Call to clarify pension fees
One provider has suggested use of a common measure to compare costs across the industry, writes Charlie Weston
Published 27/10/2011 | 05:00
PENSIONS providers have been called on to change the way they compare the fees on their funds in a bid to make the impact of charges more more obvious to consumers.
Different levels of fees and charges can wipe €40,000 from the value of a fund put together by a 35-year-old.
Acorn Life has called for the industry to use a common measure -- known as the reduction in yield -- to compare costs.
The Government is set to launch a probe into pension fund costs.
Reduction in yield operates in a similar way to annual percentage rates for loans as it allows consumers to compare the charges on an investment product over a specified period.
It sets out the reduction in the yield or return that would otherwise have been provided if the policy carried no charges at all.
It works by showing the return that you would have received if there were no charges.
A personal pension plan may have a projected return of 6pc per year.
However, as a result of the charges the actual projected return is 4.5pc which makes the reduction in yield (RIY) of 1.5pc.
Actuary and head of business development at Acorn Life Keith Butler said using RIY would provide consumers with the real, long-term costs of a investment products.
"Using this measure is preferable and easier to understand than trying to compare other factors such as management charge, allocation rate etc.
The yield should be measured over the full planned investment term if it's to be effective."
He worked out that a RIY of 1pc would leave someone at the age of 35 who puts €500 a month into their pension with €409,000.
But if the RIY rises to 1.62pc then the pension pot would be reduced by €40,000 to €367,340.
Failing to properly compare fees and charges across different pension products will cost retirement savers dearly in the long run, Mr Butler said.
Irish Independent Supplement