The proposal made for this year's Budget for a "pension bond" instead of a tax cut is seriously flawed. Firstly, it will be circular, replacing new debt for old without any new benefits. Secondly, it runs counter to the plan to reduce the burden of tax on future generations. Thirdly, it will seem arbitrary and discriminatory between people near retirement age. Fourthly, it forces people to save in one asset alone, depriving them of the right to invest in savings of their choice. The proposal is that, instead of each PRSI-paying worker getting a £500 tax cut, the Government would take the money and promise that when we retire we would get our £500 back, with interest, presumably. It's as if people were given prize bonds instead of cashback in tax cuts.

What is the status of the promise? If it is merely a political promise to pay later, then it is not a bond in the real sense of the word. But if the bond is a legal contract entitling each of us to our £500 back, then it is a debt, and will add to Government debt.

But, you may ask, is the money not being kept aside to pay us back? Not exactly. It is available to any Government to spend, which, if it did, would make a mockery of a pension savings. In the short term, the money will likely be put on deposit at the European Central Bank.

If it is not spent, it will probably be used pay off some part of the existing national debt, because that costs us more than the interest rate we'd get at the ECB. So, new government debt would be created by the £500 pension promise, while old bonds are paid down using the £500 tax revenue.

Now, let's say the holder of the "old" bonds are non-resident investors. They'd get their money back to invest as they wish, while our money would be locked up in non-transferable pension bonds by our Government. Bully for us. (Unlike normal bonds, they'd have to be non-transferable; otherwise we could all sell them and go on that inflationary spending spree with the cash).

What about Irish resident holders of existing government bonds? Say I now had £500 in Irish government bonds. Next year, the State would take £500 of my earnings in tax and issue me a pension bond promise. Then it would pay me cash for my old £500 bond when it decided to pay down the national debt, rather than spend the money. The net effect? A circular movement, with new non-transferable bonds being swapped for old transferable ones.

Nothing would happen in the level of government debt. I'd have all the cash anyway to go and spend and cause inflation. But my savings would now be locked into one, non-transferable asset for no additional benefit.

There would be no net benefit in the scheme over simply not taking the £500 tax from me in the first place.

Meanwhile, the Government's policy is to set aside other tax money to meet future social welfare pension obligations - at a level of 1 per cent of GNP per annum, starting now with £5 billion (€6.4 billion).

The one and only thing this money may not be invested in is Government debt. On the other hand, the one and only thing the proposed pension bond would do is to create a new Government debt, that is, "invest" in debt.

The Government's policy is to save now to reduce the burden on future taxpayers to meet pension obligations, but the pension bond proposal runs in the opposite direction.

Could the £500 tax money not be invested by the Government in different assets just like the £5 billion fund? In that case, I'd still only get a £500 government bond. Why not let me invest the £500 in the other assets myself?

Another flaw in the pension bond proposal is that there would have to be some arbitrary cut-off date for who would get it and who would not. People who pay PRSI after the Budget would get it, but not those who happened to retire just beforehand. Nor would it apply to anyone who started paying PRSI after the next tax year.

Present-day pensioners, possibly even those paying some tax, would get nothing from the pension bond proposal. It is not a pension benefit for them, but would raise the expectation among all pensioners that it was.

The pension bond is not a good savings scheme for free, responsible adults. By withholding our money from us, it denies us the opportunity to get the best returns in long-term investments from our own choice of savings. It hijacks the good idea of savings and drives it down the cul-de-sac of Statism.