Sensationalist Heading Here!
A headline for a recent article from a well-known Irish newspaper recently claimed that “Six in every ten euro in a pension pot being consumed by charges”. The article describes a report on Irish pension fees compiled by the Dept of Employment Affairs and Social Protection and circulated through the media. Shocked by this statement, I decided to try to source this report and discover just how it had reached a conclusion that was so at odds with my own experience of our pension charging structure here at Metis Ireland.
The aim of the report was to investigate the effect of fees on pension savings. The 86-page document was a comprehensive read, highlighting that fees which may seem trivial when starting a pension can grow substantially over the duration of the pension policy.
Parts of the report, however, suggested that financial advisors are seeking to charge as much as possible from their clients, at the expense of their financial goals. In my time in Metis Ireland and my experience working with other advisors, I believe this to be a very unfair reflection of the work done by advisors on behalf of their clients.
Beware the Creeping Threat of Costs
If you are a regular reader here, you might recall our blog post in October 2020 titled “Beware the Creeping Threat of Costs”. This concise blog advises that to develop a solid financial plan you need to track the global market, and engage a trusted advisor to help you ignore the noise and stay in your seat.
Management fees, fund expenses and taxes can hamper your wealth accumulation over long time periods. We work alongside our clients to ensure that they only incur costs that add real value to their investment outcome. We advise our clients of the total fee applying to their specific investment strategy and provide a breakdown of the different expense streams that combine that fee.
Using the example in the October 2020 blog if you had invested in the markets in 2010, you could have got a real return of 9.5% per annum by the end of 2018. However, with annual charges of 1.5% attached you would have actually received 7.8% per annum. Or in cash terms, it is receiving €1,832 rather than €2,066.
It is clear from this example that the sensationalist headlines describing the erosion of six of every ten euro by charges on pension investments do not reflect the fee structure within Metis Ireland, and likely within many other advisors also.
Providing for your Retirement
This type of headline is particularly unhelpful at a time when almost half of Ireland’s workers have no private pension.
Those with no current pension provisions in place will likely have to rely on the contributory state pension of circa €13,000 per annum to meet their living expenses in retirement. The current qualifying age for all State pensions is 66 but this is due to rise to 68 over the next number of years. Most people won’t need a financial advisor to realise that they would struggle to maintain their current lifestyle in retirement solely through a state pension income.
Through proper retirement and pension planning we have helped many of our clients to retire early and fulfil their dreams, goals and aspirations through their pension savings. Pensions have a reputation of being for the older generation and something to think about later in life. However, the sooner you start contributing to a pension the higher the pension income you can expect to receive in retirement.
The report suggests that the financial advice industry tries to give the impression that pensions are a highly complicated subject while in reality people will have tackled much more complicated problems when studying for secondary school exams. There may be an element of truth to this, but I have never met with a client who couldn’t benefit from some aspect of our financial planning service.
I doubt the recent reporting will act as an incentive for people to start or increase their pension contributions. We are constantly reminding our clients to be mindful of sensationalist headlines and remember real advice when they watch the news.
Our main objective is to build investment and pension portfolios that are cost-efficient, tax-efficient and diversified – globally, not just in home markets. We carry out regular portfolio reviews to ensure that both your portfolio and your financial plan remain suitable in life’s ever-changing landscape.
At Metis Ireland we pride ourselves that we will always act with integrity and in the best interests of our clients. We are completely transparent with our clients on fees from the outset and advise the fee structure specific to each client as part of our initial consultation.
Anyone considering engaging with an advisor to discuss their pension plans would be far better off to organise an initial consultation rather than listening to the sensationalist and often entirely inaccurate headlines in parts of the media.
Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.
All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.