Mandatory pension move 'would be seen as a tax'

Mandatory pensions would be seen as a further tax on income, the Government has been warned by leading benefits consultants Mercer.

The group has urged Minister for Social and Family Affairs Séamus Brennan to proceed with caution on the issue.

In a pre-Budget submission published yesterday, consulting actuary Joyce Brennan said: A mandatory system would be poorly perceived by employers and employees as an additional tax.

"In our opinion, the Minister should consider focusing on encouragement, education and simplifying the current system. The international experience shows that the introduction of mandatory pensions has failed to increase the level of coverage in markets where it has been introduced."

Mercer notes that companies and their workforces already fund the State pension system through PRSI contributions and suggests that putting a second mandatory system alongside this would "just add a further layer of administration".

Mr Brennan is due to receive a report next month on national pensions policy from the Pensions Board.

The review is addressing why current initiatives to raise the percentage of those in the workforce with private pension coverage from 50 per cent to 70 per cent has not worked. Mr Brennan has intimated on several occasion that the outcome of the report may see the introduction of a mandatory element on pension provision.

Mercer acknowledges the need for an urgent overhaul of the pensions system but has called on the Government to "learn from the Special Savings Incentive Accounts (SSIA) and apply the same simplicity to pensions".

"If the Government wants to increase pension coverage to 70 per cent of the population, it must come up with a system which will appeal to all income levels," says Ms Brennan.

She points out that the State adds "nearly €80 for every €100 saved" in pensions for higher rate taxpayers currently "yet few people see pensions this way". Restructuring the current system of tax reliefs as top-ups would, she argues, make the system "more transparent and tangible".

Any restructuring should also giver lower earners a greater incentive to save for retirement, says Mercer, noting that two-thirds of Irish employees pay tax at the lower level or not at all "giving them little or no incentive to save by way of a pension scheme".

Mercer says a top-up system would allow all employees to receive the higher rate of tax relief on pension contributions.

The group also proposes incentives from government for companies that provide defined benefit pension schemes for employees.

It also wants the Government to provide some mechanism for allowing people to transfer their SSIA savings into pension savings as a one-off, without overshooting limits on tax relief.