Irish pension review to put pressure on Government

DUBLIN - Ireland will today publish a review of pensions that is likely to recommend that the government replace tax relief with a programme to top up private pension contributions.

The review by the Pensions Board, which advises the Minister of Social Affairs, explored ways to encourage people to take out pensions with the same enthusiasm that they have shown for a government-backed savings scheme that starts to mature later this year.

More than 1 million people opened the Special Savings Incentive Accounts (SSIAs) after they were introduced in 2001, compared with just 55,000 workers who have taken up Personal Retirement Savings Accounts -- a government scheme set up two years ago to encourage more people to save for retirement.

Under the SSIA scheme, the government gave investors 1 euro for every 4 euros saved. The scheme matures this year and next, and the government has said it will not be renewed.

Insurers say SSIAs were easier for people to understand than current pension incentives involving tax relief.

A recent survey by insurer Irish Life found only 9 per cent of people interviewed would set up a pension in the next year under the current pension system but that 25 per cent would do so if the government were to switch to an SSIA-style programme.

The Pensions Board report is likely to recommend that people taking out private pensions be given limited access to their funds before the age of 45, local media reported at the weekend.

"The reports indicate that the government may be prepared to pay up to 50 cents for every 1 euro invested in a pension product, but this would be restricted to certain target groups who currently have inadequate pension provision," Goodbodys economist Philip O'Sullivan wrote in a research note.

Other suggestions may include making those who transfer SSIA funds to pensions exempt from paying exit taxes in certain circumstances. The Department of Social and Family Affairs declined to comment on the contents of the report.

It was not clear whether the government would be encouraged to make pensions mandatory.

Economists have warned that low pension cover in Ireland could threaten the country's economic future and that the government needs to act quickly to avoid the retirement of thousands of people in poverty.

Some 900,000 of Ireland's 2 million workforce do not have a private or work pension, meaning they will have to rely on a state pension that is currently less than 200 euros a week.

EU countries, facing a rapidly ageing population and a shrinking pool of workers to pay for retirees, are all keen to find ways to encourage people to save more for retirement.

Ireland has one of the region's youngest populations, so its problems are less acute. It has also taken some action already.

In 2001 the government set up the National Pensions Reserve Fund, in which it invests 1 per cent of gross national product a year to help meet the costs of social welfare and public pensions in Ireland from 2025 until at least 2055.

"It's not as much of a pressing issue as elsewhere given our demographic profile," Davy Stockbrokers economist Rossa White said. "But that doesn't mean we shouldn't tackle it now." However, White suggested the Department of Finance was unlikely to agree to any change that significantly raised the cost above current pension tax relief.

In 2002, the last data available, tax relief-based incentive schemes for pensions cost the Exchequer 2.7 billion euros ($3.28 billion).

The pension review comes ahead of the government's Finance Bill, due early next month, in which Finance Minister Brian Cowen will introduce measures outlined in his December budget, including action on pensions.

- REUTERS