Wednesday, June 25, 2008

Buying a Pension

There are two ways to buy a pension. You can opt for an 'advisory' service or an 'execution only' service.

If you elect to go the 'advisory' route you can expect to pay for the advice that your are going to get in respect of the type of product that is suitable to your particular circumstances, the level of contributions that you should be making and the investment funds that are most suitable to your investment risk profile. *

The commission charges that you should expect to pay for this type of service should be no more than 5% of each contribution and an annual management charge of 1% - 1.5% of the value of the fund each year.

If, however, you are comfortable with making your own investment decisions and you have a good understanding of what you are looking for, then it is possible to buy a pension on an 'execution only' (no advice) basis with just a 1% annual charge on the fund.

Example. A female aged 30 next birthday contributing €300 per month, indexed a 3% pa, to age 65 and assuming a 6% pa growth rate . With a 5% Contribution charge and a 1.5% annual charge the estimated retirement fund is €447,996

With a 1% annual charge only, the estimated fund is €518,654

As you can see, the savings are substantial.

*This advice is normally paid for through commission but you could also pay a 'fee' for the advice and buy the product elsewhere. The hourly rates vary but they are typically in the region of €200 per hour. This method is most suitable for those that do not require on-going advice on a regular basis.

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