Interview with Anne Maher of the Pensions Board - Jill Kerby - Irish ...

coverstoryPRSA’S TODOMINATE2003PENSIONSBOARDAGENDAby Jill KerbyFor Anne Maher, the Chief Executiveof the Pensions Board, 2003 will bethe year that finally bears the fruit ofsix years of hard effort on her part and thatof her Board: the long awaited PRSA –Personal Retirement Savings Account – isfinally a reality and will be available for salethis spring.Whether it will capture the imagination ofthe buying public – the low paid, contractworkers, self-employed, and especiallywomen workers whose pension coverageis below the national average – is anothermatter.The reception so far has been mixed.Applications by the pension industry wererelatively muted initially with nine providersseeking initial approval, though there hasbeen interest from 17 of the 19 providers.Not all are expected to be approved rightaway. And even if they were, there is anexpectation (as in the UK with theStakeholder scheme) that a few will dropout by the time the three year reviewcommences in 2006.All of the larger Irish life companies will beparticipating in the market initially, says MsMaher. “I’ve heard the criticism that theyare not going to make much of an effort topromote and advertise the PRSA becausethey are unhappy with the chargesrestrictions, but they will hardly spend allthis money and time to join the PRSAscheme and to make themselvescompliant with the legislation and then donothing to actually promote the products. Ithink that is highly unlikely. Everyoneagrees that pensions are sold and notbought.”She is also aware of the criticism beinglevied at the Board for allowing the sale ofnon-standard PRSAs (which have norestrictions on charges and fees) to besold without a requirement for acomparison with the Standard PRSA. Isshe not concerned that there could bemisselling by intermediaries who willconcentrate on the non-Standard versionbecause of the opportunity to earn ahigher commission?“I am pleased with the quality of theapplications so far and the fact that thereis a good mix of standard and nonstandardPRSAs being presented.What we can’t know is whether thecompanies will push one over another.We will have to wait for sales statisticsto come in before that can bedetermined,” she insists.“People who are not covered at themoment by any kind of a pension, andwho are the people who have alwaysbeen the primary target for PRSAs– employees in a company with nopension scheme, the lower paid,contract workers - would bebetter suited by the StandardPRSA product.“But there will be a reviewdone in three years. Wehave put in place withthe CSO that theywill undertake thesurvey in firstquarter of 2004and 2005 and thena full survey in the firstquarter of 2006 andthat this will be thebasis of theprogress report to Government.“We hope that the good publicinformation campaign that will be doneover the period will help to prevent theconsumer from taking up the wrongproduct. If the statistics show there is aproblem [with more non-Standard thanStandard PRSAs being sold] andcoverage has not increased, then there isthe option to make pensionconverage mandatory.But clearly thatwould have tobe consideredagainst thebackground ofemployment inIreland,employersattitudes andthe state of theeconomy atthe time.”Winter 2003 irishpensions 7

coverstoryAsked whether she thought making publicthe results of any surveys into the volumeof Standard versus non-Standard PRSAsales should be considered Ms Mahersaid, “I suppose this would be usefulinformation.“I think it will become fairly obvious, fairlyquickly, if there is a problem in the sale ofthe PRSAs. Requiring Standard and nonStandard quotes to be presentedtogether at point of sale may have beenone way to try and prevent misselling.But if a sales person genuinely wants tomis-sell, even if they are required topresent two quotes, they are still alonewith the customer and may be able toconvince them to buy the more expensiveone. And while it might be a good idea tomake them present both cases, I can’tsee that in itself it would preventmisselling.”The summer of 2003 will certainly bedominated by all things PRSA-related, forthis is when the Pensions Board’s half amillion euro advertising and promotioncampaign will get under-way, but there area number of other pressing issues for theBoard.Simplifying the increasingly complicatedpension scene is an on-going issue inwhich the Board is working closely withthe Revenue and other industrypractitioners, including the IAPF.Proposals to standardise pensioncontributions to the various pensionschemes are with the Revenue and shehopes that they will be addressed asamendments to the Finance Act.“It was originally envisaged by the originalNPPI proposal that there would eventuallyonly be two pension systems in place –the occupational system and PRSAs.The difficulty is that when something isalready in place, it is hard to take it away,especially when there are alwaysindividuals who want the existing systemto remain.“We did touch on the bigger issue ofwhether we should move in Irelandtowards principle-based regulation ratherthan prescriptive-based regulation, but itcan’t be done overnight. On the one handwe are all conscious of the need tosubscribe to a more simplified pensionregime, yet in practice we are also issuingall sorts of new regulations and legislationbecause of the introduction of PRSAs. Iaccept that it all adds to complexity. “The simplification of pensions is “easy”,she concedes, “only when you start with agreen field.”Anne Maher, Chief Executive Officer and Gráinne Clohessy, Chairperson,The Pensions Board.NOT EXCESSIVEShe vehemently denies that the cost of allthe new regulation and supervision ofPRSAs, which is raised on a once-off andthen per-product basis from the providersis excessive. The system adopted here isfairer than the UK one, she says, and“judging by the strong level of applicationsfor approval so far has clearly not put offproviders.” Either way, she says thecharges that are being levied are still notsufficient to meet all the Pension Board’sadditional costs or the cost of promotingthe new product or the on-goingeducation and information campaign theBoard hopes to undertake.There is no one more aware than AnneMaher about how difficult and how timeconsuming it will be to convince ordinaryworkers - and more employers - to makegreater provision for their retirement.They will start the campaign by focussingon individuals – “telling them aboutpensions and why they should have oneand how to go about it” – as well as withemployers, “who are the best conduit fordelivering PRSAs and how they cancomply with their requirement to provideaccess to a PRSA for their employees.”After providing employer informationpacks, they will spread their budgetfurther into the community in the form ofseminars and other information sessionsand eventually to try and get the messageacross to youngsters in school about themerits of early pension saving.“This campaign has to be ongoing – weenvisage at least a three year period –Also as part of the campaign we want totake the message to younger people inschools. There is some evidence thatyoung workers who were earning highsalaries were making contribution for thetax relief.”The fact that the SSIA scheme was leftuntouched in the last Budget didn’t do thePRSA cause much good, concedes MsMaher, but SSIA’s have encouraged asavings culture again. “PRSAs are not soeasy to explain as SSIAs,” she says, “theyare more complicated, what with thetax relief and the different fundingcontributions. But PRSAs may ultimatelybenefit from the SSIAs if people can beencouraged to redirect their funds intoone when their SSIA matures.“But this campaign isn’t just about gettingpeople to take out a PRSA. There is awider issue of funding adequacy. Wehave to also get the message across thatputting 5% into a pension and youremployer putting another 5% is just notenough to provide for a satisfactorypension income. “FUNDING STANDARDSWhich leads to the other key issue that theBoard are already monitoring closely -funding standards within existing DBschemes. Three years of falling stockmarket returns have tipped somecompanies over the point where theirfunds may not meet all their obligations ifthey were to be wound up. With theeconomy faltering and more companiesclosing it is a growing worry.“We are committed to idea that schememembers be fully aware of the state of8 irishpensions Winter 2003

their schemes,” she says, “which is whywe will be recommending to the Ministerthat part of the Pensions Act whichrequires that an intervaluation statementby actuaries every year be introduced as apriority. There is no point in people sittingin DB schemes thinking everything is finewhen it clearly isn’t.“We also need to ensure that membersbecome more aware that nothing isabsolutely guaranteed and that theirpensions are dependent on the state ofthe funds and that sometimes things cango wrong. But that is also why the fundingstandard is being reviewed.“If we continue to enforce the windupfunding standard as it is, it could giveemployers an excuse for getting out ofpensions altogether. Many could say, whyput a lot of money into the fund to shore itup for the short term, when the advice weare getting is that in the long run it isn’tnecessary,” she says.“The system has served us well up to now.In the short term , hopefully we can worktowards giving people a bit more time toget their funding up to standard.“Unlike the UK however, where not only areDB schemes being closed to newmembers, being converted into DCschemes, or closed altogether, there ismuch less evidence of such action inIreland. The impact of FRS17 in the UK onthe closure of DB schemes cannot beexaggerated, she says, but is not havingany similar effect here, where pensionschemes, were, for the most part, betterfunded.VIABILITYHowever, she concedes that many Irishemployers, reading about the UK situationare asking a lot of questions about thecontinuing viability of the companypension, both from a cost and resourcesperspective. If there is any shift here, shesays, it could very well be in favour of thesimpler, less complicated PRSA system.The Pensions Board will be keeping aclose eye on movement from conventionalpension schemes into PRSA ones, shesays, where there is no obligation on theemployer’s part to make any contributionto the accounts.“We are concerned that employers maytry to sell the idea of a PRSA scheme[instead of the existing DB or DC one] oncoverstorythe grounds that PRSA are “better”because, for one thing, you aren’t tied intoannuities at retirement.“Mind you,” she adds, “if you look at somepeople who took out Approved RetirementFunds instead of pension annuities twoyears ago, you might come across somevery sad stories about how their fundshave performed. Annuities are perhapsnot looking like such a bad option in thatlight.” The supervision of ARF’s issomething that she expects to discusswith IFSRA this year, along with the levelof the minimum income requirement.Finally, she says that 2003 will also be ayear when compliance levels are finetuned.Expressing satisfaction that levelsof compliance by companies “weregenerally better than at any previous time”with three successful prosecutions, thereis still more work to be done in this criticalarea, she says.“I think a lot of credit however, has to goto practitioners and administrators whohave been working very hard in recentyears to make sure that they and theirclients are taking this responsibility veryseriously.”