PENSIONS SCHEME:FOR EVERYONE who enjoyed planning how they would spend their Special Savings Incentive Account (SSIA), the news that the Commission on Taxation is proposing a new version of the popular savings scheme may be seen as welcome.
The bad news, however, is that it is a retirement product targeted at those on low incomes. Unlike the SSIA free-for-all, it is aimed at bringing more people into the private pensions net rather than helping people save to build new kitchens or buy new cars.
Given the public familiarity with the SSIA scheme, as well as the impressive take-up figures – approximately 1.2 million accounts were opened, 26.5 per cent of which belonged to people who did not already have a pension – the commission hopes that a retirement savings scheme that works on a similar basis to the SSIA scheme will be successful in giving those on low incomes, who may not already have a supplementary pension, an attractive alternative.
Critically, the scheme doesn’t offer tax relief as an incentive. Instead, like the SSIA, where the Government contributed €1 for every €4 saved by the individual, under the “RSIA” the exchequer would contribute €1 for every €2 contributed by an individual to their pension. So, on an annual pension contribution of €2,200, the State would allocate an additional €1,100 every year. After 40 years, the total contributions made would be €132,000 in today’s terms, excluding any possible returns earned.
Although less attractive than the “matching” incentive, which is of the order of €1 for every €1.60 saved by the taxpayer, the “RSIA” is still more attractive than the current incentive offered for those paying the standard rate of tax, which is a contribution of €1 for every €2.50 invested into a pension by an individual.
Another advantage of the scheme is that, while pension fund returns will be taxed, neither an individual’s pension contributions nor the State’s contribution will be liable to tax.
The cost to the State of the scheme has been estimated at about €520 million, if there is a 20 per cent take-up.
