Pension Charges Update
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The Minister for Social Protection, Joan Burton, T.D., recently announced the publication of the Report on Pension Charges 2012. The report addresses two key issues which were the level of pension charges and also the transparency of charges. The report covered many different types of pension including Defined Benefit (DB), Defined Contribution (DC), Personal Retirement Savings Accounts (PRSAs) as well as individual pensions and Public Sector Additional Voluntary Contributions. The review of pension charges was comprehensive and covered explicit fees such as administration costs, investment management costs, Consultancy and Actuarial costs. It also covered implicit costs including stamp duty, custodian and intermediary fees.
Charges The report found that Occupational Pension Scheme charges are, in general, more reasonable due to strong economies of scale compared to individual plans. While the report did highlight the fact that some smaller occupational pension schemes pay high costs, it also acknowledged that the costs associated with running and administering occupational pension schemes, which would include the provision of financial advice by brokers, were generally reasonable.
Reduction in Yield (RIY) is used in the survey as a way of expressing the impact of all charges on a plan. For example, a RIY of 1.0% would have the impact of reducing a gross growth rate of 6% down to 5%. The typical RIY figure used for Irish Insured DC plans compared favourably with costs in the UK, which benefits from large economies of scale.
Transparency Irish Life Corporate Business fully supports the report’s recommendations for greater transparency. We have taken a lead role in this area and have improved the quality of information we provide to customers in their policy documentation / welcome pack. Our written members communications, such as Annual Benefit Statements and Pension Pulse letters, clearly show the charges and reduction in investment return, which is equivalent to the reduction in yield, figure for each member. The term 'reduction in yield' - or RIY - is widely quoted in the report. This is a way of expressing the impact of all charges on a plan.
The report made several recommendations in relation to making the costs associated with occupational pension schemes clearer and easier to understand, including:
- To develop approaches which would increase awareness of charges amongst various audiences including trustees, members and employers
- To review occupational pension disclosure regulations
Irish Life Corporate Business are keen to support these recommendations, as well as any other initiatives that give trustees and members a greater understanding of their pension scheme. At Irish Life Corporate Business, we are committed to providing our clients with the best possible value for money in terms of the services we provide and the costs associated with those services. Having been a contributor to this report and having studied the range of charging structures, we are confident that our costs are very competitive and compare favourably to other service providers, both in Ireland and internationally. We would encourage any of our clients with any queries specific to the costs associated with their own pension plan to speak to their financial consultant or Irish Life Corporate Business.
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