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Pensions Board: Make SSIA Switch Tax-Free
By Stephen O'Brien, The Sunday Times
Ireland
November 13,
2005
The Pensions Board, a statutory agency set up to promote retirement saving, has urged the government to allow holders of special savings incentive accounts (SSIA) to transfer their savings into pension schemes without having to pay any tax. The board has recommended that SSIA cash that is switched straight into pension funds should not be liable for the 23% exit tax on interest earnings from the generous government savings scheme that begins to mature next year.
In a review of pension policy brought forward by Seamus Brennan, the social affairs minister, the state pension advisory group says the move could cost about €200m, but that it would be of most benefit to low earners who are outside the tax net. The report examines other ways of getting more workers to save for their retirement after the disappointing uptake of personal retirement savings accounts (PRSA) introduced two years ago.
The SSIA proposal is its strongest by far. The PRSA, a personalised and portable pension designed to entice lower-paid workers to save for the future, was a Pensions Board initiative. Brennan will bring the report to the cabinet this week and is expected to publish it within a matter of weeks. Only 55,000 workers have opened PRSAs since they were introduced two years ago. This compares badly with the 1.1m who opened SSIAs after they were introduced in 2001 by Charlie McCreevy, who was finance minister at that time.
SSIAs offer a government top-up of €1 for every €4 saved by the account holder. It is estimated that about €16 billion of SSIA capital will be released over the two years from next May, prompting fears of an inflation bubble if the cash is splurged by many of the account holders or a property price surge if savers seek to invest in bricks and mortar. Roughly 20% of SSIA accounts belong to savers in their twenties and another 25% belong to thirtysomethings, the age groups most targeted by government scheme to increase pension coverage across the labour force.
Brian Cowen, the finance minister, sounded a note of caution last week about further generous tax relief for pensions. He told the Leinster Society of Chartered Accountants: “Pension reliefs already cost the exchequer about €2.7 billion a year. There is a balance to be struck in the use of tax incentives . . . there must be equity, and a perception of equity within the system.” The board’s proposal is part of a concerted effort by various financial institutions to put the transfer of the SSIA money into pensions firmly on the political agenda.
Tommy Coyne, the chairman of the Professional Insurance Brokers Association, has also called on the government to introduce tax incentives to bolster long-term savings. “The life assurance companies should now be competing with each other to persuade people to invest in their products,” he said. The government has said that it aims to raise the percentage of those in the workforce with private pension coverage to 70% by 2007. Just over 52% of working adults have a pension and this figure has barely moved since the introduction of the low-cost PRSAs in early 2003.
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