The Government's Special Savings Incentive Scheme has diverted potential savings away from a new type of private pension to be introduced next year, according to a leading industry figure.

Personal retirement savings accounts (PRSAs) will not add significantly to the number of people with private pension cover in the short term, Mr John Feely, chairman of the Irish Association of Pension Funds (IAPF) , said yesterday.

"SSIAs have already sapped a lot of money out of the PRSA market. People are not going to turn around and find another €200 or €300 to put into a PRSA," said Mr Feely. The Government should encourage people to transfer their SSIA savings into longer-term PRSA savings when the SSIAs mature in five years' time, he added.

PRSAs are a low-cost, flexible form of private pension expected to become available from February 2003.

At a seminar held by the Society of Actuaries in Ireland, Mr Feely said the main reason people said they had not taken out a pension was that they could not afford it.

"The likely take-up rate for PRSAs among those with little or no pension cover at present will be low in the short term and will only build up slowly." According to a recent survey by the Central Statistics Office, 50.7 per cent of workers do not have private pension cover.

Attending the seminar, the Minister for Social and Family Affairs, Ms Coughlan, said the Government aimed to improve pension take-up to 70 per cent for workers over the age of 30.

Under the Pensions Act 2002, the Government must review levels of pension cover within three years of the introduction of PRSAs.

Low levels of pension coverage among small companies were highlighted during the seminar. Only a quarter of companies with five to 49 employees offer pension schemes to staff, according to research by the Irish Association of Pension Funds. Under new pensions legislation, employers who do not operate an occupational pension scheme will be required to provide access to at least one standard PRSA and must notify employees of their right to contribute.

Mr Brendan Kennedy, chairman of the PRSA working party of the Society of Actuaries in Ireland, said this meant everybody would be "in arm's reach" of a pension.

Some 16 companies have already expressed interest in becoming PRSA providers, according to Mr Philip Dalton, head of PRSAs at the Pensions Board.