Another raw deal for honest pensioners

Business Opinion: Taoiseach Bertie Ahern this weekend set the tone for the forthcoming general election with his vision of a "stronger, fairer Ireland". One of the very few specific commitments Mr Ahern did give in his presidential address to the party faithful at the ardfheis was that the old-age pension, or State pension as it is now to be called, will rise to €200 a week in next month's budget.

This is now about the only thing we know for certain about the content of Minister for Finance Brian Cowen's third budget. In an irony that will not be lost on the Minister, the promised largesse for the State's pensioners will come at a time when the elderly - more particularly those less well-off - are being prevented from availing of one of his more high-profile initiatives of last year.

In the wake of the report of the National Pensions Review Group, Mr Cowen included a measure in the Finance Act that would pay a once-off bonus to people moving money from a matured Special Savings Incentive Account (SSIA) into a pension product.

Those eligible for the bonus receive €1 from the State for every €3 they transfer from an SSIA to a pension. The bonus is limited to a maximum of €2,500. So anyone investing €7,500 in a pension from the proceeds of their SSIA would effectively have a pension pot of €10,000. In addition, the State would waive the exit tax applicable to the SSIA on any money put into a pension.

The Minister made it clear that this was designed specifically to encourage the less well-off to make some provision for their retirement. With this in mind, an upper income limit of €50,000 was put in place on the bonus.

In the light of the reforms sought under the National Pensions Review, it wasn't much. Effectively, for a single person anyone earning more than €32,000 would be better off availing of existing pension relief. Still, politically it looked good, allowing the Government to say it was encouraging people to continue the very successful SSIA savings habit and in so doing provided a small sop to the powerful financial services industry.

Of course, pensioners themselves feature strongly among the ranks of the financially less well-off in our State. Even under the Taoiseach's promised €200 a week a pensioner depending solely on the State pension will receive annual income of just €10,400.

According to research by the Central Statistics Office, around 114,000 people were over the age of 65 when they took out their SSIAs. Five years on, a considerably larger number of SSIA holders are now pensioners.

Many of these have struggled down the years as they watched a favoured few repeatedly benefit from Government largesse on tax reliefs and loopholes. This time, or so it appeared, the Government really was benefiting the least advantaged of its citizens.

There was nothing in the Finance Act to stop pensioners availing of the incentive boosting their pension.

For most, the easiest way to do this was to open one of the Government's new Personal Retirement Savings Accounts (PRSAs) - open to anyone under the age of 75.

Unfortunately there has been a problem. It appears our less affluent pensioners are paying the price for the Revenue's belatedly activist approach to tax avoidance.

Initially the Revenue sent a bullying letter to the 10 PRSA providers. When the Department of Finance was made aware of this heavy-handed approach, a more measured advisory note - specifically accepting the rights of pensioners to avail of the Cowen initiative - was issued.

Unfortunately the damage, at least in the mindset of a strangely timorous financial services industry, was done.

Put simply, PRSA providers are telling pensioners across the State that they don't want their money in this case, and many elderly people are therefore being locked out of a scheme that was designed precisely with people on their incomes in mind.

Mr Cowen has since indicated that he will introduce backdated legislation to prevent people cashing in these bonus-boosted accounts within 12 months. This is quite appropriate even if remarkable alongside statements from Ministers in previous eras that addressing loopholes favouring politically-powerful groups could not be addressed is so immediate a fashion.

No one is looking for a return to the era of cute hoorism, when getting one over on the taxman was a badge of honour. But neither is the consumer served by a financial services industry that appears to be so in thrall of the Revenue that it is not serving the valid interest of the customer who, after all, pays the bill.

The Cowen initiative was not limited by age. It happens accidentally to be the case that, for once, this neglected segment of our society has been given a change to make a short-term legitimate financial gain simply by virtue of the stage of life at which they find themselves. It would be refreshing for once to see the financial services industry treat these generally more impecunious and less financially sophisticated of its customers with the same attention it has assiduously sought the business of their wealthier brethren.