What was promised under the Pensions Amendment Act 2002 may not actually exist. Laura Slattery reports

The pension choices open to people switching jobs are being curtailed because a key measure of the legislation introducing Personal Retirement Savings Accounts (PRSAs) does not work in practice.

People leaving jobs with occupational pension schemes are supposed to be able to transfer their pension contributions into a PRSA, according to the rules governing the new style of portable pensions introduced last year.

By law, insurance firms cannot charge consumers for accepting the transfer.

However, they must also provide an actuarial certificate showing that people will not lose out financially by switching the contributions they have built up into a PRSA, rather than keeping them in the original scheme until they retire.

Because this costs money and they cannot impose a transfer charge, insurers are reluctant to accept transfers into PRSAs.

Financial advisers are now expressing frustration that what was promised under the Pensions Amendment Act 2002 does not actually exist.

Mr Alan Morton, director of Moneywise Financial Planning, describes the situation as "preposterous".

In a letter sent to the Minister for Social and Family Affairs, Ms Coughlan, and the chief executive of the Pensions Board, Ms Anne Maher, Mr Morton writes that the legislation is "fundamentally flawed" in relation to transfers and is frustrating the very group of people it was seeking to protect.

On the understanding that the current impasse was the subject of continuing debate, Mr Morton says he has frequently advised clients leaving jobs to keep their fund with their old employer-sponsored defined contribution pension scheme, pending the availability of a transfer into a PRSA.

Moneywise now has a backlog of clients in this position.

"We have a duty to provide best advice to our clients," Mr Morton says, and moving the money into a PRSA has - or would have - several advantages.

First of all, no charges can be levied on the transfer of the fund. Crucially, PRSAs also allow people to escape from the so-called "annuity trap" on retirement.

In other words, instead of using the pension fund to buy an annuity - the fixed monthly pension sum guaranteed for life - people can continue to invest their money after they retire in an approved retirement fund (ARF).

Subject to certain restrictions, they can then draw on the ARF as required throughout their retirement. The money in the fund can be passed onto the holder's estate after their death.

However, defined contribution scheme members are currently forced to buy annuities, which will generally die with them and at the moment are very expensive due to low interest rates.

PRSAs were designed as a flexible way for people to save for retirement. As they are set up as individual contracts between the consumer and an authorised provider, they are not tied to any one employer.

"Part of the rationale for PRSAs was that they would suit people who move jobs every few years, and that's everybody these days," says Mr Morton.

People leaving a job may not join a new occupational scheme for several years, either because they are taking a break from paid employment or because they do not become eligible for a new scheme for some time. PRSAs are a way for people to bridge any such gaps.

But PRSA providers are unwilling to accept transfers because the requirement to provide a certificate of benefit comparison gives rise to substantial actuarial costs, including hefty indemnity insurance cover of about €1 million per case.

"If an actuary gets it wrong, they could be sued," Mr Morton explains.

It is "commercially reasonable" for PRSA providers to refuse to accept transfers, according to Mr Jim Connolly, actuarial services manager at PricewaterhouseCoopers and member of the Pensions Board's PRSA incentive committee.

The Government's focus on increasing the numbers of people with private pensions means that those who are already members of some type of scheme are further down the priority list, Mr Connolly believes.

The certificate of benefit comparison measure was introduced as a safeguard for scheme members and was partly prompted by widespread mis-selling in the UK following the introduction of PRSA-like products known as stakeholder pensions.

Insurers and intermediaries hived off fees as pension scheme members were encouraged to switch into the new schemes.

"We didn't want to see a substitution effect," says Mr Philip Dalton, head of PRSAs at the Pensions Board.

To stem the flow, transfers from an occupational scheme into a PRSA are only allowed where the person has been a member of the scheme for 15 years or less and the scheme is being wound up or the person is changing employment.

Mr Dalton says the Pensions Board became aware last August that transfers of all kinds, including those from schemes that have been wound up, were being prevented by the actuarial requirements.

As a result, a measure has been included in the Social Welfare (Miscellaneous) Bill removing the obligation to provide a certificate of benefit comparison in cases where the scheme has been wound up. This should come into effect on April 1st.

Mr Connolly says he has one client with €1.1 million in a single-member pension who is due to retire soon.

"He wants to put the money into an ARF, but to do that he needs to transfer the money into a PRSA first. The problem is, how do we get it into the PRSA? If we wind the pension scheme up, there's no need for a certificate."

The only other alternative to this type of "cloak-and-daggerish" approach, he says, is for consumers to ask an independent actuary to provide the certificate to the insurance company on their behalf. This can cost several thousand euros - at PricewaterhouseCoopers, €3,000 - meaning "only people with a stinking amount of money are going to avail of it", he says.

Mr Morton has called on the Minister to remove the requirement for a certificate of benefit comparison for all transfers, arguing that the risk of mis-selling does not apply in the Republic.

He is asking the Minister to consider replacing the certificate rule with an obligation on PRSA providers to issue a document drafted by the Pensions Board that clearly spells out the advantages and disadvantages of the pension options available to people leaving their jobs.