Government to back SSIA-style pension relief

A new style of pension modelled on the Special Savings Incentive Accounts (SSIA) is to be endorsed by the Government.

The new pensions - which will use matching payments rather than tax relief as an incentive - have been recommended by the Pension Board in a report to be released next Tuesday.

Minister for Social and Family Affairs Séamus Brennan is expected to indicate Government support for the change in approach when he publishes the National Pensions Review. However, the Minister will also indicate that he will seek the views of interested parties before coming forward with firm proposals, possibly in the impending Social Welfare Bill.

The Pension Board has recommended that, instead of giving individuals tax relief on their pension contributions, the Exchequer should make matching payments into their pension fund.

The board wants matching payment from the Exchequer of €1 for every €1 put into their pension by all individuals. However, the Department of Finance is understood to have raised concerns about the cost of such a move which could add significantly to the €2.7 billion annual cost of the tax relief-based incentive scheme.

The new scheme is likely to be structured in a way that mimics the current system, under which individuals receive tax relief at their top rate of tax. This would involve payments along the lines of €1 for every €1 saved for those earning over €32,000 and fall into the higher 42 per cent tax band and €1 for every €4 saved by those earning under this figure, who pay tax at 20 per cent.

Both Mr Brennan and Minister for Finance Brian Cowen are keen to have a scheme in place by the time the SSIA accounts start to mature in the middle of the year. There is unlikely to be any significant incentives for savers to roll over their SSIAs into pensions as the thrust of the new initiative is to take advantage of the savings habit built up by the scheme.

The new products will also have a facility under which savers will have access to the money on a limited basis before retirement.

The National Pensions Review did not make a definitive recommendation on the introduction of mandatory pensions, under which all employees would be enrolled in schemes and contributions deducted from their wages. Mr Brennan is expected to ask the Pensions Board to look again at the issue next week.

The board will be asked to report back on the feasibility of a "soft-mandatory" regime under which all workers are enrolled automatically in a pension scheme, but have the right to opt out.

The Pensions Board undertook its review one year ahead of schedule at the request of Mr Brennan.

It was charged with coming up with proposals to increase the level of private pension provision, particularly among the lower paid, younger members of the workforce and part-time workers.