Pensions should be remodelled along the lines of special savings incentive accounts (SSIAs) so that they can better ignite consumers' imagination, according to the Irish Association of Pension Funds (IAPF).
In its pre-Budget submission, the association calls on the Government to offer tax relief on pensions at 42 per cent for all workers, regardless of how much tax they pay.
This would mean that even if a worker fell outside the tax net, their pension contributions would attract the same tax treatment as those paying tax at the highest level.
In addition, the IAPF says the relief should be paid "on a basis reflective of the SSIA structure".
The association has not placed a costing on the measure, but Paul O'Brien, chairman of the IAPF benefits committee, said it could reach about €500 million per year.
The association's recommendation on applying an SSIA-like structure to tax relief bears some similarity to the rumoured content of a Pensions Board report on how best to raise pensions coverage. The study, which is to be considered by Minister for Social and Family Affairs Séamus Brennan, is reported to recommend that workers' pension subscriptions be matched with Government contributions.
Mr O'Brien said the association's proposals would help the Government to achieve its goal of pensions coverage of 70 per cent. Industry estimates suggest existing coverage is stuck at about 52 per cent.
Pointing to the IAPF's proposal on raising the rate of tax relief, Mr O'Brien said the existing system was offering very little incentive to two-thirds of workers, who either pay no tax or pay tax at 20 per cent.
The association judges that the biggest pensions "gap" exists in the one-third of workers who pay tax at 20 per cent and may be heading towards the higher rate.
This segment has difficulty making contributions because of other commitments such as SSIA contributions or mortgages, according to the submission.
"People who cannot afford to save adequately for their retirement early in their careers should be afforded the opportunity to make up for lost time as the pressures of housing and family costs ease," the submission notes.
The IAPF sees the forthcoming maturing of SSIAs as an opportunity to convert savers into pension-holders.
It suggests that any SSIA funds rolled over into pension funds should not attract exit taxes. Under the existing system, investment gains on SSIAs will attract an exit tax of 23 per cent.
