The Irish Association of Investment Managers (IAIM) has again urged the Government to consider a tax-based savings plan.

Ms Ann Fitzgerald, secretary general of the IAIM, said people would save if given an incentive.

The IAIM proposal is loosely based on current Save As You Earn schemes but aims to target those with no access to workplace-based savings schemes. That would include public servants and employees of small companies.

A Department of Finance spokesman said there was no evidence to suggest this kind of tax-based savings incentive would work. He said such an initiative would be more likely to attract transfers of existing savings from financially astute investors than encourage new savings from novice investors.

Mr Martin Nolan, chairman of the IAIM, said the association was very disappointed that its proposal had not been adopted in the Budget and hoped something to encourage saving would appear in the Finance Bill.

The household savings ratio in the Republic fell sharply from 9.6 per cent in 1998 to 6.4 per cent in 2000, ESRI figures have shown. The rate of bank lending to the personal sector has more than doubled in the past five years.

Under the IAIM proposal, there would be a monthly savings limit of £500 (€635) per person and the money would be invested in a five-year unit fund. It would be operated through salary deductions and onward transfer by the employer to the preferred provider.

The IAIM's preferred tax incentive would be tax relief at the marginal rate on monthly savings. The alternative put forward by the IAIM would allow no tax relief up front but provide for tax-free payments on exit.

Save As You Earn schemes are only available to an estimated 2.5 per cent of the working population at present. Prof Philip R Lane, associate professor of economics at Trinity College Dublin, said access to such schemes was restricted and unfair.

In his paper on savings incentives, Prof Lane argued the importance of government intervention in encouraging increased levels of medium-term household savings and a diversification of portfolios to include higher-return equity and bond investments. IAIM commissioned the research.

Prof Lane said the over-reliance on property investment was extremely risky in that ownership in the domestic property market did not provide much diversification against the labour income risks households faced.

Prof Lane said this was just one reason for households to diversify their investment portfolios and for barriers to saving and investing to be removed.