The Government has announced details of a new retirement savings scheme, designed to encourage part-time workers and homemakers to plan their own pensions.
The scheme, which will enable people to carry their pensions from job to job, will be totally flexible and aimed at boosting supplementary pension cover from 50 per cent to 70 per cent in the State.
The new scheme is known as the universal Personal Retirement Savings Accounts (PRSAs). Announcing details yesterday, the Minister for Social, Community and Family Affairs, Mr Ahern, promised it would be low-cost, portable and easily accessible.
The target group for the PRSA is people who may not be in regular employment. Holders of PRSAs will be able to stop and start contributions without penalty and will be able to make contributions regardless of employment status. The scheme marks a radical departure in pension funding, because under existing legislation only those in paid employment can contribute to a personal pension.
Standard PRSAs will be available off the shelf and charges will be capped at 5 per cent of contributions with a 1 per cent annual management charge. The legislative framework for the introduction and regulation of the PRSA will be featured in the forthcoming pensions Bill, due to be published by the end of May. PRSA pensions are expected to be on stream early next year and employers will be obliged to provide access to at least one from then on.
This involves employers making a payroll deduction system available to employees, informing them about that facility and providing paid time off for workers to make pension arrangements.
Employers will not be obliged to make contributions to PRSAs but can do so if they wish. The new pensions will be portable, enabling employees to "take the PRSA with them" when moving jobs. It will also be possible to transfer between providers without charge. However, it will not be possible to access any of the money built up through a PRSA until the account holder is aged 60.
PRSA providers will be obliged to give contributors a Statement of ReasonableProjection of the value of the PRSA on a regular basis.
Contributions will benefit from tax relief at an individual's marginal income tax rate. For PAYE workers, income tax, PRSI and the health levy will be calculated on net pay after the pension contribution.
The maximum annual tax-deductible contributions are based on a percentage of the person's earnings. There are three bands:
15 per cent of income under 30;
25 per cent for the 30-39 age group;
40 per cent for those over 40.
Mr Ahern said the aim of the Government's pension policy was for all citizens to have an adequate income on retirement.
