Awkward pension plan

Q & A: In an interesting recent article of yours (I have cut it out, omitting the date unfortunately), you talk about the scheme allowing one to place up to €7,500 into a pension scheme which allows one to take an extra €2,500 from the Government.

I am inquiring on behalf of someone who has turned 79 in May.

Also their SSIA matured on April 30th (notwithstanding that the payments were made on the 14th of the month).

You say that one cannot open a PRSA once one has turned 75. However, you go on to say that there is nothing to stop someone who is already a pensioner availing of this initiative. I am not clear then what mechanism you refer to here - is it still a PRSA ?

There appears to be yet another age limit, this time capping one's capacity to invest once one reaches 79! When I asked in Bank of Ireland, they told me that the person must be less than 79 to invest. This is because of Revenue rules which require one to invest for a minimum of one year and one cannot take advantage of the scheme once one is over 80. Thus my friend might be outside those limits but on the other hand, as her birthday is so close to the alleged limit, perhaps she might qualify.

Lastly, Bank of Ireland gave me a number within the Revenue but that did not work. Perhaps you could clarify the position for me or even tell me where to start looking for information.

I am far off 80 and I find this confusing, but God help someone at 80 attempting to get to grips with this.

Mr B.C., e-mail

One point on which we agree absolutely is that the so-called "Cowen initiative" has turned into something of a minefield - with the only guarantee being that you will be more confused on the subject when you are finished than when you began.

This is so for several reasons. First, the initiative itself - where people transferring money from a matured Special Savings Incentive Account (SSIA) into a pension account would receive €1 from the State for every €3 invested was oversold. It was never the "grand gesture" it was painted by Government spin doctors.

In the first place, there was a cap on the "bonus" of €2,500 which meant, effectively, there was a cap on the incentive to transfer of €7,500 of an SSIA fund, not the whole SSIA.

Secondly, anyone paying tax at the higher 41 per cent tax rate - which was possible under the €50,000 cap on the scheme - would be far better off availing of the standard relief available on pension contributions at 41 per cent compared to the effective 25 per cent relief on the Cowen scheme.

Indeed, even standard rate taxpayers would receive only a marginal benefit. They would get what amounted to a 25 per cent relief on contributions, but would, in all likelihood, face a tax bill of 20 per cent on three-quarters of the eventual pension pot.

As a result, the main likely beneficiaries of the Cowen scheme were likely to be those paying little or no income tax. In practical terms, this meant pensioners were a significant likely target market.

Unfortunately, the Revenue then got in on the act sending a heavy-handed letter out to the financial institutions warning them against allowing pensioners to avail of the scheme. They were forced to withdraw this advice when it was highlighted by this column.

Unfortunately, much of the damage had already been done. The most practical way for pensioners to invest in the Cowen initiative was through the opening of the Personal Retirement Savings Account (PRSA). There are only 10 registered providers of these products and many of these effectively were frightened off by the Revenue's original missive.

They essentially decided that dealing with pensioners was too much hassle and might attract unwelcome attention. This position was exacerbated by badly trained staff, who often did not know the rules and gave out advice that was, at times, plain wrong.

It should be said this was not universal, and Eagle Star in particular was very accommodating to pensioners, who were fully entitled to avail of the scheme.

However, PRSAs are subject to certain restrictions in accordance with general pension legislation. Most particularly, there is an age restriction - 75, as it happens, not 80 as you were incorrectly advised by Bank of Ireland.

What this means is that while a pensioner is entitled to open a PRSA, they must do so before they are 75. At 75, the fund must be closed and the money moved to an annuity or an approved retirement fund.

Mr Cowen's fiddling with the eligibility standards for his initiative saw him impose a one-year requirement for investment - anyone withdrawing their investment within that period would be deemed not to have fulfilled the requirements of the scheme and would lose out on the bonus. Of course, to meet this one-year investment rule, pensioners investing in PRSAs had to be under 74 to be able to avail of the scheme.

All this is academic to you, of course, as your friend is 79 and was always ineligible for the scheme. Likewise, it is no longer relevant as a final requirement of the Cowen initiative was that the transfer to a pension fund had to take place no more than three months after the SSIA matured. As the last SSIAs matured in April, the deadline for availing of the scheme was last Tuesday, July 31st.

I, for one, am glad to see the back of it. It was a classic Government giveaway - cumbersome and fiddly - and by its awkwardness illustrates the very allure of the simple SSIA scheme whose success was down to the fact that ordinary consumers could see straight up what was on offer and how to avail of it.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by e-mail to dcoyle@irish-times.ie.

This column is a reader service and is not intended to to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.