The Minister for Social Community and Family Affairs, Mr Ahern, has announced legislation providing for the introduction of Personal Retirement Savings Accounts (PRSAs).

These are in keeping with the National Pensions Policy Initiative (NPPI) report and are intended as a cheap, tax-efficient and frills-free means of access to pension provision by those - approximately 50 per cent of the workforce - not in employer-sponsored pension schemes. It is thought that most of these people are at the lower tax band of 20 per cent.

Every major advance made in retirement provision in the 20th century was helped by some significant tax incentive. The extent to which people are attracted to the idea of pension provision depends on whether they see a tax advantage.

The problem for the ambitions of the NPPI is that the tax advantages of the new Special Savings Scheme, introduced by the Minister for Finance, compete, for the standard-rate taxpayer, with those of pension provision.

The new scheme will not operate until May 1st. Although several financial institutions are already advertising schemes, we haven't yet got a full picture of how the various offerings will work so the figures I use below are somewhat speculative. However, the fact that they may not be totally accurate should not undermine my main point.

Consider someone saving £200 (#254) per month in one of the new bonds. At its simplest, the state contributes another £50 so that each month the saver gets £250 of value invested for an outlay of £200. After one year, a total of £3,000 has been saved. If it is left for four years, at interest of 4 per cent per annum, it will accumulate to £3,510. Tax of £118 (23 per cent of interest) is payable so that the net payout is £3,382.

If the £250 per month is invested in a PRSA there will be full tax relief at 20 per cent so that - as with the savings bond - the saver will, each month, have £250 of value for £200. At the end of one year, £3,000 has again been accumulated.

Pension funds are expected over time to generate a higher return than deposits. Let's assume that the growth under the PRSA equates to 8 per cent per annum for the next four years. The end result will be a total of £4,082.

If the saver retires at that stage, it is expected that one quarter of the fund (£1,020.50) will be payable tax free but the balance (in whatever form it is paid - lump sum or pension) will be taxable.

In other words, if the saver (now a pensioner) pays tax at 20 per cent, a tax charge of £612 will be levied, leaving a net amount of £3,470.

So, the standard-rate taxpayer in this example is only marginally better off with a PRSA - and only because of a higher assumed rate of return.

Of course, contributions to a PRSA will also enjoy PRSI relief. But the price of this relief is that the savings must remain locked up until retirement - age 60 at the earliest - which for many will be too far into the future.

By contrast, the fruits of the savings scheme will be available in five years. Furthermore, during the five years, the saver will undoubtedly be able to use the built-up value as security for a loan if this becomes necessary - a facility not available with a PRSA.

Many ordinary savers, and especially those for whom the PRSA was designed, will probably conclude that any spare money they have should be directed to the savings scheme.

No doubt, the more financially/mathematically astute will be able to demonstrate - based on historical returns etc - that the PRSA has the edge. However, this misses the point. The PRSA was intended as a simple way to attract the ordinary man/ woman in the street to the idea of long-term pension provision.

I fear that the aims of the Mr Ahern - and the work of the Pensions Board that advises him - have been compromised by the initiative of the Minister of Finance, which is designed to suck money out of the economy in the short term, rather than encourage the kind of long-term saving that NPPI has as its core objective.

However, all is not lost. Mr McCreevy could restore the balance by using his new tax-credit system to give credit at the higher tax rate on the first £250 per month contribution to everyone saving for retirement - regardless of which tax band the saver is on. This approach should continue at least for the life of the new savings scheme.

If Mr McCreevy declines to act, I fear that we will have shelved the main objective of the NPPI - the extension of pension coverage to the many people on the standard rate of tax who will be totally reliant on the State in their retirement. This would be a terrible pity given the urgent need to prepare for the pensioner bulge - the increase in the number of pensioners expected in the early part of this century.

Alan Broxson is a director of Irish Pensions Trust, part of Mercer in Ireland.