Employers risk jail over inadequate PRSA cover

Employers may fail to prepare for the mandatory provision of Personal Retirement Savings Accounts (PRSAs), risking the prospect of a jail term, Bank of Ireland Life has warned on the launch of its PRSA pensions.

Employers must provide all staff who are not members of a pension scheme access to a standard PRSA from September 15th. But, according to recent Bank of Ireland research, 65 per cent are unaware of the arrival of the new flexible pension.

Mr Pat Surlis, national pensions sales manager at Bank of Ireland Life, said there was a very real danger that employers would leave decisions on how to deal with the mandatory access rules until the last minute - "the worst thing possible to do".

Under pensions legislation, employers must give staff reasonable paid leave to receive advice and deduct contributions at employees' request. The penalties for not doing so after the September deadline include fines of up to €12,500 and up to two years' imprisonment.

Bank of Ireland is the second provider to start selling PRSAs, following AIB's entry into the market earlier this month. Using its recent above-average fund performance statistics, the bank is targeting employers in its drive to capture 25 per cent of the market. It plans to contact over 50,000 business banking customers over the next six months.

However, Mr Surlis admitted that it would be no use signing up employers if employees decided to ignore PRSAs. These portable pensions are designed to increase the proportion of workers with a private pension from 50 to 70 per cent. Delays in getting on the property ladder are a "hidden threat" to pensions coverage, Mr Surlis said. "People are saving for a deposit in their 20s and now into their early 30s... Unless more houses become available to meet the demand, people are going to continue renting for a lot longer."

But this shouldn't be a reason to put off starting a pension, Mr Surlis advised, as savers can take contribution holidays under PRSAs if they need to during the first years of their mortgages.

"It is going to take a lot of work to convince people. They're going to need advice and that's a bit of a challenge, given the margins we have to deal with," he said.

PRSAs have a lower margin than traditional personal pensions and company schemes. Charges on standard PRSAs are capped at 5 per cent of contributions and a 1 per cent annual management charge.

Unlike AIB, Bank of Ireland is also selling non-standard PRSAs, which offer a greater range of fund options for sophisticated, pro-active investors.

Bank of Ireland's non-standard PRSAs have an annual management charge of 1.25 per cent - a quarter of a percentage point above the charge on the standard PRSA.