Allowing members to access additional voluntary contribution (AVC) pension funds now could generate €1.8bn for the Irish economy, the Irish Business and Employers Confederation (IBEC) has said in a new report.

The move would result in an immediate tax windfall of €600m for the State, rising to €1.24bn as a result of additional spending in the economy, the lobby group calculated. It called on government to change regulation to facilitate this drawdown, and it pointed out similar initiatives had worked well in Denmark and Iceland.

IBEC chief economist Fergal O'Brien said: "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.”

He added that AVC pensions are worth around €4bn, with further personal pension schemes valued at around €15bn. So if just half of Irish AVC account holders and a quarter of those with personal pensions were to opt for early drawdown, the total value would be €3bn.

"This would mean an immediate direct tax windfall of €600m to the Exchequer and a domestic economy stimulus of €1.8bn. This is equal to 2.3 per cent of consumer spending and 1.1 per cent of GDP. The extra spending in the economy would support 7,300 jobs for three years and bring the total Exchequer benefit to €1.24bn,” O’Brien explained.

"When a similar initiative was carried out in Denmark, 94 per cent of people with such funds chose to access them, resulting in a stimulus of 1.4 per cent of GDP and an Exchequer windfall of almost €2bn. In Iceland 50 per cent 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."

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

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