100 is actually used to buy units. So in effect you pay €0 (or 0%) as a charge to the product provider you invest with.

3. Is there a monthly policy fee which will apply to this policy?

This is a regular fee you pay on pension and investment policies. A policy fee is usually a fixed amount and charged per month, for example €3.50 per month.

4. What is the initial cost to set up this policy?

There are two ways in which your advisor or product provider can be paid for their help in advising you.

Commission – where the product provider pays a percentage amount of your pension contributions (a) at the outset, and possibly (b) yearly, to pay your pensions advisor.

Example: Your pensions advisor may suggest a 3% commission on the first years contributions Based on a €100 per month investment and assuming a 0% bid/offer spread, this will mean an amount of €3 will be deducted from every monthly payment for the first twelve months (that is, €100 x (100 - 3)

Fee – where the pensions advisor will charge you a fixed fee andr/or fee based on a time and disbursement basis for their services. Please note all fees issued within the Republic of Ireland are subject to a Value Added Tax (VAT, currently 21%) and are paid from your disposable income.

Example: Your pensions advisor will quote a fee of €xxx plus 21% VAT to be paid at the outset.

Note

You should ask for a written quotation as to what your advisor is prepared to offer and understand this in terms of monetary amounts and not just percentages.

5. What is the annual costs to be deducted from the pensions to service the policy (if any)?

How much of these monies are paid to the advisor? If applicable, what does your a dvisor and/or product provider give you for these amounts?

6. What are the annual management charges (if any) which will apply to my pensions policy?

All managers charge a fee for this service and the cost is taken from the fund value at source periodically. This is paid to the fund manager and typically is paid regardless of performance. Charges range from 0.20% to over 1.50% per annum.

 

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