Introduction

Under normal tax rules you are entitled, subject to certain limits, to have the amount that you contribute to a pension deducted from your gross income before that income becomes liable to tax.

Section 42 of the Finance Act 2006 provides an incentive for certain SSIA holders to reinvest all or part of their net SSIA proceeds, after maturity, into an approved pension product.

Who will be eligible to avail of the incentive?

In order to be eligible to avail of the incentive, an SSIA holder must satisfy the following conditions:

• the SSIA holder's gross income (i.e. before all deductions) in the year before the year in which his/her SSIA matures, cannot exceed €50,000*;
• an income tax deduction cannot be claimed under normal tax rules in respect of the amount of the SSIA proceeds up to €7,500, that are reinvested in the pension product; and
• since this incentive is for the purpose of increasing investment in pensions, the SSIA holder cannot use this incentive to replace any amounts that he/she is already committed to contributing to a pension product

*If at the time that you are investing SSIA funds in a pension, your gross income has not been determined for the year concerned, you may use the gross income figure of the previous year and increase it by 5% to determine if you satisfy the €50,000 limit.

What is the incentive?

The incentive has two features.

Firstly: for every €3 of SSIA proceeds reinvested by an eligible SSIA holder in a pension product, the Exchequer will contribute €1 by way of a tax credit. This tax credit cannot exceed €2,500.

Secondly: the Exchequer will contribute an additional tax credit to the pension product. This additional tax credit will be a percentage of the tax deducted from the SSIA on maturity. If the SSIA holder reinvests all (100%) of his/her SSlA proceeds then the additional credit will be all (100%) of the tax so deducted. If he/she reinvests one half (50%) of the SSIA proceeds in a pension product then the additional tax credit will be one half (50%) of the tax so deducted-and so on.

Approved pension products

The SSIA proceeds can be reinvested:

• as an additional voluntary contribution to an occupational pension scheme;
• as a contribution to a Personal Retirement Savings Account; or
• as a premium under a retirement annuity contract.

When must the reinvestment be made?

The earliest SSIAs will mature at the end of May 2006. This incentive will, therefore, begin to be available from June 2006. An eligible SSIA holder will have three months from the maturity date of his/her SSIA to reinvest some or all of the SSIA proceeds in a pension product in order to avail of the incentive.

For example, where an SSIA matures on 31 May 2006, the SSIA holder has until Thursday 31 August 2006 to reinvest some or all or his/her SSIA proceeds.

How do I avail of the new pension incentive?

To avail of the new pension incentive you should, when your SSIA matures:

• obtain an SSIA Maturity Statement from your SSIA manager; and,
• forward the Maturity Statement to a pension provider.

The pension provider will then request you to complete and sign a declaration form and make your contribution to your chosen pension product. Once this has been done, the Government contributions under the pensions incentive will be claimed by your pension provider and invested in your pension.

Declaration

The declaration is very simple and will require you to declare that:

• Your income does not exceed €50,000 in the year prior to your SSIA maturing.
• You will not claim tax relief under normal tax rules for amounts up to and including €7,500 invested under the incentive.
• You will not use the incentive to replace any amounts that you are already committed to contributing to a pension product.

Maturity statement

The Maturity Statement, which must be provided by your SSIA manager on request, after your SSIA matures will contain the following:

• name/address/PPS number of SSIA holder and name/address of SSIA manager;
• date of maturity;
• gross funds at maturity;
• net funds (after maturity tax deducted);
• amount of tax on maturity.

What is the best pension arrangement for me?

Before making a commitment to make a contribution to a pension product, you should consider the following points and you may wish to seek independent advice where appropriate:

• Should I contribute using the existing tax rules or avail of the new Pensions Incentive?
• Which pension arrangement is suited to my personal circumstances?
• What fees, charges and commissions are involved?
• How much should I contribute?
• What benefits will I get when I retire?