# PRSA 'Standard' & CAI 'Savermark'



## Brendan Burgess (22 May 2002)

*PRSA 'Standard' & CAI 'Savermark'*

<!--EZCODE ITALIC START-->_  Glossary 
 AA - Authorised Advisor
 CAI - Consumers Association of Ireland
 CM - A 4GL search engine unique to AAM (Askaboutmoney)
 DSF - Direct Sales Force 
 HNW - High Net Worth ( i.e. a rich person) 
 IB - Industrial Branch (life assurance door to door salesmen)
 Mith - Mithrandir (the author of this post)
 Mithrandia - A rambling style of writing informative posts using acronyms in an effort to deter HNWs from using websites so that they will contribute to the coffers of AAs and help make those AAs into HNWs
 NPPI - National Pensions Policy Initiative
 PB - Pensions Board
 PFJ - Personal Finance Journalist_<!--EZCODE ITALIC END-->



The CAI Savermark was a voluntary scheme, without statutory power, and no intervention in the process of the free market. It did influence product pricing especially in deposit rates, and to a lessor extent it helped highlight investment costs. 

But insofar as it influenced actual purchasing patterns I think it failed, ultimately because the market is overwhelmingly advisor centric. And advisor have to get a cut whether by fee at the HNW end, discounted commiisions in the middle, or full commissions at the low end.

There is little chance of the Pensions Board, who'll spend on advertising, and promote among PFJ's, reaching the high public profile of Savermark, I'd propose. It will face the combined marketing and sales power of the Life industry. And the advisory process of the market itself. Other than disclosure law, is it the case that benchmarks like the PRSA 'Standard' are likely to be doomed to fail?

The PB wants to reach the non pensionable. But these are the 50% who didn't take up the 'Free' money SSIA. And only at €12.50. These are the people who haven't taken up personal pensions. Tax relief is irrelevant if your on low income, making ends meet, or are just about comfortable but at a marginal 20%. Who sells at this end of the market, and how are they to be encouraged to sell more if Life Offices operate at the 'Standard'?

Already one large DSF has been told it will need to sell on a fee basis. Thats fine at the mass affleunt, HNW end but for heavens sake, that won't work in working class housing estates.

It seems to me that there is a paradox. If,and its a big if, the 'Standard' is sucessful the target market that the PB wants will not be reached. On the other hand.....get the picture. MY guess is that the big sales volumns will come from two markets - cannibalisation of existing investments as these transfer, and spouses of the existing 'advised' marketplace. I'm opposed in principle to any price fixing in most marketplaces, and the 'Standard' is quasi price fixing. I'm for widely promoted voluntary benchmarks like quality marks and the like, but I'm skeptical of over meddling in market processes, because they are too complex for black and white solutions, eg the propert market, and Bacon etc.

But, hey, that's just my best view now in the aftermath of Savermark, and based on speaking to pan industry participants. What's yours?


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## Zidane (22 May 2002)

*PRSAs and Kitemarks*

Bit of a ramble, <!--EZCODE ITALIC START-->_ Mith_<!--EZCODE ITALIC END-->, but here are a few rambling thoughts of my own.

I agree that PRSAs will be a complete flop (in terms of tackling the lower end of the market).


Asking a 30 year old to put money away for 30 years without access, when they're struggling to make ends meet, is a hopeless case and, I agree with you, if 1 for 4 on a 5 year SSIA doesn't tickle their fancy the rather esoteric tax advantages of the PRSA just ain't at the races.

The only hope was if Employers were forced to match € for € Employees' contributions, as people don't like to miss out on freebies, and that may yet come, but since the review of the whole arrangement is not for at least another 4 years, I wouldn't hold my breath.

As to kitemarks, the PB chickened out of the NPPI recommendation to have one.  Instead they have this concept of a "Standard" PRSA which has capped charges compared to an ordinary PRSA.  Watch this space.  The industry will gang up to stigmatise this as "bog" standard.  If you want a <!--EZCODE BOLD START-->* real*<!--EZCODE BOLD END--> PRSA with 80 funds and lots of switching then you should go for a non bog standard PRSA (simply known as a PRSA) and of course you're goin' to have to pay extra for these fantastic facilities.

Finally on statutory charges, as a raging free marketeer (godammit I voted PD) I agree philosophically with you <!--EZCODE ITALIC START-->_ Mith_<!--EZCODE ITALIC END--> that they are a bad thing.  Unfortunately, the opaqueness of the life assurance product and the power of the life assurance salesman in the selling process is such that all attempts to arm the consumer through, for example, Disclosure have been futile.  Hence there is no choice.  <!--EZCODE UNDERLINE START-->All<!--EZCODE UNDERLINE END--> PRSAs (like Stakeholder on the Mainland) should have a statutory cap and since the Minister has reserved his/her position on this, that may yet come to pass if, as I suspect, the industry start off by playing funny buggars and pretending nothing has changed.:smokin


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## US (23 May 2002)

*Charges are not the real problem*

The objective of the NPPI report and PRSAs is to increase the percentage of the workforce which has pension provision (beyond the state provision).

Presumably the thinking behind restricting the charging structure of all PRSAs and the level of charges of standard PRSAs is that, currently, people are deterred from investing in pensions because (a) they don’t understand the charging structure, or (b) they do understand it, but they think its too high.

Improved transparency and comparability in charging structures, and focussing some attention on the level of charges, can only be a good thing.  However I’m not convinced that, in themselves, they are going to do a lot to promote coverage.  And, in so far as they lower the margins on PRSAs, they makes distributing them less attractive – there’s not a lot in it for the intermediary.  But efficient and enthusiastic distribution is essential if coverage is to be widespread.

There was talk in the NPPI report of encouraging affinity groups to promote PRSAs and allowing non-traditional providers to get into the market, but that seems to be gone by the board.  This is unfortunate, because to my mind that is a much more promising avenue to explore.  The existing affinity group arrangements – retirement trust schemes promoted by professional and trade associations - are hamstrung by restrictive legislation and have never really provided widespread competition to the insurers, and they have been completely excluded from the improvements in tax treatment and other matters which are being extended to PRSAs.  Even if they were allowed to operate PRSAs, the massively over-engineered structure of the PRSA would make it difficult for them to do so.

All of this is very sad.  Affinity groups like trade unions and professional organisations do not require distribution to be hugely profitable.  They distribute products as a service to their members.  Hence widespread distribution can be achieved at a low cost.

The one country which has achieved comprehensive coverage with voluntary pension schemes is the Netherlands, and they have done this through the active involvement of trade unions and professional bodies, and through promoting large industry-wide arrangements.  We are going to have learn from their experience if we are going to promote pension coverage without resorting to compulsion.


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## IB (24 May 2002)

*PRSAs and the lower end of the market*

"tackling the lower end of the market"

Couldn't the likes of Royal Liver with its large IB base tackle this issue quite successfully?

IB


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## CM (24 May 2002)

*Speaking in tongues*

For myself and other uninitiated can you explain what the following mean:

- HNW
- DSF
- NPPI 
- PFJ (OK - even <!--EZCODE ITALIC START-->_ I_<!--EZCODE ITALIC END--> know this one - Personal Finance Journalists)

Is it just me or does Mith just like the sound of his/her own voice/typing!? :rolleyes


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## Liam D Ferguson (24 May 2002)

*Exploding the Miths*

HNW = High Net Worth
NPPI (or Nippy as it's generally known) = National Pensions Policy Initiative, a big survey and report on national pensions coverage undertaken a few years ago.

DSF - Not sure about this one.  It stands for something I often say to myself - "Do Some F*&%ing work and stop spending so much time surfing the net" but I don't think Mith meant that in this context.


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## US (24 May 2002)

*Industrial branch*

IB (industrial branch) is expensive, because distribution costs are high.  I doubt if the margins on PRSAs would support IB distribution methods.


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## Karen (24 May 2002)

*Jargon Busting*

DSF = Direct Sales Force

Someone was critical of the % of consumers that visit AAM in a newspaper article recently.

Is it any wonder that they would be turned off?


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## Liam D Ferguson (24 May 2002)

*Re: Jargon Busting*

Hi Karen, 

In fairness, the split of AAM forums between "above the line" question and answers forums (fora?) and "below the line" forums for debates and banter was deliberately placed there for the very reason you mention.  
The first eight forums a new visitor will see contain the sort of information that a consumer will (hopefully) find useful.  Down the bottom, there's the "opinions" section with seven forums where Mith or anyone else are welcome to engage in financial debates to their heart's content.


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## Brendan Burgess (25 May 2002)

*Re: Jargon Busting*

I have inserted a glossary at the top of the first post to help make this valuable thread of more interest to readers.

Brendan


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