A high level of employer apathy and a plethora of products has lessened the impact of the new pension option so far, reports Laura Slattery
The deadline for employers to comply with new pensions legislation has passed. By last Monday, employers were by law required to offer employees excluded from occupational pension schemes access to a Personal Retirement Savings Account (PRSA).
So what happens next?
Getting employers to sign a piece of paper appointing a bank assurer or insurance company as their designated PRSA provider won't all by itself make any difference to the Government's objective of increasing pension scheme coverage from 50 per cent of workers up to 70 per cent.
PRSA providers and the Government must convince employees who have been denied access to occupational pensions up to now of the need to save for retirement.
Employees should, in theory, have been told that they are eligible for a company pension scheme - or will be after six months' service - or that they can contribute to a nominated standard PRSA through payroll deductions. Employees who are not facilitated in their wish to contribute to a standard PRSA through payroll deductions can call the Pensions Board's lo-call telephone number, 1890 65 65 65, to report their employer for non-compliance.
Some employers will have taken the easiest possible route to making themselves compliant - one provider advertised services that would complete the process within three minutes, while another promised it would take just 60 seconds.
"The real deadline is when providers start to sign up employees," says Mr Brendan Johnston, pensions director for Eagle Star, which has signed up 6,000 employers. "A lot of \ would have signed up on the basis of a mail shot, but there's still time to change providers," Mr Johnston says. "Nothing has changed hands except an agreement."
Another big deadline for PRSA providers is October 31st, the deadline for 2002 income tax returns and the date by which self-employed people will backdate their pension contributions.
Most self-employed people already contributing to a personal pension will not switch to a PRSA because charges on their pension would have been front-loaded. But providers will still hope to pick up PRSA business from new self-employed savers.
Irish Life claims a 50 per cent share of the market for individual PRSAs, but the actual numbers sold have not been high, standing at fewer than 2,000 some weeks ago.
Mr Denis Casey, chief executive of Irish Life Retail, says this is because providers spent the summer pursuing employer designations. "It's too early to say sales are low. Designations are being seen as a gateway to more business," he says.
By the September 15th deadline, Irish Life signed 7,000 employers, which it says represent an estimated 150,000 employees and about 30 per cent of those employers who actually complied with the legislation.
Mr Casey is still concerned that there is "a high level of disinterest" among many employers.
He estimates that somewhere between 30,000 and 40,000 employers have designated a PRSA provider out of the 170,000 registered employers who were sent information by the Pensions Board.
"We are disappointed that in the run-up to the September 15th deadline, there was not more advertising from the Government," he says. It now has a key role in helping PRSA providers encourage those yet to get involved to do so, he adds.
Employers who do not comply with the legislation may be found guilty of a criminal offence. But Ms Anne Maher, chief executive of the Pensions Board, said last week that it would not be knocking down employers' doors to fine them up to the maximum €12,700 or impose jail terms of either one or two years just yet - it does not have the resources to do that.
Employers will be given the chance to explain why they have not complied and take steps to fulfil their obligations before they are prosecuted.
"There are sanctions that can be used against employers who have not designated and there are questions about why wouldn't those sanctions be used at this stage," says Mr Casey.
Mr Jim Connolly, actuarial services manager at PricewaterhouseCoopers, believes the mishmash of standard and non-standard PRSAs and inconsistencies in how their sale is regulated thwarts the spirit of what the legislation is trying to achieve.
"The compliance has certainly been reduced for PRSA sales, but there are still 14 bits of paper that I need to give you if I want to sell you a PRSA, compared to zero bits of paper that I need to give you under an occupational pension," Mr Connolly, a member of the Pensions Board's PRSA incentive committee, says.
In addition, transfers into PRSAs are so awkward, consumers may find it almost impossible to get a provider to accept their transfer, he says.
Providers must do actuarial analyses that prove consumers are not losing out by switching, but as transfers must be free, they cannot charge anything for this work.
Mr Connolly believes the Government could have achieved its 70 per cent coverage target more easily if, instead of adding PRSAs to the mix, it had simply introduced a requirement for employers to extend an occupational pension scheme to all employees.
At the Pensions Board, Ms Maher says she has seen two positive spin-offs from the pensions legislation already.
The charges on standard PRSAs have driven the cost of pensions down, she notes. Second, some employers, rather than going down the PRSA route, have introduced or extended their pension scheme, leading to higher membership of occupational schemes.
