Low-cost accounts to boost savings

WORKERS without pensions will be able to take out special low-cost saving accounts from today to encourage them to save for their retirement.

The drive to increase the number of people with pension cover follows a series of shock reports which found half the workforce does not have a pension.

All major financial institutions will offer the Personal Retirement Savings Accounts (PRSAs), which will be exempt from a series of bank charges and will benefit from tax relief.

It is understood products offered by AIB’s Ark Life, Bank of Ireland Life, Irish Life & Permanent, Hibernian Life & Pensions, Canada Life and Eagle Star have been approved by the Government’s pension’s watchdog.

The Government says that the accounts will comprise low cost, easy-access investment schemes, which allow workers who switch jobs or take career breaks to save in a flexible way - and bring their pensions with them.

However, they have been criticised by the Irish Society of Actuaries who warned last week they would hasten the shift away from defined benefit plans. Defined benefit schemes guarantee workers up to two thirds of their basic salary on retirement in most cases, but PRSAs and the defined contribution plans do not.

The Pensions Board estimates 70% of workers over 30 require additional pension cover if they are to maintain their pre-retirement standard of living.

A report on Friday by the Irish Actuaries in Ireland warned most Irish workers will retire without the minimum recommended pensions. It also said many people will be forced to work beyond 65 to try and boost their pensions.

The report advised someone aged 30 on €30,000 to contribute 10% of gross earnings to pension funds if they want to have just 50% of pre-retirement income. A 45-year old on €50,000 was advised to contribute 30% of earnings.

The pensions industry is going to launch a major advertising campaign to heighten awareness and it will particularly focus on part-time workers, employees of small firms and those who move from job to job.

Workers can pay money into an investment account weekly, monthly or whenever they can, accumulating a portable pension fund. The move will allow people stop and start contributions at any time and there will be no charge for transferring a pension account from one bank to another.

It will also cut much of the red tape that has obstructed workers from moving their pensions from job to job.

Employers who do not offer pension schemes will have to provide access to the new accounts. They will have to make payroll deductions at the employees’ request but will not be obliged to contribute to the PRSAs.

Account holders will not be able to access money built up through a PRSA until they are 60 years old.

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