IIF proposes pension scheme for children

The introduction of pensions for children will form part of the Irish Insurance Federation's (IIF's) pre-budget submission on the pensions "savings gap".

The IIF hopes to make its submission to the Government next month with the support of the Irish Congress of Trade Unions (ICTU) and employers' groups IBEC and ISME.

According to the IIF, introducing pensions for children will promote savings habits, facilitate financial education and close the gap between what people should be putting aside for a comfortable retirement and what they actually save for retirement.

The IIF first outlined a draft version of its proposals in April, when it revealed research that suggests there is an annual savings shortfall of €6 billion, or an average of €3,300 per worker.

Following meetings with a number of Government ministers, IIF corporate affairs manager Mr Niall Doyle has written to the Taoiseach outlining his proposals.

These include introducing financial incentives for converting the money in maturing Special Savings Incentive Accounts (SSIAs) into a pensions top-up. It also suggested a second-level senior cycle module on financial planning to encourage students not to put off contributing to a pension.

The IIF wants the 23 per cent tax liability on SSIA interest gains to be waived if the saver puts 50 per cent of the maturity value into a pension.

It is also asking the Government to vary pensions contributions limits on a once-off basis to allow savers to reinvest their SSIA fund in a tax-efficient manner.

The IIF is proposing that, on the day the SSIA scheme ends, the Government would open a pension account for each of the 1.1 million children in the country and deposit €10 a month into it until they turn 18.

A sponsor, for example a parent or grandparent, could put up to €50 per month of pre-tax earnings into this pensions fund on behalf of the child.

Alternatively, the Government could top up sponsor contributions by giving the donor a tax credit at the standard rate, the IIF is suggesting.

Under its proposals, control of the fund would pass to the child at the age of 18.

On his or her 25th birthday, the pension holder would get access to a quarter of the current value of the fund tax-free, but only if he or she has been contributing 5 per cent of any income earned since the age of 18.

The tax-free sum could then be spent at the holder's discretion, but would ideally be used to pay back student loans or put a deposit on a house.

According to Mr Doyle, this "18-25 rule" would develop a positive attitude to saving among young adults.

He believes that the high volume of business would make it an attractive source of profit for the insurance industry, despite the likely low level of contributions.