IRELAND - The Government's controversial pensions levy has had a "devastating impact" on the country's pension system, Irish Life & Permanent chief executive, retail, Gerry Hassett has claimed.
Speaking at the Irish Life Pensions conference in Dublin, Hassett said the levy had not only caused a €1.8bn reduction within private pension funds, but had "undermined any remaining confidence in retirement planning".
The levy was introduced by the government in order to raise €470m a year to fund a jobs initiative. It effects 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 are exempt.
(Global Pensions 06 Jul 2011)
Hassett said that the pension levy had hit profits at Irish Life by €13m in the first six months of the year and dismissed claims the levy was an idea put forward by the pensions industry itself.
"Pensions generally - public and private - are long term contracts of trust and it's incredibly difficult to repair such a breach of trust. It's the latest in a long line of negative signals that being sensible today is not valued by the state," Hassett told delegates.
"I've heard many commentators suggest that the levy was actually originally suggested by the industry, and I'm glad to set the record straight here. The idea of a levy has been around for over 20 years. For example, the Pensions Board is currently funded via a similar levy. It is true that some in the industry suggested a lower per cent levy as an alternative to a change in tax relief.
"However, the Government has introduced the Levy - not as an alternative as was suggested but as an additional measure with no commitment to retain tax relief at the marginal rate. Effectively, it's a ‘double whammy' and completely at odds with what was originally intended.
Hassett added the "chronic lack of confidence in future incentives for retirement planning" had contributed to a "record level" of workers ceasing their pension contributions.
"In turn, this is generating surplus flows to the exchequer over and above those projected in the 15bn National Recovery Plan," he said.
Hassett also warned of the need for equity between defined contribution and defined benefit members.
He said: "I meet pension trustees every week and I am very sympathetic to the concerns of defined benefit schemes. The recent decision by the trustees of the Tara Mines scheme to cut benefits in retirement by 10% is a devastating blow to the workers involved and is perhaps only a pre-cursor of things to come, particularly once Trustees come to grips with the down-stream impact of the recent levy.
"However, the simple fact is that most defined contribution schemes are equally under-funded. The under-performance of various markets over the past decade and continued low interest rates have left most defined contribution holders significantly under-funded. Most of the public debate centres on defined benefit, but I believe that the needs of defined contribution workers also need to be addressed."
Hassett concluded by saying it was "vital" that Government commits to retaining tax relief at the marginal rate for middle income workers.
"It greatly saddens me that confidence in the future of retirement planning is so low right now," he said. "I think it's in the interests of every one in society that we build collective hope in our shared future. That's why it's vital the Government commits to support middle Ireland to plan for their retirement."
The Pensions and Lifetime Savings Association (PLSA) is in the process of convening an industry-wide group to take forward the work of the Institutional Disclosure Working Group (IDWG).
The Transfers and Re-registration Industry Group (TRIG) has given its support to an initiative which aims to complete occupational pension transfers within three weeks.
Scottish Widows has completed a bulk annuity deal for the Hitachi UK Limited Pension Scheme.