How do I find someone who can give truly independent advice on my retirement fund?
I AM due to retire at the end of next month. I am in a defined contribution (DC) scheme and wish to purchase an approved retirement fund (ARF) when I retire. I wish to get an independent evaluation and advice on the types of ARFs that are on offer, all the costs and risks associated with these funds, which ones may suit me, and so on. How do I go about getting a truly independent bona fide qualified adviser?
Tony, Ashbourne, Co Meath
YOU can get financial advice from many sources including banks, insurance companies, stock brokers and insurance brokers. Financial advisers must be authorised by the Central Bank to carry out this service and you can find a list of authorised advisers on the Central Bank’s register (http://registers.centralbank.ie).
Individuals giving advice must have a minimum level of competency (as a qualified financial adviser) but this does not necessarily mean that the advice they give is independent. Typically, where an adviser is representing a financial services firm such as a bank or insurance company, he will be recommending that company’s products.
Talk to a few advisers over the phone or in person before choosing one. Ask them how many financial services or ARF providers they deal with and ask how they get paid. Find out if the adviser is paid by fees or commissions? Ask how much experience he or she has in providing pensions advice? If the answers you get are all “jargon” rather than open, you need to talk to more advisers — pensions can be a complex area and you need an adviser who will be open with you and who you can easily understand.
As you are retiring from a defined contribution scheme, your employer may have a preferred adviser who fills the above criteria and could therefore assist you when you are about to retire. This is a service my organisation provides to our clients and perhaps similar arrangements exist for you. I’M self-employed and thinking of opening a Personal Retirement Savings Account (PRSA). Is this a good idea and how can I protect the money I save into a PRSA?
Fiona, Donnybrook, Dublin 4
OPENING a PRSA to save for retirement is a very good idea. Contributions to a PRSA attract tax relief and the funds where contributions are invested are exempt from tax. You can choose the degree of risk you wish to take on when investing your contributions.
As a general rule of thumb, the younger you are, the more risk or the more adventurous you can be with your investment decisions. The nearer you get to retirement, capital protection with modest growth is likely to be your goal. Your contributions should be invested in a well diversified fund. This could be in a single fund that invests in a global index of company shares. Or it could be a fund that provides diversification by investing in different asset classes or across a number of different funds and fund managers
During the period you are seeking to grow the value of your PRSA, it is very likely that you will experience some volatility. It is possible, especially in the early years of your PRSA, that the value of your PRSA could be less than you put in. Over a long period of time, market volatility smooths out and with an appropriate investment strategy, you should see growth in your fund value..
There are two types of PRSA, a Standard PRSA and a non-Standard PRSA. Standard PRSAs must operate within defined charges and investment options and this is most likely the type of PRSA to suit you. Non-standard PRSAs may have higher charges and they typically provide access to a wider range of investments including direct investment in shares and property. Borrowing may be a feature of these types of investments and can result in heavy losses where markets are negative. Such investment can equally have excellent up-side in positive markets. These types of investments are for the more experienced, hands-on type of investor.
The PRSA environment is well regulated. The Pensions Authority and Revenue Commissioners are jointly responsible for approving PRSA products. The Pensions Authority supervises the activities of PRSA providers in relation to their approved products and it also monitors compliance with PRSA legislation. The Central Bank of Ireland is responsible for the prudential supervision of PRSA providers and the supervision of the sales process of approved PRSA products. The Pensions Authority maintains a register of PRSA providers and their products. There are currently 14 PRSA Providers on the register; however one of the companies listed on the register is in liquidation.
You should seek advice from an independent financial adviser who can assist you in choosing an appropriate PRSA provider and directing you to an investment strategy that suits your risk appetite. I AM a member of a defined benefit (DB) pension scheme through work but I am concerned about the financial viability of the scheme. There is a lot of talk about it running out of money. Is there anything I can do to boost my pension and safeguard against the potential demise of my DB scheme?
John, Dun Laoghaire, Co Dublin
IF someone is a member of a DB Scheme, they have little or no control over the management or funding of the scheme. This at the discretion of the employer.
The scheme’s trustees are tasked with ensuring that minimum funding levels are achieved. Reducing benefits, closing the scheme to future accrual, or winding up the scheme are all concerns that face DB scheme members today.
The stability of a DB scheme basically comes down to the financial strength of the sponsoring employer and how committed the employer is to keeping the scheme.
A well-funded DB scheme with an employer who is committed to the continued existence of the scheme is the optimal pension vehicle to be a member of.
If you are a member of a DB scheme that is poorly funded and the employer is reluctant or unable to continue to fund deficits, then there is a strong possibility that the scheme could either reduce benefits or indeed be wound up.
In a wind-up situation, the trustees are required to ask the sponsoring employer to fund the deficit — however, the employer is not legally obliged to do so. The employer may have voluntarily entered into a covenant to fund the deficit and if so, the trustees have a better chance of maximising the benefits of the scheme members.
Quite a number of DB schemes have reduced future benefits rather than wind up the scheme.
In such cases, members should look to make up any shortfall in benefits by making Additional Voluntary Contributions (AVCs) — an arrangement whereby you top up your pension.
Similarly, if a DB scheme has ceased to accrue future benefits, then members will typically be given the option to join the company DC Scheme. They should do this and make AVCs to maximise the funds available at retirement.