Monday is the final SSIA payout day. The scheme should be extended in a way that promotes pension saving, argues Brian Forrester.
We are now at the end of the SSIA scheme with the final maturities occurring at the end of this month.
Over 1.1 million of us took out an SSIA between April 2001 and April 2002, so clearly it was a very popular initiative.
However, now is a good time to consider whether the SSIA scheme met its objectives and to look at the wider implications of the scheme for future saving.
Charlie McCreevy's short-term objective for the scheme was to take some surplus cash out of the booming economy and there is no disputing his success in this, with monthly savings approaching €200 million during the five years of the scheme. The more challenging objective of the scheme, however, was to develop a culture of saving in the Irish public. There is no doubt that Mr McCreevy had an eye on our ageing population and the financial pressure that this will put on the work forces of the future.
The facts and figures of the impending pension strain are well worn but it is worth reminding ourselves of the worrying trend in the key ratio, ie the number of working people to the number of retirees.
According to the National Pensions Review this is set to drop from the current figure of 4.3 workers to every one retiree to just 1.4 workers per retiree in 2056. Clearly the pensioner of the future will need to take control of their retirement plans now.
There have been a number of successes in the savings arena for which the SSIA initiative must take credit:
Ireland has a personal savings rate of 10.5 per cent of disposable income compared to 1 per cent in the US and 5 per cent in the UK.
According to the Pensions Board, one in four of those with no pension took out an SSIA.
Nearly 45 per cent of SSIA holders are first-time savers under the age of 40.
One fifth of Bank of Ireland SSIA holders took the equity option giving many of them an important and profitable introduction to that method of long-term savings.
We are seeing evidence that 60 per cent of SSIA holders are opting to continue to save after the scheme, and at a level higher than during the scheme itself.
However, there are some worrying facts behind the figures. If our own SSIA customer research is anything to go by, we are saving for cars, holidays and home improvements. We are not saving for the long haul, ie our retirement. Currently, just over half (55 per cent) of the working population have some level of pension despite the latest Pensions Board research that reveals 87 per cent of people do not think that the State pension will be enough to live on in retirement.
We appear to be somewhat of a confused nation with European research revealing that the Irish are simultaneous savers and spenders. One third of us save for a rainy day, while at the same time, nearly 40 per cent of us borrow "to buy the things they want".
It is easy to see that switching gear to address our retirement needs is a difficult transition to make. For one thing, our younger generation's financial priorities are already nearly a decade behind where they were for their parents' era. The average age of today's first-time house buyer is about 35 years, while 20 years ago this was much younger at about 25 years of age. A second, related factor is that many couples are also choosing to have their children later on in life. Both of these factors put a greater financial burden on the younger generation in a time when they should ideally be starting to save for their retirement.
Having said that, the SSIA scheme has shown us that despite the pressures of hefty mortgages and childcare bills we have the capacity to save if the benefits are attractive and are readily understandable.
The simplicity of the SSIA scheme should be extended to stimulate public awareness of the generous tax incentives already available in current pensions legislation. There is much that the State can do here.
However, the principal responsibility for retirement planning rests with each individual. A pension can offer a better tax incentive to save than the SSIA scheme did and the evidence is there that a lot of us can afford to save regularly. Our research shows that over 50 per cent of those who didn't take out an SSIA are now saving up to €200 per month. Over 60 per cent of our SSIA customers are continuing to save and many are doing so at a higher rate than before, saving on average €310 per month.
This is a perfect opportunity to take a moment to consider how we would maintain our current lifestyle on a State pension of just €209 per week. We should make an appointment with our employer, local bank or broker to discuss the many pension options open to us.
Learning from the SSIA scheme, we could all be responsible for creating a pensions legacy to pass on to future generations.
If nothing else, we should listen to the words of the wise, the people who have direct experience in the area of retirement, especially when 93 per cent of those over 60 years of age tell us that it is important that young people save for their retirement now.
Brian Forrester is managing director of Bank of Ireland Life