Minister for Social and Family Affairs Séamus Brennan has asked the Pensions Board to look at how best it can use the savings habit established by Special Savings Incentive Accounts (SSIAs) to create a pensions scheme with widespread appeal.
But Mr Brennan said the Government did not have any concrete plans to introduce incentives that would encourage SSIA savers to reinvest their money in pensions. He said the Minister for Finance, Mr Cowen, was examining possible SSIA incentives as part of his overall review of tax reliefs.
The Pensions Board yesterday released details of five new pensions systems that are under consideration as part of a complete revamp of how people save for their retirement. At present, out of a workforce of two million, an estimated 900,000 do not have a private or occupational pension to boost their incomes in retirement and will have to rely solely on the State pension.
Mr Brennan said the Government was not prepared to let this situation continue. He said he accepted that the numbers of people who had bought Personal Retirement Savings Accounts (PRSAs), which were introduced to increase pensions coverage in 2003, were "a long way off" the numbers who had been attracted to SSIAs. Some 51,000 have bought PRSAs, while there are over 1.1 million SSIA holders.
The Minister said the introduction of compulsory pensions, likely to be much resisted by employers' groups, was under close examination. He has also asked the board to explore ways of allowing and encouraging people to work past official retirement dates and age restrictions if they so wished.
The first of the five proposed pension systems selected for assessment by consultancy firm Life Strategies and the Economic and Social Research Institute (ESRI) extends the tax relief on pension contributions to 42 per cent for all taxpayers, including those who only pay tax at the standard 20 per cent rate.
There would be an equivalent benefit for people outside the tax net and the State pension would equate to 34 per cent of average industrial earnings. It is currently around 32 per cent.
The next three proposals also include a State pension of 34 per cent of average industrial earnings and extend tax reliefs to 42 per cent for all, but they replace the current voluntary private and occupational system with a variety of mandatory schemes. Under these compulsory schemes, employers and employees could be obliged to contribute 5 per cent of salary to either a private pension fund or a State-backed pension fund.
Alternatively, the State pension could be supplemented with a mandatory State earnings-related system, where workers would receive 1 per cent of annual earnings for each year of contribution, with contributions divided equally between employers and employees.
The fifth proposal keeps supplementary pension provision on a voluntary basis but suggests an enhanced basic State pension linked to 50 per cent of average industrial earnings.
