World pension summit
The big pension story over in Ireland at the moment is the advent of the new Personal Retirement Savings Accounts which, predictably enough, are referred to by one and all as PRSAs. They are like our Stakeholder Personal Pensions in that they are targeted at getting lower paid workers to invest their hard-earned Euros in pensions. Like Stakeholder Pensions PRSAs are flexible, low-cost products that are price-capped. Another similarity is that the Irish Government is putting a great deal of faith in the PRSAs achieving the pensions holy grail of increased distribution to millions of currently unpensioned workers.
The price-capping on the PRSA is not as severe as on UK Stakeholder plans as I understand it. The standard PRSA has a maximum 5% entry charge and an annual fund management fee of 1%. This allows for a satisfactory level of commission to recompense those distributing the products and seems to have met with the approval of the main Irish pension brokersí associations.
Commentators in Ireland are hopeful that capping of the new products will not have the same effect on distribution as the capping of Stakeholder pensions has had in the UK. They reason that, while some level of price control is preferable to a free-for-all on pension pricing, it has to work both in the interests of investors and distributors if the spectre of compulsory pension contributions is to be avoided. Our interesting discussions over dinner last night centred around this mainly because the World Pension Associationís annual conference is being held in Dublin next week. Not surprisingly, compulsion is a subject high on the pensions agenda worldwide. Iím not going to be at the conference myself (I only go to conferences I am asked to speak at, obviously), but I will be reading up on what happens with interest when Iím back in Blighty. Iíll probably keep you up-to-date with developments too, if youíre interested.
As I tried to explain to my wife and daughters last night, the Irish pension system with itís highly flexible benefits and sensible approach to the realities of distribution looks like a good model for a massively under-pensioned Europe to follow. Perhaps we could learn some lessons from the Irish approach too. Even though the UK has been the most pensioned part of Europe over the last forty years or so, we canít afford to be complacent. If the UK voluntary pension savings habit stalls now it would, of course, be nothing short of a national disaster. Compulsion would be a poor substitute for us, I think.
24 April 2003
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