Employers must choose PRSA advisers carefully to make sure staff get the policy that suits them, writes Laura Slattery

Employers who do not operate a pension scheme or exclude employees with more than six months' service from any scheme - and who have no intention of changing that policy - should be familiarising themselves with a new acronym before September 15th: PRSA.

PRSAs - personal retirement savings accounts - are the new kids on the pensions block, the products created to boost the number of Irish workers with their own pension plan. But employers should choose carefully who they allow to advise their employees on the ins and outs of PRSAs.

If employees are mis-sold a PRSA, the first person they will blame is the employer which invited the sales agent or broker to speak to staff in the first place, warns financial adviser Mr Paul O'Neill of Cork-based intermediary J.P. O'Neill Financial Management.

"Employees believe 'if my employer trusts this guy, so can I'," says Mr O'Neill.

Employers who rush to the nearest bank in the second week of September to get a letter of appointment signed before the mandatory access deadline will be less likely to double-check that contributing employees are not being misled or bamboozled by jargon-filled policy documents, he argues.

Mr O'Neill has discovered one case of a low-income worker who was sold a non-standard PRSA, despite the fact that these are only recommended in limited circumstances for people with near-specialist knowledge of the investment market.

"He knows nothing about the stock market, the same as everyone else. In 15 minutes it was done. He was sold a non-standard PRSA with the funds being chosen by the agent. There was no factfind or anything else," he says.

At no point was the individual told the difference between a non-standard or a standard PRSA or even that two different types existed.

Agents who sell the non-standard variety make hundreds of euro in extra commission, while individuals' pension funds may be significantly diminished by the higher charges on most non-standard PRSAs.

Charges on standard PRSAs are capped at 5 per cent on contributions and a 1 per cent management charge, but there are no such restrictions on non-standard PRSAs.

Even an extra quarter of a percentage point on the annual management charge could reduce a person's pension fund by almost €11,000, based on a €300 monthly contribution over 30 years and assuming growth of 6 per cent per annum on the fund.

Fears that these more expensive PRSAs will be pushed on consumers recently prompted the Irish Financial Services Regulatory Authority (IFSRA) to introduce new regulations on their sale.

Firms will not be able to sell non-standard PRSAs to customers without a signed declaration from both parties that all relevant information has been given and all risks have been pointed out.

Firms will also have to give customers a copy of IFSRA's consumer factsheet on PRSAs.

"We do not want consumers encouraged to purchase a non-standard PRSA when it is not required, simply to generate additional revenue for the financial institution," warned consumer director Ms Mary O'Dea.

Mr O'Neill believes this is exactly what is already happening.

"If it's going to happen once, it's going to happen wholesale," he says.

Mr Liam Ferguson of brokers Ferguson & Associates says IFSRA's intervention will protect consumers.

"If a non-standard PRSA is recommended to a client, the broker will really have to make a great effort and show on the file why a non-standard PRSA was in the best interest of the client," says Mr Ferguson, who runs a site called www.prsacentre.com.

Mr Ferguson believes brokers will be cautious about selling non-standard PRSAs to the point where some may be wary of selling Standard Life's PRSAs, which are non-standard to allow customers access to its with-profit funds, but currently have standard charges.

"All IFSRA-regulated intermediaries are subject to occasional and random audits," he notes.

As pensions are the longest of long-term investments, intermediaries would carry the risk of a mis-sold product around for decades, along with the possibility that their customers could complain to the regulator at any time and trigger a full-scale investigation into their sales practices.

Tied agents employed by banks and insurance companies typically move from town to town and job to job and do not have to worry about that risk to the same extent, Mr O'Neill says. "They have got their targets, and that's all that matters to them."