All pension holders should receive 42 per cent tax relief on their contributions to promote pension coverage which has become a matter of extreme urgency, a leading economist said today.
In the latest "pensions timebomb" warning, Mr Jim Power chief economist at fund manager Friend First, said inadequate pension coverage could create a new underclass of "retiring poor" the scale of which could threaten Ireland's economic future.
Mr Power said ignoring the problem of ageing populations will store up problems for taxpayers and the economy as the dependency ratio of workers to pensions will rise sharply in the future.
The lack of pension covergage among lower income earners and women is of particular concern and tax relief at the marginal rate could incentivise these people to take out a pension, Mr Power said.
He alos proposed a number of other policy options including compulsory pensions, tax relief on property held for pensions purposes and raising the retirement age to fund future pension liabilities.
The €15 billion worth of SSIA money would provide an ideal starting point for investment in pensions and as such incentives such as waiving the 23 per cent exit tax for investors who switch into pensions should be considered, Mr Power said,
"Whatever the route one decides to take, the key requirement is that they should take some route," he said.
The pensions issue apart Ireland's economic prospects are certainly picking up, according to Mr Power. The economy should grow at around 5 per cent this year amid a backdrop of low interest rates and full employment.
The benign interest rate environment should provide a cushion for the property market which is expected to slow to a moderate growth rate of 6 per cent in 2005, according to Mr Power's forecasts.
While good news for Irish borrowers low euro zone interest rates are a sign of economic weakness in the euro zone as a whole and persistent sluggishness of the German and French economies is a cause for concern, Mr Power said.