Six of the priciest pension funds
Investment charges could take €10,000 a year out of a €400,000 nest egg, writes Louise McBride
You could lose as much as €10,000 of a €400,000 pension pot to charges per year, an examination by the Sunday Independent has found.
At that rate, you could easily pay hundreds of thousands of euro in pension fund charges by the time you retire. Furthermore, there is no guarantee that your fund won't lose money - despite such inordinate charges.
This paper examined the annual management charge on funds which you might have in a pension pot. We found that some of the most expensive funds are those managed by external fund managers.
You can usually invest in a fund through a range of investment products -such as a regular savings plan, a lump sum account, or a Personal Retirement Savings Account (PRSA - personal pensions which you arrange yourself if you have no other private pension). However, the annual management charge can be twice as high if you invest in a fund through one product instead of another. This could cost you a few thousand euro a year extra in annual fund management charges as someone else - even though you're investing in the same fund. This is particularly true of PRSAs.
There are two types of PRSAs: the standard (where there is a restriction on the types of investments your money can be put into); and the non-standard (where there is usually no such restriction). The trouble with non-standard PRSAs is there is no limit on the charges you can be hit with. So the fund management charge on non-standard PRSAs could be twice as high as it is on other products.
"In the long run with pension products, it's the annual fund charge which does most damage to your ultimate retirement fund," said Tony Gilhawley, director of Technical Guidance, a financial consultancy based in Dublin. "Get the lowest annual fund charge you can find for the level of risk and return you are prepared to take."
Here are six of the most expensive funds you could have your pension in.
Irish Life Fidelity India Fund
€10,400 in charges a year
With an annual fund management charge of up to 2.6pc, this fund is one of the most expensive offered by Irish Life. At that rate, the fund management charge on a €400,000 pension pot could be as high as €10,400 a year.
That 2.6pc is charged if you invest in the India Fund through Irish Life's Complete Solutions PRSA Options - a non-standard PRSA. At between 1.9pc and 2.4pc, the annual charge is slightly lower if you invest in the fund through other Irish Life products. A spokeswoman for Irish Life said the management charges for this fund were higher than on others it offers "due to high external manager fees".
"The external manager [Fidelity] offers specialist and local expertise in sourcing good value investments for the fund," said the spokeswoman.
"This fund is more of a niche offering and any investment in this fund would generally form part of a customer's overall investment rather than fully investing in a concentrated fund."
The India Fund made a return of about 30pc over the last five years. However, Irish Life offers cheaper funds which have performed better than that.
Friends First Insight Currency Fund
€9,800 in charges a year
The annual fund management charge on the Insight Currency Fund could be as high as 2.45pc - if you invest in it through a PRSA. At that rate, the charges on a €400,000 pension pot could be €9,800 a year.
"A currency fund is trying to achieve returns in a very different way to those produced by equity markets," said a spokesman for Friends First.
"The fund has a relatively low correlation to equities which means that it has tended to have its highs and lows at different times. The Insight Currency Fund has produced an annualised return of 5.29pc a year over the last 10 years - after fund management charges."
Irish Life Property Portfolio Fund
€9,400 in charges a year
Although the Property Portfolio Fund has made a loss of about 2pc a year since its launch in 2006, its annual fund management charge can be as high as 2.35pc. At that rate, charges on a €400,000 pension pot could be €9,400 a year.
This fund lost money in 2008, 2009, 2011 and 2012. It has started to recover in recent years with returns of about 20pc in 2013 and 2014.
"The fund management charge on the Property Portfolio Fund is split between an Irish Life fund management charge and an additional management charge which is deducted by the external fund manager (Henderson Global Investors) to gain access to UK and European Property funds," said a spokeswoman for Irish Life.
Irish Life Indexed Commodities Fund
€7,400 in charges a year
You could pay as much as €7,400 a year in fund management charges if you invest €400,000 in the Indexed Commodities Fund as the annual fund management charge on the fund can be as high as 1.85pc - through the Complete Solutions PRSA Options product.
Despite this high charge, the Indexed Commodities fund has made a loss of 20pc over the last five years - largely because of its exposure to commodities, which have had a bad run of late.
Invest in this fund through other products and the annual fund management charge is a lot less than it is on the PRSA. Its annual fund management charge under the Signature 2 product for example is 1.05pc.
New Ireland Elements Alpha Fund
€7,000 in charges a year
The annual management charge on the Elements Alpha fund could be as high as 1.75pc - if you invest in it through New Ireland's SmartFunds product.
The standard annual management charge on SmartFunds is 1.5pc but Elements Alpha carries an additional 0.25pc charge - which brings the total annual management charge to 1.75pc. At that rate, the management charge on a €400,000 lump sum would add up to €7,000 a year.
The annual fund management charge could be lower, depending on the commission paid to a broker. The 1.5pc charge on SmartFunds includes broker commission of 0.5pc, according to New Ireland.
"Where an advisor and a client agree a different fee structure, the fund management charge could be reduced by up to 0.5pc," said a spokesman for New Ireland. This would reduce the total management charge from 1.75pc to 1.25pc.
This fund has lost money over the last year - and fallen short of much of its investment objectives.
The aim of this fund is to outperform cash (one month Euribor) by a certain amount over a rolling five-year period. In the 12 months to the end of October 30, 2015, the fund made a loss of 1.1pc - its target return for the same period was 4pc.
"As the Elements Alpha fund has a higher risk rating than a lower risk fund, the fund has been more adversely affected by the summer sell off in markets," said a spokeswoman for New Ireland. "The higher the risk category of a fund, the greater the expected variance in performance over specific time frames."
Friends First Explorer - Emerging Markets Fund
€5,800 in charges a year
This fund, which invests in emerging market equities, is managed by LGM Investments. As it has only made a return of about 1.7pc a year over the last five years, you could have made more had you put your money on deposit.
This fund has made a loss of about 0.2pc a year since its launch in 2007. Despite this, the annual management charge on this fund can be as high as 1.45pc. That would eat up €5,800 a year out of a €400,000 pension pot.
"This is an actively managed emerging markets fund managed by LGM and the annual management charge reflects this," said a spokesman for Friends First. "The low returns to date reflect the volatility of emerging markets."
Worth the money?
It can be more expensive to invest in a fund which is actively managed - that is, where the investment manager takes a very much 'hands on' approach. However, high fees might be justified if your fund performs well.
"For example, the Merrion High Alpha and Standard Life GARS funds have high management charges when compared to a typical managed fund," said Peter Griffin, director at the Dublin pension firm, Allied Pension Trustees.
"These funds have in the main achieved their objectives and are worth the additional fund manager charges."
Even investment funds with average fees can be expensive or poor value for money - particularly if you're losing money because the fund is performing poorly.
"There are funds which have underperformed," said Mr Griffin. "Does that mean they're bad value?
"In hindsight they are - but it's not always down to the charges - it could be down to the style of management. A fund could do badly after an investment manager makes a bad call."
Sunday Indo Business