The publication of the Pensions Bill 2001 has been "imminent" for some time now, but seasons have come and gone with no sign of it. The latest reliable news is that the Bill will see the light of day by Easter.
It will, among other things reveal the details of the new pensions vehicle, the Personal Retirement Savings Account (PRSA), and pensions legislation will be beamed into the 21st century.
The PRSA is an individual investment account which can be used for pension provision by employees, the self-employed, homemakers, unemployed people . . . in fact anyone. It has been described by the Pensions Board as a radical attempt to help those not already covered by pension arrangements to make provision for their retirement.
PRSAs are intended to be particularly suitable for women, part-time workers, contract workers and those in lower paid employment.
So why is this kind of pension vehicle needed? The bottom line is that the Government does not want to have to provide for too many older people in the future. It wants to encourage individuals to take responsibility for staving off "the big drop" in income on retirement.
The social welfare pension will be £106 per week next month. That amounts to about 30 per cent of average industrial earnings and its primary purpose is the avoidance of poverty.
With our increasing prosperity, the question is whether people are going to be content with this level of income after retirement. If not, it's up to them to build up investments that will provide another income stream through a personal pension, unless they are among those covered by company pension schemes or superannuation.
Chief executive of the Pensions Board, Ms Anne Maher, describes the soon-to-be-revealed PRSA as an investment account owned by the individual.
It will hold units in investment funds, which will be held and managed by an approved PRSA provider. It will belong to the individual and can be taken from employer to employer. Contributions can be made on a regular or an irregular basis. Contributions may be made by the individual to a PRSA irrespective of employment status. Employers may contribute but will not be obliged to do so. There will be tax relief on contributions in the same way as for other pension arrangements.
This means full tax relief on contributions made by the individual up to certain limits. It also means employers' contributions will not treated as benefit-in-kind. The investment income and capital gains will be exempt from tax. Under the new legislation, it is intended that charges for the PRSA will be expressed in a transparent way - either as a percentage of contributions or a percentage of the fund. The retirement age will be flexible with the PRSA able to pay out pension benefit at any time from the contributor's 60th birthday. Information will be issued to the contributor by the PRSA provider to ensure the contributor is well informed about the account and is aware of the likely level of ultimate benefit.
Each PRSA provider will be obliged to prepare an investment strategy for each product complying with specific requirements to be set out in the legislation. According to Ms Maher, the Pensions Bill will also introduce universal access to pensions for all employees via payroll deductions by the employer. This requirement will apply to all employers where a pension scheme is not already being operated.
The employer is not obliged to pay into this pension arrangement but it will mean that every employee in the Republic should have easy access to a pension arrangement and must be facilitated in maintaining access.
There are several stumbling blocks that the new PRSA scheme will have to negotiate. First, it will need to be worthwhile for pension providers to get involved in if there is to be a degree of choice for the consumer.
Ms Maher admits this is a concern for policymakers and she does not expect a large number of providers to emerge. As cost will depend on volume of business, the PRSA needs to attract a good number of contributors to succeed.
Secondly the idea has to be sold to the public. Lack of information and awareness have been cited as reasons why people do not make pension provision for themselves. But there's also human nature, we're not all squirrels storing up nuts for the winter and some people find it very difficult to put aside money today that they will not benefit from for decades.
The latest disincentive to begin investing in a PRSA comes in the form of competition from the Minister for Finance's special savings incentive scheme. For those who can only afford or will only bother to participate in one new scheme at a time, the direct, simple and short-term benefits of the savings scheme may appear more attractive.
The Department of Social, Community and Family Affairs says these are issues being examined between that Department, the Department of Finance and the Pensions Board. However, a spokeswoman for the Department said the PRSA and the special incentive savings scheme were two different products and it did not envisage any conflict between the two of them.
The Pensions Board has been comparing the two and will be advising the Minister Mr Dermot Ahern on any implications for the PRSA.
So what happens if the PRSA does not succeed in increasing pension coverage?
The Pensions Board has recommended certain targets. It will monitor coverage and aims to ensure that with the new scheme the percentage of the population with pension coverage will rise from roughly 50 per cent of the workforce aged over 30 to 70 per cent.
If this does not happen, Ms Maher believes consideration should be given to moving from the present voluntary private pensions system to a mandatory one.
