Ministers are working on plans which would allow people to use money placed in life insurance policies to pay off their mortgages with the help of a generous tax break.

The Financieele Dagblad says the plan, an idea from Labour party leader Diederik Samsom, would boost the economy and help people who are paying higher interest rates on their mortgages than the returns generated by their life insurance policies.

The move would also benefit the treasury because people would pay off their mortgages, reducing the need for mortgage tax relief, the paper says.

The central bank estimates the Dutch have some €30bn to €45bn locked up in such annuities.

Criticism

The insurers association Verbond van Verzekeraars issued a statement later on Wednesday saying the plans as outlined in the media are ‘totally short-sighted’.

In nearly every case, it would not be in the interests of the consumer, the association said. While there is a short term gain for the government, consumers will miss out on building up capital and could end up with more debt. They will also forgo the tax advantages that having a mortgage brings, the association said.

Insiders expect the measure to be included in the government’s 2014 spending plans which will be presented on the third Tuesday in September.