Following the introduction of Stakeholder pensions in April 2001 in the UK, Ireland introduced the Personal Retirement Savings Account in March 2003.
The main difference between the two pensions is that a Stakeholder pension has a maximum charge to run it of 1% per year. In addition to this charge, the Irish pension also allows companies to charge an extra 5% initial charge (known as a bid/offer spread). This means that with a Stakeholder pension there are no charges to set it up and only 1% of the fund value each year as a running charge.
The Irish pension also has a 1% per year running charge but, when you invest, 5% of each payment you make is deducted as a charge. This means that if you invested £100 into a Stakeholder pension, £100 would be allocated to your pension. In Ireland, a £100 contribution would result in only £95 being allocated to your pension.
When it was introduced, the Irish pension was expected to be a success because some of the money taken in charges could be used to pay commission to advisers, instead of them having to charge fees to clients for advice. This would mean that consumers who could not afford to pay for advice would still benefit from it by allowing the adviser to take commission. However, since the launch of the Personal Retirement Savings Account it seems to have been as big a flop as Stakeholder!
Despite the fact that every employer in Ireland has to offer a PRSA to employees, only 3,500 people out of a target of 400,000 have taken it up.
Our View:
Consumers are very wary of pensions at the moment, especially with the poor performance of World stock markets. Many policyholders have seen the value of their pensions decrease over the last three years and this has led to questions regarding whether they are worth it.
What people must not forget is the fact that for every £1 you invest, £1.28 is invested in your pension because of tax relief from the Government, even if you don't pay tax. You will be entitled to more than this if you are a higher rate taxpayer.
Pension funds also grow virtually tax-free and generally 25% of the fund you build up can be taken as a tax-free lump sum when you retire. The rest is taxed as income, depending on how and when it is taken.
Everyone should save towards their retirement because the money on offer from the State is very small indeed. However, you do not have to save only into pensions as there are many different products out there to choose from.
In terms of guidance - spread your savings around and keep saving on a regular basis.
Learn more about retirement planning in the Pensions Adviser.com and low cost sttakeholder pensions in the Stakeholder Cafe.com.
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