Introduced in 2002 and touted as a revolution in the world of Irish pensions, the PRSA, it is perhaps fair to say, hasn’t really lived up to the promise, with sales volumes over the years lagging behind other types of pension products like personal pensions and executive pension plans. However, changes in recent years may suggest things are starting to look up for this often-overlooked pension savings vehicle. The imminent arrival of auto-enrolment (AE) in Ireland is poised to reshape the country's retirement landscape and could further enhance the appeal of PRSAs for many individuals.

Institutions for Occupational Retirement Provision (IORP) II

So, what has changed in recent times? Well, there are probably two key changes that have impacted the PRSA market heavily in the last number of years. The first change came about in 2021 with the introduction of IORP II, which places considerable additional ongoing governance burdens on occupational pension schemes. These included:

• The appointment of key function holders, such as a risk function and internal audit function for each scheme
• The preparation of annual audited accounts for each scheme
• Increased requirements around member engagement
• New fitness and probity requirements for trustees

While the changes required under IORP II are likely to strengthen the governance of occupational schemes, with the aim of improving member outcomes, the new requirements raise significant challenges, particularly for executive pension plans (one-member company schemes). For an executive pension plan, meeting the additional governance requirements for each scheme would be practically impossible and would certainly result in additional costs that would make the structure unsustainable. While executive pension providers had initially worked on the basis that the IORP II requirements would not fully apply to executive pensions, The Pensions Authority (the regulator for pensions business in Ireland) clarified that the new rules would indeed apply to one-member schemes, requiring life and pension providers to seek solutions to this challenge.

One potential solution identified is the master trust. Under a master trust, multiple employer schemes can be drawn together under what is effectively one umbrella trust. A single third-party trustee is appointed to meet the management and trustee requirements of the collection of employer schemes as a whole. This solution can help address the cost challenges identified previously (as only one internal audit function, risk management function, etc., is required for the master trust, rather than needing one for each of the individual arrangements within the master trust). However, master trusts may not be a perfect solution. Wrapping a large number of small schemes under one master trust would result in considerable additional complexity for the trustees, in particular where a wide universe of investment options and benefit structures apply. For a master trust to be effective and cost-efficient, it is likely that some level of standardisation would be needed, which may reduce the level of flexibility (e.g., around choice of investments) that may have been possible through a one-member scheme. In addition, while the costs of a master trust would be significantly lower than replicating the governance arrangements for each scheme, the complexity of the master trust arrangement will generate some overhead that would need to be borne by members.

This was perhaps the moment for the PRSA to sweep in from the wings and save the day. Instead of moving to a master trust arrangement, one-member executive pension arrangements could transfer to a PRSA contract, maintain similar investment options and perhaps avoid the cost overhead of a master trust. As a result, PRSAs were well placed to fill some of the void. But wait a second, if PRSAs were such a great solution, why had the sales volumes been relatively modest, and why was there a need for executive pensions in the first place?

Tax treatment

One fly in the ointment hindering greater PRSA uptake though was a tax disadvantage for PRSAs relative to many other pension arrangements—namely that when an employer made a contribution into an employee’s PRSA, it was treated as a benefit in kind, negating the tax benefit for the individual. However, amendments to tax legislation introduced at the start of 2023 deftly swiped the fly from the ointment, leaving PRSAs ready to fill some of the executive pension void.

A further change to tax rules means that, since January 2025, employer contributions are limited to 100% of an employee’s remuneration, with amounts in excess of this subject to tax as a benefit in kind. While this limit may not impact many such employer-sponsored PRSAs, it does limit the flexibility of PRSAs as a pension planning tool, particularly for those who may have started their pension provision relatively late.

It is also worth noting at this point that there are broadly two types of PRSAs—the standard and non-standard. Structurally, these are very similar, but the standard PRSA is designed primarily as a mass-market product. It has limits on the level of charges that can be imposed, as well as tighter restrictions on investment options. The non-standard PRSA has more flexibility on the level of charges, as well as the investment universe for the product. This latter point, in particular, may make the non-standard PRSA a more popular vehicle for transfers from executive pensions.

PRSA sales

Is this increased attractiveness of PRSAs manifesting itself in sales numbers? Well, already we are seeing increased interest in PRSAs, with some new providers entering the market (e.g., AIB Life, Acorn Life and Allianz Global Life), and we understand that there may be other companies in the wings exploring potential PRSA offerings. Just as important, we are seeing a serious uptick in PRSA sales relative to prior years. The traditional measure of new business volumes in the Irish life insurance market is the annual premium equivalent (APE). By this measure, we estimate that over 2024, PRSA sales through life insurers were more than five times the 2022 level. Where PRSAs accounted for about 9% of total pensions APE in 2022, that jumped to almost 20% in 2023 and 33% in 2024.

It's also interesting to note The Pensions Authority’s statistics on the PRSA market. Over 2021 and much of 2022, the number of in-force PRSAs grew fairly steadily, averaging around 4,300 extra PRSAs per quarter, with around two additional standard PRSAs for every one non-standard. In Q4 2022 the picture began to change, and since then the average has more than doubled, with 10,500 additional PRSAs on average each quarter, and over 60% of those non-standard. In fact, since Q2 2023 the number of in-force PRSAs grew by nearly 75,000, and just over 50,000 of those were non-standard. That’s approximately two-thirds of the growth in the number of PRSAs since the middle of 2023 attributed to non-standard PRSAs. This is a huge increase and is likely to reflect pensions new business that had been directed towards executive pensions now shifting more into non-standard PRSAs.

PRSA challenges

While all of this bodes well for the future of the PRSA, there are still some challenges which, if addressed, could further enhance the success of the product in the coming years. These stem primarily from the inflexibility of the PRSA structure and the additional red tape that is associated with PRSAs and perhaps adds unnecessary cost to the product structure. In particular, it’s notable that PRSAs have additional consumer protections that are not present for other products—the requirement to provide half-yearly statements and investment reports, certificates of comparison required for some transfers into PRSAs, restrictions on the types of charges that can apply, restrictions on the investment universe available for standard PRSAs and the oversight role of the PRSA Actuary, to name a few.

This perhaps stems from the fact that when PRSAs were first introduced, the consumer protection landscape in Ireland was quite different, and with PRSAs intended as a mass-market, simple product, some additional protections for consumers were perhaps desirable. Roll on to the current year, and the landscape is quite different. With enhanced conduct of business requirements, more mature product oversight and governance frameworks within insurers and the additional responsibilities for manufacturers and distributors under the Consumer Protection Code, it’s difficult to see why PRSAs need additional protections relative to other retirement vehicles.

For example, transfers from defined contribution (DC) and defined benefit (DB) schemes into PRSAs require, in many circumstances, the completion of a certificate of comparison. This is typically funded by the contributor and can cost in excess of €1,000 to produce, creating a barrier to moving to a PRSA that does not exist for other pension products. Is it needed, and does it provide enhanced protection for those transferring to PRSAs? Anecdotally, certificates of comparison are a compliance burden and a cost rather than a value add, i.e., certificates of comparison are prepared because the legislation requires it, rather than forming a key step in the advice and decision-making process. Clearly there may be situations, particularly in transfers from DB schemes, where the complexity requires additional advice, but this is less likely to be the case for transfers from DC arrangements. We understand that The Pensions Authority is considering changes to legislation that would allow for a generic certificate of comparison for DC to PRSA transfers, which would highlight risks and identify points that members should consider before transferring, without needing individualised advice and calculations. This should help reduce cost without compromising consumer outcomes, but the pace of legislative change in the world of PRSAs can be slow.

Similarly, the disclosure requirements around PRSAs lead to a material volume of information being sent to contributors on an annual (and indeed half-yearly) basis, which again could be simplified with a view to making sure consumers receive the information they need without being overwhelmed with paperwork.

Age-related flexibility

One further change in the legislative environment is the removal of the requirement for contributors to effectively terminate their PRSAs by age 75. Prior to this, PRSAs were primarily an accumulation stage vehicle, although it was possible to have a short life as a decumulation stage vehicle with a tax-free lump sum and some post-retirement drawdown applying in the early years of retirement, at least until age 75, at which point the whole pot would need to be transferred to another post-retirement vehicle—typically an Approved Retirement Fund (ARF) drawdown product. Removing the age 75 limit could be another huge game-changer for PRSAs, opening the possibility of PRSAs serving as whole-of-life pension products that can meet the need of contributors in both the accumulation stage, building up a pension pot to fund retirement and in the decumulation stage as that pot is drawn down to provide income in retirement.

Auto-enrolment

Speaking of game-changers, with the upcoming implementation of the new AE regime set to take effect in January 2026, the pensions landscape in Ireland is likely to undergo further material changes. AE will operate alongside the existing pensions framework, and it may take several years to fully understand its impact on the broader pensions market, including on PRSAs. However, as the details of AE have emerged, it has become evident that PRSAs offer several advantages over AE for both employers and employees. These benefits could drive increased adoption of PRSAs, as they present a more flexible and attractive option, especially for higher-rate taxpayers.

For higher-rate taxpayers, AE will offer lower tax relief compared to other pension products like PRSAs, which offer tax relief up to 40%. Under AE, the tax relief amounts to just 25%. This should prompt employers with higher-rate taxpayers on their payroll to consider whether an alternative solution such as a PRSA scheme would provide better outcomes for their employees. It may also be beneficial for employers to explore other options, such as facilitating a move to a PRSA scheme, when employees change tax bands as careers progress.

The AE scheme as currently proposed is less flexible than other pension accumulation products. For instance, additional voluntary contributions are not permitted, the choice of investment is limited and there are stricter requirements around retirement age. Companies may wish to facilitate other pension arrangements such as a PRSA to retain and attract employees.

For companies with existing pension arrangements, it is important to consider whether any benefit design changes are required due to the introduction of the AE scheme. For instance, some employees may not be members of the existing scheme if they do not meet eligibility rules or have opted out. Employers could decide to take no action, in which case these employees would be automatically included in the AE scheme. However, this would result in the company effectively managing a dual-scheme approach, which would introduce additional complexities and practical considerations. Furthermore, while employees may expect the AE scheme to provide adequate pension coverage in retirement, it is important to recognise that, depending on individual circumstances, the AE scheme may only offer a basic or minimum level of pension provision. To streamline operations and avoid the complications of managing two schemes, companies may prefer to use their existing pension scheme or a PRSA scheme to ensure AE compliance. This approach would allow employers to maintain consistency in their benefit offerings and potentially provide more favourable outcomes for their employees, especially for those in higher tax brackets. It is crucial for employers to evaluate the impact of AE on their current benefit structures.

In the meantime, we are already seeing how the changes in the pensions landscape over recent years set out in this paper have seen increasing focus on PRSAs by both customers and by product providers. With the continually evolving Irish retirement landscape set for further change with the pending launch of AE, maybe now is the time for the PRSA to shine.