High PRSA charges 'defeat the purpose' of low-cost plan
CHARGES for personal retirement savings accounts (PRSA) are among the highest of all pension types, a new book has claimed.
PRSAs were originally designed to be a low-cost product with the aim of having mass appeal.
But standard PRSAs have costs that can be as high as 5pc on each contribution and 1pc a year on the total value of the fund.
Under legislation, these are the maximum charges but many life companies that provide standard PRSAs charge exactly that.
The charges are higher than those for other types of pensions, according to 'Personal Provision of Retirement Income' by Jim Stewart and Gerard Hughes of the left-leaning inequality think-tank TASC.
"The maximum charges that were finally agreed for the standard PRSA are not cheap and are towards the top end of what is normally charged for personal pensions," the book says.
High charges are imposed despite the fact that PRSAs were designed to be low cost and intended to encourage people to save for retirement.
In comparison, charges for an Irish Life personal pension are lower at €3.80 per contribution, and 0.9pc of the accumulated fund, while a typical personal pension contract has a 5pc charge on each contribution and a 0.75pc annual fee on the total fund value.
Higher charges are imposed by Cornmarket Group for additional voluntary contributions for teachers.
PRSAs were introduced in 2003 by the Pensions Board in an attempt to increase pension coverage.
The idea was to encourage the lower-paid and self-employed to start making some pension provision for themselves.
The intention was for PRSAs to supplement the state pension.
But seven years on, just 165,000 PRSA contracts have been taken out, with a total €1.7bn invested in them.
Dr Stewart said at the launch of the book yesterday: "We argue that PRSAs have made relatively little contribution to solving the pension coverage issue."
He added that the Pension Board's figure of 165,000 PRSAs overstated the numbers as some people have two contracts while many have stopped contributing to them.
"PRSAs have not been very successful and there is a very high drop-out rate.
"Costs have tended to be relatively high compared with other countries," the Trinity College academic said.
TASC said state pensions should be increased by around €40 a week and made available to all. It also proposed a social insurance-based second-tier pension.
Together, the universal state pension and the social insurance-based second-tier pension would provide people with 50pc of their final wage or salary, up to a specified maximum.
It also recommended that the ceiling on earnings taken into account for contribution tax relief purposes be reduced to €75,000 from the current €150,000.