Employers who do not offer any type of company scheme will have to give employees access to at least one standard PRSA from next summer, writes Laura Slattery.
Personal Retirement Savings Accounts (PRSAs), the new portable form of pension, arrive on the market this year.
Employers who do not have any type of company scheme at the moment, who exclude certain people from the company scheme or restrict members from making additional voluntary contributions (AVCs), will have to give employees access to at least one standard PRSA from next summer.
Life assurance companies and other financial institutions will sell PRSAs and place contributions in a managed pension fund, which will be invested in a mix of equities, bonds, property and cash.
Although a PRSA is an individual contract with each worker, employers are unlikely to escape their introduction without a few administrative headaches.
Employers have no responsibility for the investment performance of a PRSA, but experts say if PRSA holders are disappointed with the performance of the pension fund, their concerns could still gather on the desk of the personnel officer.
"Some employers may decide 'we've selected a PRSA, we've done our duty, now we have no further responsibility'. But what happens when the provider hasn't performed?", asks Mr Stephen Lalor, pensions consultant at insurance brokers Coyle Hamilton.
If employees are not satisfied with the PRSA provider, for example, if they can't get answers to questions or do not receive benefit statements, they will turn to their employer for help, he says.
As a result, one standard PRSA could expand into many, according to Mr Lalor. An employee may decide he or she wants to switch to another PRSA provider, which they can do so under the legislation without incurring any financial penalty.
But the employer does not have the right to pull all employees out of a PRSA because some are dissatisfied, because each PRSA is an individual contract.
"The employer may decide to offer a second PRSA. Repeat that exercise several times and you end up in a situation with multiple deductions and multiple providers," says Mr Lalor.
"Employees can say 'you've put us into this pension scheme and it's rubbish'. With a defined contribution scheme, the trustees can fire that fund manager across the board. Without their central influence, things could be very, very wobbly."
Multiple PRSAs could become enormously time-consuming, he believes. Giving "access" to a standard PRSA means that the employer must notify employees of their right to contribute to a standard PRSA, make deductions from payroll at employees' request and allow PRSA providers or intermediaries reasonable access to employees to discuss standard PRSA contracts. Employees are entitled to "reasonable" paid leave to do this.
"Employees have to take reasonable time off to get financial advice, but what's reasonable for one employer may not be reasonable for another," says Mr Paul Kenny, head of research at Mercer human resources consultants. "If you can't have people off the job to take financial advice, do you pay them overtime?"
Employees' right to stop, start or change contributions to a PRSA at any time could also result in a lot of administration for employers, Mr Kenny adds.
Some companies operating defined benefit schemes, which guarantee employees a pension based on a proportion of their final salary, are beginning to feel that funding such schemes is too heavy a drain on the company's finances.
In Ireland, the rate of closure of these schemes to new members has been just 7 per cent over three years, according to the Irish Association of Pension Funds, but in the UK the rate of closure doubled in 2002.
Employers must provide access to a standard PRSA to employees who have to wait more than six months after joining the company to be included in the company pension scheme.
Mr Neil Herlihy, senior consultant at Watson Wyatt, expects that some companies who currently exclude employees from their pension scheme for two or three years will bring forward eligibility rules to six months rather than offer PRSAs.
Work patterns have changed. Older defined benefit schemes were designed with long-serving employees in mind, but PRSAs are not tied to any particular employer. This gives more flexibility to people who switch jobs or take career breaks. PRSAs can "act as the glue that holds pensions together," notes Mr Lalor at Coyle Hamilton.
His message to employers: "If this is the only way to provide pensions, then please do it. If you are already doing pensions and you think PRSAs will be less messy, don't be surprised if you are surprised."
