Q&A Dominic Coyle
Assessing the best PRSA options
Two years ago I ceased paying contributions to a PRSA scheme. This decision was made on the back of a fairly significant salary cut that I suffered. Furthermore, I was disappointed that my contributions, made over a period of eight years, were worth less that the amount invested. At this point, I have approx. €150,000 built up in pension funds.
I am now in a position where I wish to recommence paying to a pension scheme, and I would welcome your view on the best possible scheme to invest in. I am willing to invest €1,000 a month. I am 46 years of age and a top rate tax payer.
Mr K.N., Dublin
Would that it were that easy. There are myriad pension options out there and, certainly in the period you’re talking about, precious few of them were delivering the sort of returns we might have expected when we started investing.
There is also no comparative table of returns available for PRSAs. There are, however, monthly performance figures for group managed pension schemes from the main Irish providers. You will find details at Rubicon Investment Consulting (http://www.rubiconic.ie/content/mfrcalculator.html) among others.
Having said that, as I’m sure you have heard before historic performance is no guide to what is likely to happen in the future. Fund managers all have slightly different approaches to investing (and one eye on their rivals to ensure they do not fall too ar behind the consensus). At any stage in an investment cycle, the approach of any one investment manager may deliver better returns than another but over the cycle as a whole hey tend to even out.
Probably the single most important thing you can do in choosing one PRSA fund over another is to look at how much they will charge. You would be amazed at how much charges - upfront and hidden - eat in to your investment returns.
A report on pension charges published last year by the Department of Social Protection measured charges in terms of “reduction in yield to maturity” of the investment. It found that disclosed charges vary from 0.9 per cent to 3.08 per cent across the types of pensions it considered. The impact of charges at those levels on your final fund is between 5 per cent and 28 per cent.
Factoring in “implicit” costs, such as operational charges (like custodian charges, trustee funds, audit fees etc), trading charges (such as brokerage commissions) and stamp duty increases the impact on the projected final fund to between 8.4 per cent and 31 per cent.
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