Reform of the occupational, personal and State pension systems may become one of the major achievements of this Government. And while not all that has been promised has been delivered, a significant start has been made.
The Minister for Finance, Mr McCreevy, added to that package in the Finance Bill during the week when he announced that the thresholds for AVCs (Additional Voluntary Contributions) made by employees would be increased in line with those enjoyed by other sectors. This age-related system of tax relief will allow 15 per cent of earnings to be invested for people under 30, rising to 30 per cent for those over 50 years of age.
The issue of pensions is regarded as a dusty irrelevance by many citizens who wake up to its importance only when they reach the age of 50 or so. And, for many people who are hoping for a comfortable retirement, it may be too late at that stage. A self-employed person would have to invest 10 per cent of his/her salary from the age of 25 to realise a pension amounting to 48 per cent of income on retirement. A recent study disclosed that 50 per cent of Irish people had no pension provision and would be totally reliant on the State when they retired.
Mr McCreevy has established a National Pensions Fund to part-fund public-service and social-welfare old-age pensions from 2025 onwards. A total of nearly €6 billion will have been invested in the fund by the middle of this year, the great bulk of it abroad. And some of the cash may yet be spent on infrastructural projects in Ireland, provided they produce an equity rate of return. But these investments will not provide adequately for the developing situation.
The Pensions Bill, introduced by the Minister for Social, Community and Family Affairs, Mr Ahern, aims to increase the level of occupational and personal pensions cover in this State to 70 per cent over the next 10 years. Under the terms of the Bill, employers will be obliged to offer their workers access to new, portable pension products. These changes, along with generous tax breaks for all sectors, are designed to ensure that the majority of retired people in future will have an income that will allow them to live with dignity in their old age.