SSIA tax breaks are ‘adequate’

EXTRA tax incentives to encourage Special Savings Incentive Account (SSIA) holders invest in pensions would be too generous, according to confidential Government briefing documents prepared in the run-up to last year’s Budget.

PRSAs aimed to bring the number of people with a private pension up from 50% to 70% of the workforce, but they have been criticised by several pensions’ providers for failing to take off and attract widespread interest.

“The rate of sales would need to increase if PRSAs are to push the coverage level from 50% of employees to 70%,” the paper said. But it also said extra tax incentives, including those geared towards SSIAs when they mature next year, were not guaranteed to improve things. “Even if there is a slow take-up it is by no means clear the problem derives from insufficient incentives or that additional incentives would resolve the matter,” the group was told.

“What must be borne in mind is there is already generous relief for pension provision and adding further SSIA rollover relief on top of this may increase Exchequer funding via tax relief to up to 70% of the contribution level. Such a rate would be excessive,” the paper said.

The Government already provides tax relief of up to €42 for every €100 put into a pension scheme. Many financial services providers have called on the Government to waive the exit tax on SSIAs to people who put their lump sum into a pension.

The 23% exit tax will be applied on any interest or investment gains but not on the lump sum saved or the Government’s bonus of €1 for every €4 saved.

The tax means an SSIA holder who paid the maximum €254 per month into a deposit account, and who would have a lump sum of around €19,000 at the end of the five-year scheme, would pay tax of around €230 on interest gains of €1,000. SSIA holders who chose equity-based investment accounts would have marginally higher gains and tax payments. Waiving the tax would give an SSIA holder a benefit of around 1% of the total value of the investment.

The briefing papers also recommended there should be no change to the stamp duty regime governing share dealing, despite calls from the Irish Stock Exchange to cut the rate from 1% to the 0.5% rate of Britain.

“The differential of 0.5% between Irish and UK stamp duty renders UK equities slightly more attractive than Irish equities. However, this is unlikely to deter investors from opting for Irish equities,” the paper said.