Thursday 21 September 2017

Changing pension rules could prompt €1.8bn spark for domestic economy

INCREASING economic activity in the domestic economy is key to job creation, but public finance pressures mean that options for Exchequer-backed stimulus are limited.

However, there are things the Government can do to change consumer behaviour and release untapped demand in the economy.

For example, it could reform pension rules to allow people to unlock and use part of their pension savings now.

Those individuals who invested in additional voluntary contribution (AVC) and personal pensions in the boom years should now be allowed early release of these funds as a once-off crisis-response measure.

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 €2bn.

In Iceland, 50pc of account holders have accessed their AVC-type funds, leading to a significant tax windfall and having a direct link with a recovery in consumer spending.

If just 50pc of Irish AVC account holders and 25pc of those with personal pensions were to opt for early drawdown, the total drawdown value would be €3bn. This would mean a direct tax windfall of €600m to the Exchequer and a domestic economy stimulus of €1.8bn.

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