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 employer pension provision decision-making in Ireland. PRSA pension products were intended to provide inexpensive, flexible pension options, particularly targeted towards small enterprises. Ten years after their introduction, evidence suggests that the PRSA pension product had little impact on pension coverage in Ireland and the employees of small organisations are the least likely to be 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 pension provision decisions, this paper presents a small employer pension decision making model based on the work of Simon (1983). A range of propositions are set out for empirical research to examine small employer pension provision practices 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.