Brennan aims to defuse pensions time bomb with new SSIA scheme

A RADICAL new pensions and savings plan to replace the Special Savings Incentive Accounts (SSIA) will be brought to Cabinet by Social and Family Affairs Minister Seamus Brennan before the summer.

The SSIAs, which are worth €14.5 billion, will begin to mature next year and Mr Brennan wants to have a scheme in place to encourage people to continue saving - especially in pensions.

Only 59% of all workers and even less women - 43% - currently have pension schemes and the Government is anxious to increase coverage and adequacy hugely.

“We need to do something fairly radical to achieve that and I’m strongly of the view that the SSIAs have to be replaced with an attractive product which incorporates tax breaks,” Mr Brennan said.

The minister has already presented a memo to Cabinet outlining how an efficient pension and savings scheme could be set up for the 1.2 million people who currently have SSIAs.

“Mr Brennan hopes to bring the finalised plan to Cabinet before the summer,” his spokesman said.

A Bank of Ireland survey of its SSIA account holders at the beginning of February found that 83% would save some or all of their windfall.

Almost 90% of these SSIA holders said they would re-invest some of their savings if the Government set up a new tax incentive savings scheme. And 50% of those surveyed said they would specifically re-invest in a pensions scheme.

The minister is considering a monthly savings plan which would allow people to offset their income tax at the marginal rate on savings of up to €250 a month, a tenth of the average industrial annual wage of €30,000.

The proposed scheme would be divided into two parts - savers could save 80% of their monthly amount - up to €200 - in a pension which would qualify for tax relief at their marginal rate. And this money would then grow tax-free until retirement.

People outside the tax net, including those on minimum wage and non-workers are expected to receive some form of top up similar to the 25% bonus granted to SSIAs.

The remaining 20% of the monthly savings would be paid into a savings account like the SSIA, but would differ in that savers could access this money at the end of five years.

The product would be distributed through Personal Retirement Savings Accounts (PRSAs).

At the end of the five-year term, as with SSIAs, the money could be withdrawn with tax imposed at a rate of 23% on any capital growth or income received.

The minister said he was interested in a dual product that would cater for young and old savers. The minister is not happy with the take up of the PRSAs - only 46,000 have signed up for this State-backed scheme despite a massive publicity campaign.

He considers the problem urgent and wants to take action as soon as possible.

In a letter to the Pensions Board, Mr Brennan said: “I regret to say that coverage figures achieved are disappointing and a new approach is required.”

He has asked the Pensions Board to bring forward its review of its pensions strategy progress from September 2006 to this June.

Pensions Board chief executive Ann Maher said she would welcome any suggestion that would boost pension coverage.

Meanwhile, the Consumers Association of Ireland gave the new plan a guarded welcome. “In principle it is a good idea, particularly for non-tax payers, but the devil is in the detail,” CAI spokesman Eddie Hobbs said.