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Irish find room for charges in new pension plan

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&#39s 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

to investors.

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.

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