Friday, August 15, 2008

PRSA (Bashing)

It is rare these days to find a positive piece of press about the humble PRSA. Indeed, I cannot recall that many laudatory articles since they were introduced, back in 2003.

This has got me wondering as to why some sectors of the media are constantly portraying the relative success of the PRSA, as less than impressive. A recent article used such words as 'PRSA debacle' and 'abject failure' to reinforce their arguments against the relative success of the product.

Let's be clear on one thing, I do not think that anyone, who understands pensions, is deluded enough to think that the introduction of a new pensions product, in isolation, would be a panacea in increasing pensions coverage.

There has always been a problem with getting people to put away money for their retirement, as the soft option is to rely on the State to sort that out for us. Survey after survey tells us that, we are aware that there is a need to make some private pension provision. Alas, this was not likely to happen, when the country was caught in the euphoria of an earn and spend cycle for the last number of years.

'Pension Coverage' is an issue for everyone, and not just one for the Pensions Board or pensions industry to sort out, we all have to play our part. The critical issues, as I see them, are education on pensions , creating an ‘awareness of need’ through publicity and introducing tax-relief equality measures for the lower paid.

There has never been a better time to push the 'pension coverage' issue to top of the agenda, as there is nothing like a mini-recession to focus the mind on the future. The Pensions Green Paper has to look at the inequities of the tax-relief regime. If there is any intention by the relevant Department to defer actions on coverage due to the current economic climate, it is my opinion that this would be a monumental error of judgement on their part.

As an industry practitioner, I welcome any effort, from any source, to increase coverage. The introduction of the PRSA, five years ago, has been a revelation for consumers. There is no doubt that pensions coverage has increased, albeit in a manner that is probably too slow for those who are critical of PRSAs. There has also been a massive indirect benefit to consumers in the form of downward pressure on charges on pension products.

Between June 2005 and June 2008 there was an increase of 136% in the number of PRSAs taken out. This increase was achieved despite the fact that there was only ONE PRSA Product Provider who actively marketed their offering. There are, probably, still product producers that are willing the humble PRSA to fail as they don’t like products that they haven’t wholly designed themselves.

The PRSA naysayers are critical of the way the product has ‘missed’ its intended market. They cite the self-employed as being buyers as opposed to the lower paid. Any increase in coverage, however serendipitous, is to be welcomed, especially if it means that the consumer is getting a more competitively priced product. It could also be that those that are price sensitive and more au fait with the products see the merits of the PRSA.

In summary, to describe PRSAs, in isolation, as an ‘abject failure’ at this stage of the process is a bit premature. It is not helpful to those that may be considering putting one in place, as it makes it easier for the consumer to defer the decision on pension to a later date.

As I said at the start of this article, we all have our part to play on this issue. A change of focus, to assisting others who do not have the knowledge or awareness on pensions may go some way towards achieving the intended targets for coverage.

NB : Do bear in mind that I have a vested interest in the subject matter of this article.

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