Employers 'not doing enough' when it comes to PRSAs

It's National Pensions Action Week, and the Pensions Board has asked employers to allow time for staff to get advice on their pension options.

The chances are that the type of pension that these employees should be investigating is a Personal Retirement Savings Account (PRSA).

Introduced in 2003, PRSAs are individual contracts, not tied to any one employer. They are sold mostly be insurance companies and can be used by self-employed people, homemakers, carers, unemployed people and employees who are not members of company pension schemes to save for retirement.

PRSAs were launched on the market in order to achieve the Government's aim of increasing the proportion of workers with their own pension from 50 per cent to 70 per cent by 2006.

Since PRSAs became available in April 2003, over 50,000 contracts have been sold.

Mandatory access legislation requiring employers to give all employees access to some kind of pension after six months' service also had the effect of increasing the numbers who are members of occupational schemes, with the result that pensions coverage among workers has crept up - but only to 52.4 per cent at the last count by the Central Statistics Office (CSO), rising to 59.1 per cent for the over-30s.

The slow pace of change has forced the Pensions Board to bring forward its review of recent pensions initiatives, including PRSAs, to this year. An interim report will be sent to the Minister next month, with the final report submitted in late summer.

The Pensions Board's chief executive, Anne Maher, has said she is very concerned at the number of "shell" PRSAs that are in existence. "Shell" PRSAs are where an employer has designated a PRSA provider, but no employees from the company have chosen to contribute to one.

The most recent figures available, dated to the end of March, show that 71,634 employers have appointed a PRSA provider in compliance with the law. But employees have only taken up the PRSA provider on their offer at 7,245 of the companies, meaning 90 per cent of PRSA designations are empty.

Among the 7,245 companies where some employees have decided to contribute to a PRSA, some 22,162 PRSAs have been sold.

In other words, the average number of employees contributing is just over three per firm.

In some ways, this low average should not be surprising, as it is smaller companies that tend not to run expensive occupational schemes and are more likely to have to offer PRSAs as a result.

But as far as the 90 per cent of companies where no member of staff is contributing are concerned, the Pensions Board couldn't be clearer: employers are not doing enough.

"It is not enough to just notify employees that the company has a PRSA provider if they so wish. We would like employers to ask their PRSA provider to come in and talk to employees who do not have pension provision," says Maher.

What the Pensions Board would really like is for employers to agree to contribute to PRSAs, the way they do to standard occupational pension schemes. This would incentivise employees to take one out and contribute themselves.

As with all pensions, contributions to PRSAs benefit from tax relief at the highest rate at which the holder pays income tax, subject to annual limits.

Employees also receive further relief from PRSI and the health levy worth 6 per cent in total, meaning a contribution of €100 has a net cost of €52 for someone who pays tax at the higher 42 per cent rate.

Employers also benefit from PRSI relief on contributions made by their staff, so they pocket a saving of 10.75 per cent on the value of any employee contributions.

The Pensions Board has examined the possibility of obliging employers by law to pass on this saving to contributing employees, thus encouraging more people to take out PRSAs. But it has concluded that the administrative expense would outweigh the benefits.

Employees who are excluded from an occupational pension scheme but have heard nothing from their bosses about a PRSA should ask their employer about appointing a provider.

If the employer ignores the request in defiance of the law, employees can always blow the whistle using the Pensions Board's lo-call information line on 1890 656 565.

Employees should also check their rights in the event their employer runs an occupational scheme for certain employees only and is preventing them from joining.

The company may be breaking the terms of part-time and fixed-term contract workers legislation, which say that these workers must be treated equally in relation to pensions.

As an occupational pension scheme will include an employer contribution, it is likely to generate a higher pension in retirement than a PRSA.