AIB first to market with PRSAs on sale next week

AIB will start selling Personal Retirement Savings Accounts (PRSAs) in its branches from Monday. Ark Life, AIB's life assurance wing, is the first company to market with the new type of low-charge, flexible pension.

This week Ark Life became one of six firms approved by the Pensions Board to provide PRSAs, which have been introduced as part of the Government's aim to increase the proportion of workers with their own pension from 50 to 70 per cent.

Ark Life starts its radio advertising campaign tonight. Television and billboard advertisements will begin on March 10th.

It is the only company so far that has decided to sell just the standard PRSA, where charges are capped by the Pensions Board at 5 per cent of the contributions and an annual management fee of 1 per cent of the fund value.

Mr Brian Woods, finance director of Ark Life, has said he believes competitors will promote non-standard PRSAs more heavily in order to secure a higher profit margin. Non-standard PRSAs do not have capped charges but they offer a greater variety of investment fund choice.

PRSAs are likely to have a huge impact on the level of commission paid to intermediaries. As a tied agent of AIB, Ark Life does not sell through brokers. However, intermediaries are defending the role of advice in the pension selling process.

Mr Paul O'Neill, a Cork-based insurance broker, said investing in a pension fund that was deemed likely to achieve higher growth than Ark Life's funds could outweigh the cost of commissions and extra management charges on non-standard PRSAs. He advised consumers to wait until more PRSAs were on the market before deciding to buy a pension.

"All of the providers will be out there in another three months. For someone who intends contributing €100 a month, it is not going to make any difference whatsoever if they wait three months," he said.

PRSAs are contracts between individuals and authorised providers, who are not allowed set an annual minimum contribution greater than €300.

Under AIB's PRSA, people can invest in a managed fund, euro-zone equities, a euro-zone bond, global equities, a multitrack fund of 1,500 shares, or cash.

All PRSAs must include a default investment strategy, where projected returns should meet reasonable expectations of the average consumer. Ark Life cautions this strategy is unlikely to produce the highest returns.

AIB's default strategy will invest contributions in a managed fund until PRSA holders are seven years away from retirement. Their savings will then be moved gradually to a fixed-interest cash fund.