Compulsory pension schemes on way

COMPULSORY pension schemes co-funded by employers, workers and the State may be on the way after the Government said yesterday that it needed new solutions to the country’s pension problems.

The news, which will be greeted with alarm by business groups that fear higher payroll costs, appeared to dent hopes for extra tax breaks to encourage more people to take out private pensions.

Social Affairs Minister Seamus Brennan said yesterday that “urgent action” was required to bump up pensions coverage. Just over half of the country’s two million people at work have a pension in place, while around 900,000 people have nothing to supplement the basic State pension, he said. Speaking at the launch of National Pensions Action Week, the latest initiative to boost pension take-up, Mr Brennan said he had asked the Pensions Board to report to him before September on three proposals:

Rules to force employers to put pension schemes in place for their employees. These schemes would be funded by contributions from the employer, the worker and the State, but would include a limited opt-out mechanism for certain employees that did not wish to be part of a scheme.

New incentives to encourage people to stay at work beyond the conventional retirement age of 65, if they wish to do so.

Ways to tap into the savings habit established through the Special Savings Incentive Account (SSIA) scheme, through the creation of special accounts that allowed limited cash withdrawals but also created a long-term retirement fund.

Mr Brennan appeared to back the controversial report published last week by the Economic and Social Research Institute (ESRI), which called for a curb on government tax breaks aimed at encouraging people to contribute to private pensions but which was opposed by the pension fund industry. Mr Brennan thanked the ESRI for its work and said it showed the need to monitor tax reliefs, which he said were “a significant investment by the taxpayer”, to make sure they were effective.

He appeared to rule out extra tax breaks to boost the take-up of Personal Retirement Savings Accounts (PRSAs) by saying new tax incentives were a matter for the Minister for Finance.

PRSAs were introduced in late 2003 to encourage people, especially those on low incomes, to make provision for their retirement, but take-up levels have been disappointing so far.

Critics have said the tax incentives for the low-paid need to be improved. Mr Brennan said that PRSAs would remain the key plank in the Government’s pensions strategy for the time being.