The Pensions Authority is moving to tighten the rules governing non-standard personal retirement savings accounts (PRSAs) after company directors and senior executives poured billions of euros into the vehicles in recent years.
The regulator is proposing to rein in the self-directed pension plans, which allow holders to put money into riskier alternative assets such as property, loan notes and unregulated investments, by aligning them more closely with more plain-vanilla occupational schemes.
It said in a new consultation document that PRSA providers should be required to ensure assets were both diversified and invested mainly in regulated markets — a radical change likely to make PRSAs less appealing to investors.
“The primary intention of any proposed new investment rules for PRSAs would be to provide additional safeguarding of contributors’ assets,” David Malone, the Pensions Authority’s head of operations, said. “It is important that there should be consistency between the consumer protection for pension scheme savers and PRSA contributors.”
• Directors must take action to avoid pension cut
Business owners and sophisticated investors have increasingly been using non-standard PRSAs as a replacement for executive pension plans and small self-administered schemes. Those structures were effectively outlawed by an EU directive in 2021 that set common standards for occupational pensions.
So-called one-member arrangements were given a five-year derogation from the new rules, allowing holders to migrate to other structures, with non-standard PRSAs proving especially popular because of their flexibility and tax efficiency for owning assets such as residential property.
A flood of cash poured into the products in that period, doubling the total assets housed in PRSAs to €20 billion as of the end of the second quarter of this year, out of a total pension pool of nearly €150 billion.
However, the run-up in non-standard contracts has been even more dramatic, increasing fivefold since 2021. Two thirds of all PRSA assets now rest in non-standard accounts, according to the Pensions Authority. Most of that increase came from new contributors rather than increased contributions, Central Statistics Office data shows.
Yet while the rush into non-standard PRSAs was instigated by regulatory change, the noose appears to be tightening on those who have jumped through the loopholes created in the system.
Last year’s Finance Act included a technical measure limiting employer contributions to a PRSA to a maximum of 100 per cent of an employee’s or director’s salary in any year. This move ended the practice of backfunding directors’ pensions at the end of service — a strategy that allowed company owners to keep cash in their business until they were ready to retire.
Now the Pensions Authority appears poised to restrict the kinds of investments available on top of those funding limits, essentially eliminating the twin attractions of non-standard PRSAs: high contributions and investment freedom.
The attention on PRSAs is the latest in a flurry of regulatory interventions. In May Brendan Kennedy, chief executive of the Pensions Authority, issued an unusually harsh critique of the industry at the Irish Association of Pension Funds conference, blasting trustees and service providers for a litany of shortcomings including inaccurate asset values, corrupted records and incorrect submissions.