Less than a week after stakeholder was launched in the UK, the Irish
government announced plans for “a key element in our comprehensive pension
plans for the 21st Century”.
The announcement referred to the planned introduction of the Personal
Retirement Savings Account and the accompanying description of it as
lowcost, easily accessible and portable will inevitably invite comparisons
with stakeholder. There are certainly a number of similarities but there
are also some very important differences, especially on charges.
Looking at the similarities, employers which do not have occupational
schemes must provide employees with access to at least one PRSA and must,
at the request of an employee, deduct and remit contributions to the
provider. Like stakeholder, people will be able to contribute irrespective
of their employment status. Each PRSA will have a default investment option
and there will be a central register of all PRSA schemes.
Contribution limits bear some similarities to stakeholder but, instead of
a £20 minimum contribution, at least £240 must be paid each year
and each contribution towards that £240 must be at least £5 if
paid by electronic means, such as direct debit, or £40 otherwise.
Contributions can stop and start without penalty.
The main difference is in the area of charges. Like stakeholder, there are
rules about what can and cannot be charged on a PRSA. Policy fees and exit
charges are banned and charges must be expressed as a percentage of the
fund and/or a percentage of each contribution.
In a feature which resembles Catmarked and non-Catmarked Isas, providers
can offer standard PRSAs where the maximum charge is 1 per cent a year of
the fund and 5 per cent of each contribution (except contributions in
respect of transfer values) and non-standard PRSAs which can have higher
charges which must be expressed in the PRSA format. The employer access
requirements referred to above are in respect of a standard PRSA.
A PRSA is a contract between the individual and the PRSA provider – there
is no reference to separate scheme managers or trustees. In this respect,
it resembles the thinking behind the UK's plans for Personal Investment
Accounts and it is the intention that employees can take their PRSAs with
them when changing jobs.
Furthermore, there are no references to any concurrency restrictions.
People who have contributed to AVCs can transfer their funds to a PRSA.
Benefits can be taken from age 60.
One departure from stakeholder pensions which might be met with mixed
feelings is that each PRSA must have an actuary. This person will certify
that the charges made by the PRSA are consistent with the description given
The Irish government intends having the relevant legislation enacted by
the end of this year to allow PRSAs to be sold from early 2002.
It has a reputation for taking ideas for financial services legislation
which may have started in the UK and adapting them for its purposes in a
manner which places the minimum number of obstacles in the way of
prospective providers of these services. Its plans for PRSAs do seem to
mirror stakeholder in several ways but without many of the restrictions
which exist with stakeholder.
As a rough equivalent, 1 per cent of the fund plus 5 per cent of the
contributions brings in the same amount in charges over time as 1.25 to 1.5
per cent of the fund, which was the level of charge which many originally
argued for under stakeholder.
By insisting employers with no occupational scheme must promote a standard
PRSA, the Irish government will be hoping these become the norm but it has
not ruled out the option to offer non-standard PRSAs.
I imagine many UK providers and advisers will be following with interest
the progress of this Irish initiative.