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AVC funds could make Exchequer E1.4bn

Monday, September 03 10:24:12

Allowing individuals to access additional voluntary contribution (AVC) pension funds now could result in an immediate Exchequer windfall of E600 million, rising to E1.24 billion as a result of additional spending in the economy, IBEC said today.

The employers group said that this would provide a domestic economic stimulus worth E1.8 billion.

It called on government to change pension rules to facilitate the draw-down, and said similar initiatives had worked well in Denmark and Iceland.

"Despite the pressure on the public finance, there are things that can be done to change consumer behaviour and support demand in the economy. During the boom years, some individuals invested in personal pension funds and AVCs, but have now seen their incomes fall significantly. Allowing early release of a portion of these funds would enable such individuals to offset lost income with their savings, which are locked away, while at the same time providing a wider economic benefit," IBEC Chief Economist Fergal O'Brien said.

"AVC pensions are worth about E4 billion and further personal pension schemes are valued at about E15 billion. If just 50pc of Irish AVC account holders and 25pc of those with personal pensions were to opt for early draw-down, the total value would be E3 billion. This would mean an immediate direct tax windfall of E600 million to the Exchequer and a domestic economy stimulus of E1.8 billion. This is equal to 2.3pc of consumer spending and 1.1pc of GDP. The extra spending in the economy would support 7,300 jobs for three years and bring the total Exchequer benefit to E1.24 billion."

"When a similar initiative was carried out in Denmark, 94pc of people with such funds chose to access them, resulting in a stimulus of 1.4pc of GDP and an Exchequer windfall of almost E2 billion. In Iceland 50pc of account holders have accessed their AVC-type funds, leading to a significant tax windfall and a direct link with a recovery in consumer spending," added Mr O'Brien.

The early draw-down of funds should only be permitted during a three-year window and would be subject to tax at the standard rate. IBEC said it does not support early withdrawal of funds from core occupational pension schemes, as that would weaken future pension provision, he added.