Lowering fees to 1pc could result in much higher pension pots for people who pay in over decades, report shows

Charlie Weston

New figures show that fees can wipe out up to 60pc of final pension payout

Irish Life Group is so profitable it paid out €764m in dividends since 2013. Photo: Aidan Crawley

April 19 2021 02:30 AM

Selling and managing pensions is a profitable enterprise in this country.

Proof of this comes from the fact that Irish Life rakes in the money.

Irish Life Group, the holding company for the Republic’s largest life assurance and pension company and third-largest health insurer, is so profitable it paid €764m in dividends to Canadian parent since its sale by the State in 2013.

Part of the reason pensions companies are so profitable is down to the fact that the fees and charges for providing and maintaining pensions are myriad, and they are high.

As the pension amount grows year on year, 3pc of that increasing yearly amount becomes a significantly larger payout. So elevated are they that they can end up causing a loss of between 35pc and 60pc of the final pension pot after a working life paying into a pension fund.

There are around 875,500 people paying into private pensions.

Among the fees on pensions are the annual management charge, a charge associated with the cost of running your pension.

It is perhaps the most significant charge and varies from 0.09pc to 3pc on the overall pension pot.

Other fees include contribution charge, which can be up to 5pc of each payment into the fund, and policy fees, which is the difference between the buying and selling prices of the units invested.

Labour’s Ged Nash argues that these fees are too high, and too opaque.

An 86-page independent report he has done, sets out how the impact of the charges, particularly the annual management charge, can wipe out up to 60pc of the final pension pot after a worker and their employer spend years putting it together.

The report takes the case of a 32-year-old woman earning €50,000/year. She is retiring in 2057 at the age of 68.

The report shows that a pension product with 3pc of an annual management charge, and 3pc contribution fee, will create a pension pot of €686,000.

The pension contributions by the individual and employer will have been €418,000. Fees going to the advisers will be an eye-watering €300,000.

The report says if the pension fees were 1pc, the pension pot available to the individual would be €1m, an extra €356,000.

Most Watched

Laya to impose second price rise this year
Explainer: Here is what a KBC exit will mean for customers
Property price rises gather pace as Covid squeezes supply
This Working Life ‘I need to feel energised, if I’d really followed my passions I would be a bad DJ or a bad cyclist’
Warning after unauthorised firm clones Davy contact details

Latest

Confirmed: Six Premier League clubs announce intent to join European Super League
Reeling in the Years 2011: Protests, elections and Rihanna’s controversial appearance in a Co Down field
'I'm pretty happy with it' - In-form Shane Lowry secures top-10 finish in RBC Heritage
Around 140,000 vaccinations administered this week despite delays
Line of Duty review: ‘Mother of God: a very familiar face... and another mind-blowing cliffhanger’

Privacy

Lowering fees to 1pc could result in much higher pension pots for people who pay in over decades, report shows

Business Newsletter

Read More

Most Watched

Mischievous fox tries to steal football in Dublin

Engagement ring delivered by drone as part of proposal on Cork cliff

Kate and Camilla arrive at Prince Philip's funeral

Michael D Higgins – some of his most memorable moments

Royals follow Prince Philip's funeral procession

Latest Personal Finance

Most Read

Latest