Fianna Fáil proposes to allow people easier access to pension lump sum during their working life in an attempt to ease day-to-day financial pressures.

In a discussion document on private sector pension schemes, the party also suggests fundamental reform of the priority order for people in the event of pension schemes being wound up.

Willie O’Dea, spokesman on social protection, said the measure introduced by the Government in the last Budget to allow people access up to 30 per cent of funds accumulated in additional voluntary contributions was “only very slightly better than useless”, as they are subject to income tax.

“It is the financial equivalent of putting a tax on lifeboats,” Mr O’Dea said.

The Fianna Fáil proposal would allow people to withdraw the full lump sum to which they would be entitled tax free at retirement – currently 25 per cent of the pension fund subject to upper limits of 1.5 times salary or a maximum of €200,000. The money would not be taxed and Mr O’Dea said that, apart from dealing with the “overhang of debt, this approach will also help boost the economy”.

Mr O’Dea said the two things the Government could do to fundamentally change the outlook for private sector pension scheme were to break the link with annuities in the minimum funding standard and changing the priority order in schemes on wind-up.

The party proposes ending the absolute protection of pensioners in the event of a scheme being wound up. At present members already retired have first call on scheme assets. Only if their position is fully funded, will other scheme members share remaining assets on a pro-rata basis.

Fianna Fáil suggests retaining a “guaranteed benefit for pensioners, but not of their full pension. Thereafter, remaining assets would be split pro-rata between the pensioner and the serving employee or deferred member.

On the minimum funding standard, Mr O’Dea said that breaking the link with annuities would dramatically reduce the number of defined benefit schemes in deficit – from somewhere above 80 per cent to “as low as 25 per cent”. Many DB schemes, which deliver a pension based on salary and years of service, have been closing down in recent years.

Mr O’Dea suggested a more flexible approach where, rather than forcing schemes winding up to acquire annuities linked to low-yield blue-chip German bonds, they could continue to pay pensions as normal and measure liability by way of an actuarial calculation – along the lines of current practice in Denmark and Sweden, he said.

As an alternative, he called for part of the liability to be measured against Irish bond returns rather than triple-A rated German and French bonds.

People approaching retirement might also be allowed to defer annuity purchase on DB schemes, converting funds instead into an ARF, as is permitted currently with defined contribution schemes.

Asked about auto-enrolment of workers into pension schemes, he said there was a lot to be said in favour of it. However, it was unlikely to feature in Ireland for a long time because of a lack of disposable income.

“People simply will not be able to afford it,” he said.

The discussion document broadly welcomed the recent report of the Department of Social Protection on pension scheme charges but calls for more detailed and regular work to be done in this area.

The party said it would return after a consultation period on the document with detailed policy proposals.