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.

Elevator Pitch

I have been trying to come up with a suitable 'elevator pitch' for www.prsa.ie.

This website offers low-cost pension products to those that are have a good understanding of their pension needs and are comfortable choosing products and investment funds.

An 'elevator pitch' is a general overview of of a service, that you could 'pitch' to someone else, during the course of a short 'elevator' ride.

This is what I have come up with so far.

Imagine, for a moment, that you just about to retire. You've saved hard for most of your working life so that you can relax from now on. You are dreaming of white sandy beaches and endless days of sunshine.

All of a sudden, your dream is smashed by the realisation that it is your pension advisor that is lying on the beach, in the place where you should be. How do you feel?

You can prevent this nightmare. By taking a more proactive role in your retirement planning, you can reduce charges and enhance your retirement fund. For details, visit www.prsa.ie.

.

I would be grateful for any comments on how you think I could improve this.

Changes to third paragraph.

First Attempt : You can prevent this.

How? By taking a more proactive role in how you save for your retirement. Spend Time and Save Money.

That is what www.prsa.ie is all about.


Second Attempt : www.prsa.ie can help you prevent this nightmare, by taking a more proactive role in your retirement planning; thus reducing charges and enhancing your pension fund.

Blogger Interview - Niall Brady

What is the best business/investment decision you ever made?
Investing in an SSIA - free money from the government with not too many strings attached.

What kind of car do you drive?I don't own a car - I prefer to cycle - my wife drives a Volvo V40.

What is the worst financial advice that you ever received?
That an endowment mortgage would be the best way to pay for my first home, which I bought in 1992, because of the possibility of an endowment surplus at the end of the mortgage.

Do you own property abroad?
No.

How does the economic slowdown effect you?
It's sure to put downward pressure on pay.

Do you contribute to a pension plan?
I belong to an occupational pension scheme and top up my entitlements by making additional voluntary contributions (AVCs) to a PRSA.

What's your favourite film of all time?
Annie Hall.

Have you ever won money?
I won €1,000 in the Business Journalists' Awards 2007.

Do you own your own home?
Yes.

Do you invest directly in the stock market, through funds or both?I have windfall shares in Standard Life, but most of my stock market exposure is through pensions.

What is your preferred method/system of saving (Deposits, Funds, Shares, Property)?
Deposits and especially pensions because of the tax breaks.

What financial product/s do you consider to be bad value for money?
Insurance cover for day-to-day medical bills. Why bother, when these expenses can be claimed against income tax at your marginal rate?

Do you trust your bank?
Yes, but that doesn't stop me keeping a close eye on my account.


Niall Brady is Money Editor with The Sunday-Times and can be contacted on 01 4792435 or niall.brady(at)sunday-times.ie