Monday, September 6, 2010

Don’t bank on getting the best pension terms from your bank!

PRSA: Meeting financial expectations

Discount pension services provide cost effective retirement planning for you and your employees, writes Gerard Sheehy

As business owners we are always on the lookout for ways in which we can save money. If we can find a more cost effective way of doing something we tend to jump at the opportunity to add value to the bottom line, even if this means taking on some extra responsibility ourselves.

Recent economic events have made us question what we are paying for goods and services and what value is being added by third parties. Some areas for making savings are obvious, others less so. Take pension provision for example. The charging structures on pension products have become more competitive. It may be in your and your employees’ interest to do an audit of your pension costs.

It is now possible to reduce the charges on PRSAs, AVC PRSAs, personal pensions, executive pensions; approved retirement funds (ARFs) or personal retirement bonds by buying these products without the costs associated with financial advice.

The trade-off is simple - it involves spending time in order to save money. This necessitates taking a more proactive role in the selection of pension product and investment funds which gives you greater control of your product costs.

You should consider this type of service if:

(i) You have a good understanding of what type of pension product is suitable for you.

(ii) You are comfortable with selecting investment funds appropriate to your risk profile.

(iii) You want to buy a low-cost product.

(iv) You do not require financial advice.

If you feel that you satisfy these criteria you will be able to limit your costs to a single charge on the pension product of your choice. This should be no greater than a 1% annual charge on the value of your pension fund. As there is no contribution charge, 100% of any employer/employee payments are invested in the pension.

This service is not restricted to employers/employees that are affecting “new” pensions, it can also be used by those who already have a private pension and wish to transfer their existing pension funds or redirect future contributions.

You should not expect your bank to offer you this type of service on PRSA schemes, as they more-than-likely put a premium on their advice. The employee and employer could be paying (up to) a 5% charge on each payment that is remitted but they may be getting very little in the form of advice for this cost.

Even if the employer has an existing PRSA scheme in place, they should consider offering a low-cost option to those employees that have a good understanding of their financial needs.

Gerard Sheehy is a financial advisor for PRSAS. For more information log on to

The above article is in the Pension & Investment Supplement of the Septmeber 2010 Issue of Business & Finance

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