The introduction of pensions for children is among the solutions put forward by the Irish Insurance Federation (IIF) to address the growing gap between what Irish people should be saving for retirement and the amount actually being saved.
Recent research commissioned by the IIF has found that there is an annual savings shortfall of €6 billion or €3,300 per worker.
"While the average shortfall is 11 per cent of income, the most dramatic gaps are among middle-income earners and range from €2,500 to €5,000 per annum per person," IIF chief executive, Mr Michael Kemp, said.
Despite the introduction of personal retirement savings accounts (PRSAs), the survey found that at 48 per cent, less than half of the population are saving for their retirement and more than 50 per cent do not expect to retire until they are between 65 and 74 years of age.
The findings, presented at an IIF conference yesterday, also found that 46 per cent of the working population expected that they would have to rely on the State pension of €167 per week as their main source of income at retirement.
To tackle the pension savings shortfall, the IIF has proposed a number of measures. Among them is the opening of pension accounts for children to encourage them to save for retirement.
According to the IIF's head of corporate affairs, Mr Niall Doyle, it would cost the Exchequer €130 million annually to open a pension account for each of the 1.1 million children in the Republic and deposit €10 a month in it until they turn 18.
He proposes that a sponsor be allowed to put up to €50 per month of pre-tax earnings into the fund over the same period.
Control of the fund would fall to the child at the age of 18. A quarter of the value of the fund could be accessed, tax-free, at the age of 25 if the recipient had been contributing 5 per cent of his income when working but the remainder could not be accessed until retirement.
The IIF also believes there is a need for more education on pension planning and has written to the Department of Education about developing a senior-cycle module which would teach secondary students about the need to save for retirement from their first day in the workplace.
Aside from measures to improve awareness of the need for pension planning, the IIF believes that holders of Special Savings Incentive Accounts (SSIAs) should be encouraged to translate their five-year SSIAs into a lifelong savings habit through the introduction of suitable tax incentives. It also calls for personal retirement savings accounts (PRSAs) to be simplified so they become more accessible to the ordinary person.
In dealing with the pension savings shortfall, the IIF opposes the introduction of compulsion, which it says is not "the right solution at this time".
However, the head of the Pensions Board, Ms Anne Maher, warned at the conference yesterday that the Government may have to consider the introduction of mandatory pensions if it fails to meet its target of 70 per cent private-pension coverage by 2006.
Industry opposes such a move. "Mandatory contributions will specifically undermine small business competitiveness as a consequence of higher labour costs," the small-business lobby group ISME said yesterday.
It called on the Government to scrap PRSAs and introduce a State group pension structure run by the National Treasury Management Agency. Such a scheme should provide incentives similar to SSIAs to encourage people to participate, it added.
