The recent introduction of a pensions levy by the debt-ridden Irish government has angered the industry, as Christine Senior reports
Pensions assets are vulnerable targets for cash-strapped governments in search of funds. Ireland has already dipped into the National Pensions Reserve Fund to recapitalise its ailing banks and now the Irish government has set its sights on private pension savings to finance a government initiative to boost employment. This sudden plan to grab a slice of pensions savings is causing uproar among trustees, pensions bodies, employers, consultants, members and trade unions alike.
The pensions levy will be imposed on private occupational schemes and private pension savings, including Personal Retirement Savings Accounts, at the rate of 0.6% a year over the next four years. Public sector schemes and annuities will be exempt. The levy is designed to raise €470m a year with the specific purpose of funding a jobs initiative. The necessary enabling legislation is already passing through the Irish parliament and its route on to the statute book looks virtually guaranteed, with a date of 25 September set for the first payment by pension schemes.
There have been some suggestions that the levy could be legally challenged on the grounds of “unconstitutionality”. Thus far no challenge has been forthcoming, though a campaign has prompted members to write to trustees of their schemes telling them not to deduct the tax. But the government has been careful to make the legal validity of the levy watertight – the legal framework overrides the Pensions Act and any individual scheme rules.
Anger over the levy is on several counts – it came out of the blue without any consultation, it affects certain pension savings and not others, and pensions are under pressure from other government initiatives, on funding standards and potentially tax relief reduction. There is also a fear that the time limit of four years could be extended.
“There is a fair degree of scepticism about it,” said Philip Shier, senior actuary at Aon Hewitt. “Once you have a system set up whereby providers have to pay x% to the government it’s a very easy way for the government to balance the books. If they need a bit more they can change x to x+1%.”
A particular aspect of the tax that has raised hackles is that the government is breaking new ground by taxing an accumulated pot of savings, rather than on returns on capital as has been the norm. It’s effectively a wealth tax.
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