The Government should introduce a flexible investment account to encourage long-term saving for retirement and promote continued savings habits after Special Savings Incentive Accounts (SSIAs) mature, the Irish Association of Investment Managers (IAIM) said yesterday.
The IAIM said people were avoiding pensions because they did not want to lock up their savings until retirement.
Likely to be most appealing to people on low incomes, the proposed scheme is based on extending the tax relief available on pensions to a more accessible type of investment plan.
Under a Lifetime Flexi Investment Account, tax relief would be available on contributions of up to €3,000 per annum at the standard rate. For people outside the tax net, the Government would pay a monthly 20 per cent bonus on contributions.
Every five years, investors would be allowed to withdraw up to 30 per cent of the previous five years' contributions, subject to exit tax at 23 per cent. Unlike contributions to pensions, there would be no relief from PRSI, however the proceeds of the fund at retirement would be tax-free.
IAIM retail funds committee chairman Gary Connolly said that savers would be taking advantage of the existing pensions tax allowances and the only real cost to the Government would arise in relation to non-taxpayers.
"Really it is aimed at those not in the tax net or those on the 20 per cent tax rate and that is where pensions coverage is the lowest," said Mr Connolly.
The IAIM is proposing that SSIA maturities, gross of exit tax, should be allowed kick-start the new type of investment account, subject to the normal maximum pension tax relief limits.
Relatively few people take full advantage of the tax relief available on pensions. This relief is available up to limits of 15-30 per cent of salary, depending on the person's age, but the average contribution among pension holders is around 8 per cent of salary.
The IAIM, which represents all the major investment houses, has written to the Minister for Finance, Brian Cowen, and the Minister for Social and Family Affairs, Séamus Brennan, outlining its proposal and is seeking a meeting with Mr Cowen.
Its call for the Government to introduce an incentive for keeping SSIA money invested follows a series of proposals by banks and insurance companies.
The Pensions Board is also reviewing a report by external consultants that examines the possibility of offering SSIA holders incentives to save for retirement.
Mr Connolly said he shared Mr Cowen's view that there would not be a spending splurge when SSIAs mature in 2006 and 2007.
Meanwhile, new figures from the IAIM show that investor confidence remained healthy in 2004, as the value of retail investment products under management grew by 17 per cent - the same increase that was recorded in 2003. The annual IAIM personal investment survey shows that the value of money held by individual investors in retail products stood at €22 billion at the end of December 2004, up from €18.9 billion at the start of the year. The figures exclude managed pension funds but include Personal Retirement Savings Accounts (PRSAs).
However, the value of new business was €1.87 billion, a decrease of 5 per cent on the volume of net cash flows invested in 2003.
Mr Connolly said the decline was "a slight tapering off of the very high levels achieved in 2003", when investors flocked back to the market after three volatile years.
