Pension provision by small employers in Ireland: an analysis of Personal Retirement Savings Account (PRSA) using bounded rationality theory

Abstract

This paper applies a model of bounded rationality to study small employers’ decision-making on pension provision in Ireland. Personal Retirement Savings Account (PRSA) pension products were intended to provide inexpensive, flexible pension options, particularly targeted towards small enterprises. After 10 years of their introduction, evidence suggests that the PRSA pension product has little impact on pension coverage in Ireland and the employees of small organisations are least likely to be the members of pension schemes. Drawing on the theory of bounded rationality and a review of the legislative and institutional context within which small employers in Ireland make decisions on pension provision, this paper presents a pension decision-making model of small employers based on the work of Simon (1983). A range of propositions are set out for empirical research to examine pension provision practices of small employers relating to whether they have a tendency to organise rather than sponsor PRSAs for their employees. The implications for theory, research and policy are explained.