Tuesday, November 11, 2008

Employers and 'Execution Only' PRSAs

As the benefits of setting up 'Execution Only' PRSAs are gradually filtering through to employees and employers, it is worthwhile to consider some of the issues that come up on a regular basis.

Where the employer has appointed a PRSA Provider and an Intermediary for a PRSA Scheme by salary deduction, there is no obligation on the employer to add another Provider or Intermediary to facilitate an 'Execution Only' service.

If an employee wants to set up a PRSA with a provider, other than the one appointed by the employer, it will be up to the employer to decide if they want to add a new provider. If the employer does not agree, then the only option open to the employee is to set it up by Direct Debit and claim the reliefs 'manually' from Revenue.

If an employee would prefer to deal through a different intermediary, other than the one appointed to the scheme, it will again be up to the employer if they are willing to add the intermediary to the scheme. If they refuse to add an alternative intermediary then the options available to the employee are; to deal with the existing intermediary or set the PRSA up by Direct Debit.

The requirement of seeking approval for an intermediary to be appointed to a PRSA Scheme is one that is imposed by the Product Provider. Because there is a requirement to allow the employee time to set up a PRSA and allow the intermediary access to potential members, a situation could arise where multiple intermediaries were canvassing employees for their business. This could be very time consuming for all concerned.

It is my opinion that this requirement was not fully thought through, especially in relation to those that do not need advice on their PRSA and prefer to transact their business on a low cost 'Execution Only' basis.

You could have a situation where the existing intermediary is not willing to facilitate a PRSA without some contribution charge. This means that the employee could end up paying this charge, even though they have done all the research and would prefer to just pay the 1% Annual Management Charge only; if they want the contributions to be deducted at source through salary deduction.

What employers should bear in mind in this situation is that there is no cost involved in adding an alternative intermediary to a PRSA Scheme. Some PRSA Providers do not have to set up a separate payment method as all contributions from employees can be collected on the one direct debit mandate. In addition, an 'execution only' service precludes an intermediary from contacting other employees. It may also be beneficial to add an alternative intermediary, from a competitive point of view.

If employees want to transact their PRSA on a low cost 'execution only' basis, the employer should also consider the fact that there will be no need to accommodate meetings between the employee and the intermediary, thus saving valuable employer time. If the employer is contributing to the 'execution only' PRSA, there will be no contribution charge on their payment so, the employee will benefit from having additional money being invested in their PRSA.

The ideal solution, for employer and employee, is to have a facility whereby the appointed intermediary will accommodate both an 'advisory' and 'execution only' service. The DIY consumer benefits from more money being invested in the PRSA and the 'advisory' consumer gets valuable direction from the intermediary for the contribution charge or other payment method.

If this perfect solution does not exist and the employer does not contribute to the PRSA, then it is worth the employees time and effort in claiming the reliefs manually by setting it up on Direct Debit, away from the scheme.

If the employer does contribute, then the employee will have to decide whether the benefits of the employer contribution, plus the facility of having the payments deducted through salary, outweigh the savings to be made on the contribution charge.


Pat Quirke said...

You say "The ideal solution...is to have a facility whereby the appointed intermediary will accommodate both an 'advisory' and 'execution only' service." Is this likely? Will an Appointed Broker want the lower fee structure that this would entail?
I agree with you that it was not well thought out in the first place. A further example of the "closed shop" that tends to operate in this country.

Gerard said...

I think that competition may force the hand of the intermediary. If the 'holding' broker is unwiling to budge and the employer realises that he/she may be 'forcing' the employee into a service that is not required; thus making it more expensive for the employee, the employer may have to review the situation.