Stakeholder pensions will go on sale in the UK from April 2001 and the Irish pensions industry will be watching closely. As it happens, a new pensions arrangement bearing a close resemblance to the stakeholder is expected to be introduced to the Irish market next year. The personal retirement savings account (PRSA), details of which are expected to be announced in the Pensions Bill in the new year, is motivated by similar policy considerations as the British scheme. In each case the governments are aiming the new-look pensions at sectors of the population that are currently not providing for their own retirement. Because of changing demographics, which will lead to the population comprising a greater proportion of older people in the future, policymakers today are anxious to increase personal pension coverage. PRSAs and stakeholder pensions have another key feature in common, the element of compulsion. Employers will be compelled to provide access to this kind of pension cover. In the UK, this only applies to companies with more than five employees. It is thought unlikely that such an exemption will apply here. Market analysts in the UK have commented that the prospect of employer compulsion is the main thing making stakeholder pensions attractive to pension providers.
The new pensions model is being sold as simple, cost-effective and flexible in the UK. Stakeholder pensions will be open to people who are not in paid employment. Currently, only earned income can be used towards a pension, thus excluding women and men who work in the home or carers from the pensions net. The same groups in the Republic stand to benefit from PRSAs, but we don't know yet how simple or cost-effective they will be here. With the stakeholder there are no upfront or exit charges and a maximum annual charge of 1 per cent. If PRSAs can offer more favourable charges than traditional pensions, that would be a strong selling point.
PRSAs are expected to have the same degree of flexibility as stakeholder pensions. There are no penalties for stopping or restarting contributions in stakeholder pensions. The main unknown for both schemes, according to pensions lawyer, Mr Brian Buggy of Matheson Ormsby Prentice, is whether a new pensions model will make people interested in saving for their own retirement.
Mr Buggy believes that unless the PRSA is an initial success it will not be a success at all. Therefore, he argues, a major awareness campaign will be needed to bring people on board. PRSAs, like stakeholder pensions, will be distributed to three main markets - affinity groups, the workplace and individuals. According to Datamonitor market analysts, with the exception of trade unions, affinity organisations will fail to live up to the hype. Datamonitor predicts that the key battleground for stakeholder business will be the workplace, especially among small and medium-sized employers. It will probably be the same with PRSAs here.
