Choice is usually considered good for the consumer. But the more choice there is, the more confusion there can be and many consumers are increasingly facing problems picking their way through the maze of pension products and providers.
The growth in contract, temporary and part-time workers in recent years means more and more people are not provided for by occupational pension schemes. But having a pension makes sense, not just for the long-term but because it is tax efficient in the short term as well.
For those looking for a personal pension plan, there are a number of factors to consider. First among them is which life assurance company and fund manager to invest with and these days there are some 16 to choose from in the Irish market. They range from the traditional pension providers such as Norwich Union and Standard Life to the more recently arrived bancassurers like Lifetime and Ark Life.
The importance of fund performance should not be underestimated in deciding where to invest. The recent Irish Times annual pension survey found that a difference of 1 or 2 per cent in the annual rate of return can add up to thousands of pounds in the value of the fund over 20 or 30 years.
What consumers should look for is a good, steady consistent performance year-in-year-out, pension advisers say.
To this end, it is worth studying the regular league tables published by independent groups such as Mercer and Moneymate or those compiled by independent pension advisers. These generally offer information on the historic performance of the fund, its size and asset split.
Pension brokers also caution those looking for pensions to look behind annual average returns to calendar year performance. This details the precise performance of the fund each year, allowing the consumer to see how consistent it has been rather than letting exceptional years mask troughs in other years.
Another issue now facing consumers is whether to opt for a traditional, actively-managed pension fund or to consider the consensus funds being offered by providers such as Irish Life, Canada Life, Friends First, Norwich Union and most recently, Bank of Ireland Asset Management (BIAM).
According to Mr James Skehan, deputy managing partner with Marsh Financial Services, consensus funds, which mirror the average asset allocation mix in the market, are "never first and never last". Because they tend to have lower transaction charges, they usually tend to perform just slightly better than average. However, Irish Life's consensus fund is the only one to have been operating for a number of years and as a result is the only one with any track record.
"They make a lot of sense for trustees and also for people who want to sleep easy at night. It's definitely an option worth considering for the cautious," Mr Skehan says.
Whether to invest in a unit-linked or with-profit fund is another decision facing those looking for a pension. With-profit funds have the advantage of smoothing out returns over the years. But some pension advisers believe they are not as transparent as unit-linked investments in terms of charges.
In addition, they are less flexible if you want to make changes down the line. Mr John McGovern, director with independent employee-benefit consultants, Becketts, points out that the discretion enjoyed by life assurance companies in relation to bonuses does not give much flexibility in terms of early encashment or suspension of contributions.
For those who don't like having all their eggs in one basket, it may be worthwhile to consider splitting your funds. A person can have as many personal pension plans as they wish as long as they do not exceed the contribution limits set by the Revenue Commissioners. But there will be costs involved with this.
For those who want to spread their investment, it may be worth considering those pension providers that allow you to split the management of the fund between a number of different managers, among them Canada Life and New Ireland. But again make sure to check the fund management charges as, in some cases, they are higher.
The other major area for consideration is that of charges. These fall into two main categories - those related to the fund and its management and the commission or fees paid to pension brokers or advisers.
In relation to the fund, there are three main types of charges. Most pension funds have a bid/ offer spread, or the difference between the rate at which you can buy units in the fund and at which you can sell them. This can be as high as 5 per cent although of late a number of pension providers are charging no spread at all, increasing the annual management fee instead.
The size of the bid/offer spread is also determined by the size of the premium, with larger premiums rewarded with lower charges.
Most funds also charge an annual policy fee, usually in the order of £3.00 (€3.81) per month.
But by far the most significant charge is the annual fund management fee, which ranges from 0.65 per cent for some of the consensus funds to 1.25 per cent, with those funds with no bid/ offer spreads tending to be at the higher end of the range.
The other major expense that needs to be factored in is brokers' commissions or fees. Given the complexity of the industry, most people turn to experts for advice and good advice rarely comes free. Consumers usually have a choice - either they can pay an up-front fee and the money they invest thereafter goes entirely toward their pension. Or they can opt for a commission type approach, where the cost comes out of their investment funds.
For those who can afford to do so, it probably works out best to fix a fee in advance with your adviser and negotiate further fees down the line as they arise. If you do go the commission route, make sure you know exactly how much you are paying and how it impacts your pension investment.
At present, the maximum commission payable is 50 per cent of the investment in the first year with a renewal rate of 4 per cent thereafter.
Other issues to be considered include how much to pay into the fund and on this the industry view is unanimous - pay as much as you can reasonably afford, taking account of the limits for tax relief.
As with many other things in life, the earlier you start the better. Estimates suggest that for every five years of a delay in starting a pension, the contribution will have to be almost doubled to keep the expected benefits the same.
Consumers must also decide whether they want to make contributions on a regular basis or whether they would prefer to make single contributions from time to time. Much depends on the nature of your work and how you are paid, but many people find it useful to make regular payments, topped up by single contributions when they are finalising their tax or if they get bonus payments.
jmosullivan@irish-times.ie
