Jobs initiative and the pension levy
Firstly let me say that I think there were better ways that the government could have raised these funds other than a tax on peoples savings. But the scope of this article is not to investigate that but rather to see what solutions you have to reduce the impact of the levy on your pension.
What first needs to be understood is the way in which pension providers charge you on your pension. This is usually done in a combination of 3 ways and typically all three are used for everyone:
- An annual management fee, this is a fee that is taken as a percentage of your fund on annual basis. This is anything up to 2.5%
- Allocation Rate/bid offer spread/ premium charge, typically for every premium you pay in the company deducts a percentage of it. This can be up to 5%. So for every €100 you put in its possible only €95 gets invested.
- A policy fee. This is usually around €3-€5 per month.
There are some other charging structures on older contracts such as initial units etc but less and less people are effective by these. If you are its been far too long since you got good advice!
What the government are proposing is to effectively increase the annual management fee mentioned in note one. This could leave some people paying over 3% per annum in total from their fund to cover the levy and their charges.
So what’s the solution, get someone independent to review your existing contract. It is very very possible that someone independent will be able to significantly reduce your charges by either reducing the Annual management charge, or improving the allocation rate or improving the policy fee.
Just this week I reviewed an old pension for a client. He was paying a reasonably high premium and was getting charged 8% premium charge, whilst also paying a management fee of 1.75%. Due to the level of his premium, his age, and the size of his existing fund I was able to get him 100% allocation and reduce his management fee by 0.75%.
My advice, if you’re going to get hit with the levy, make sure you are getting best value from your pension provider. Make sure you ask someone independent don’t ask your pension provider to do the review for you.