Pensions Board to examine mandatory scheme

The Government has put mandatory pension coverage back of the political agenda, asking the incoming Pensions Board to study proposals for the introduction of such a scheme for workers.

Minister for Social and Family Affairs Séamus Brennan announced his intention to pursue a mandatory approach to funding retirement income at the publication yesterday of the National Pensions Review, which proposes a series of incentives to encourage people to save for retirement on a voluntary basis.

The review recommends that the Government build on the success of the Special Savings Incentive Scheme by introducing a system of matching payments for Personal Retirement Savings Accounts (PRSAs), the flexible personal pension product launched in 2004.

It also proposes allowing savers access to some of their accumulated PRSA savings. The Pensions Board suggests that people be given access to 30 per cent of the fund free of tax before the age of 45. They would also be allowed to draw down a tax-free lump sum of 20 per cent at retirement, down from the current level of 25 per cent.

Pensions Board chief executive Anne Maher said the idea of locking away funds for 30-40 years seemed in the past to have been an obstacle to pension saving, especially among younger people.

Mr Brennan said the proposal was "very creative and might make investment in a pension much more attractive for younger people".

The report compiled by the board calls for contributions to all other private pension products to be granted tax relief at the higher 42 per cent income tax rate.

At present, lower-paid workers receive relief at only 20 per cent. This group is currently less likely to have made financial provision for retirement.

Allowing people to stay in work and defer drawing the State pension in return for a higher pension at a later age is another recommen-dation contained in the review. Michael McNulty, outgoing chairman of the Pensions Board, said favourable demographics had given Ireland a "window of opportunity to ensure adequate retirement provision.

"However, that window is likely to have closed in 20 years' time," he said, calling for immediate action to implement the suggested reforms.

Ms Maher said the most recent reforms, including the introduction of PRSAs, had seen "no progress" in reaching the Government target of ensuring that 70 per cent of the working population over 30 had sufficient retirement savings to deliver a pension equivalent to 50 per cent of their pre-retirement income.

"Good pension provision costs a lot and changes need to be made to the current system. If we go along as we are at the moment, we are heading for a disaster," she said.

Mr Brennan said the reform of the pensions system was "one of the most important policy challenges facing the country" for the future retirement "with dignity of all of our people".

He said the report was comprehensive and would be "a valuable contribution to the future design and delivery of pension reform".

The Minister said improved incentives should deliver increased pensions coverage among the workforce. "However, international experience suggests that no fully voluntary system will deliver the level of pension cover we must aspire to if all older people are to have dignity and security in retirement," he added.

"If we are serious in this aspiration, we must also be prepared to consider a more radical approach."

Mr Brennan said there was "no reason why we should not further explore the implementation of a mandatory or quasi-mandatory system".

"I will be asking the incoming Pensions Board to build on the work of the National Pensions Review in this area to recommend the most appropriate system for Ireland at a practical level."