Wednesday 26 October 2016

We need new system where smart savers are rewarded

Published 30/03/2014 | 02:30

We need new rules to protect smart savers
We need new rules to protect smart savers

IT is a strange state of affairs when the prudent get punished. But that is what is happening in this country, where savers are being thanked for their good sense with savage tax rates on interest earned and ever-reducing returns.

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Every month now for almost two years, the interest rates being paid on deposits have gone down.

Back in 2009, banks were paying mouth-wateringly high interest rates. Ulster Bank stood out with a 5.5 per cent rate on its eSavings Plus account.

Today, the best in the market is KBC's Smart Access Demand Account, which gives you ready access to your cash, with a rate of 2.3 per cent. But that rate is set to fall to 2 per cent in May.

You get better rates if you lock your funds away, and Permanent TSB offers 2.4 per cent annualised equivalent rate (AER) on its 16-month term account if you have more than €5,000 to deposit.

Then there is the tax situation, which is nothing short of scandalous. The deposit interest retention tax (DIRT) has jumped from 20 per cent up to 2009 to 41 per cent now.

And some people, if they have non-PAYE income above €3,174, will also be liable for pay related social insurance (PRSI).

That takes the grand total that the State will extract from any money earned on savings to 45 per cent.

That is prohibitively high and can be seen as punishment for those who want to provide for themselves rather than depending on the State.

Many of those with savings are older people who won't be encouraged to spend, as the Government would like, just because the tax rates are punitive.

On top of all this, the Government cravenly gave in to the banking lobby and has cut the rates on tax-free State Savings Schemes, available from An Post, on three occasions in the last 18 months.

Contrast all this with the attitude to savers in Britain.

Following its recent budget, the British government has decided that pensioners with savings are to benefit from the issuing of a new pensioner bond by national savings, which will see them earn an estimated 4 per cent for three years.

The amount that can be put into premium bonds will rise.

Longer term, though, probably the biggest changes relate to the 13 million Britons who have a defined contribution pension – also called a money purchase scheme.

Smaller pension pots will be easier to cash in and those wanting in retirement to take more of their pot as a cash lump sum will be taxed at their marginal rate.

Here the Government is busy raiding the pension pots of those sensible to provide for their retirement through the levy on private funds.

The treatment of savers here is egregious and wrong, and makes no economic or social sense.

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