Brennan proposes replacement for SSIA's

ArthurDent

From today's Sunday Business Post:

http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=NEWS-qqqs=news-qqqid=2550-qqqx=1.asp

The Minister for Social and Family Affairs, Seamus Brennan, is considering a new product to encourage people to continue saving after the Special Savings Incentive Accounts (SSIAs) begin to mature in June 2006.

Brennan is examining the possibility of launching a tax-efficient pension and savings product for more than one million people who hold SSIAs, which are worth €14.5 billion.

“We need to increase coverage and adequacy hugely, and we need to do something fairly radical to achieve that,” he said. “I'm strongly of the view that SSIAs have to be replaced with an attractive product which incorporates tax breaks.”

The minister is considering a monthly savings plan which would allow people to offset their income tax at the marginal rate on savings of up to €250 per month, a tenth of the average industrial annual wage of €30,000.


It should be interesting to see how this plays out.

Also love the maths in the article

€250 - a tenth of the average industrial annual wage of €30,000. :eek:

shoegirl

The idea of a tax efficient savings scheme is in itself a good thing. It defies all intelligence why the government have never had schemes like the UK ISAs and its predecessor, the TESSA.

However any new scheme would be discriminatory if it were not open to ALL, not just the lucky people who could afford to save during the excessively brief period during which the original SSIA was offered. Many people either never started because they couldn't afford it, or else dropped out due to saving being too high a pressure. Any new scheme should be open to all, not just those who've already made a profit on the old scheme.

Now secondly, unless the new scheme offers tax breaks at the standard rate only, it will be skewed in favour of higher earners. The idea is good, but something more like the ISA, and on an ongoing basis, would be better than a once off scheme. Maybe if the tax breaks were less generous it would spread the benefit more evenly.

See http://www.inlandrevenue.gov.uk/leaflets/ir2008.htm

Blackjack

Interesting article, and it is a topic worthy of a lot of consideration given the number of articles on pension defecits (or potential defecits) that many schemed are faced with. Giving people an opportunity to contribute to their own pensions and incentivising this is a far better use of funds rather than taking it in tax now and paying a multiple back in several years time.

I do agree that this should be available to all comers, not just SSIA holders. Only offering it to SSIA holders would defeat the purpose of such a scheme. I do believe however that any such scheme would be available to all, as it would achieve an addition to the original aim of the SSIA. The original SSIA was designed (and while might have been a knee-jerk reaction in some eyes) to reduce consumer spending in an over-heating economy. It has achieved this and also potentially created a culture of saving - something that Modern Ireland appeared to have lost. Any omission on the part of the government in not making a new scheme open ended would be disastrous, both politically and financially.

Keeping benefit from any new scheme to the Marginal rate while being equitable may not be the ideal solution. Currently any AVC's paid into a pension sheme are deductable at full rate (including PRSI) thereby providing a good encouragement to do so. By not offering this to those on the higher rate might turn people away from the scheme. The average wage in Ireland (last time I checked) was in excess of 40K, thereby the average earner is already paying the higher rate. Encouraging people (as done in the case of AVC's) to reduce their total tax payment in a form of saving is probably the best way of doing so.

250 X 12 = 3000 - this being what is meant by the tenth of the Average Industrial wage. I'm not meaning to be an ass, just clarifying!.

Something does however need to be offered to people ahead of the maturity of the first SSIA holdings. There is a large wad of cash waiting to be spent unless some alternative can be offered. A recent survey by BOI Asset Management on this showed that while many intend to continue saving, I believe that some further encouragement needs to be given. The best proposal would be a scheme similar to the ISA scheme, but the limit on ISA's is quite small (I believe about GBP 3000 total) and is not comparable to the EUR 19,000 that will be available to anyone who contributed the full amount from the beginning to the SSIA.

wicklow

I think it would be a good idea to continue with some sort of tax saving scheme. However it would probably be the higher earners who would take out pension arrangements when it is the lower earners who the government have to really target for providing for pension. I heard a rumour from someone who works in the SSIA industry that one of the governments proposals for the maturity of SSIAs is that policy proceeds MUST be taken within one month of maturing and if not - you would lose the government contribution. Also you cannot continue paying premiums.

Cant see this being true because Fianna Fail would lose power.......