Company owners and high earners may escape pension levy

HIGH EARNERS, including company owners and some self-employed people who have retired in recent years, may escape the pensions levy announced by Minister for Finance Michael Noonan.

Mr Noonan said on Tuesday that the levy would be imposed on private pension schemes but public sector pensions will not be affected.

However, it appears people holding “Approved Retirement Funds” (ARFs) will escape the new levy. Last night, a spokesman for the Department of Finance said “the preliminary indication is that the levy will not apply to Approved Retirement Funds as ARFs are not pension funds, per se”.

An ARF is a fund to which certain people can transfer pension assets on retirement rather than buying an annuity that pays a set annual pension. They were initially tailored to wealthier, more financially sophisticated pensioners. A key advantage is that the fund remains invested until the money is needed. Another major advantage is that the assets of the fund are passed on as part of the estate following a person’s death.

Until this year, the only people eligible to hold such funds were directors who owned at least 5 per cent of their company, members of highly flexible small self-administered pension schemes with no more than 12 members, the self-employed or people with significant additional voluntary contributions.

“You would have to be someone who has a lot of money to consider this sort of a scheme, and [either] be comfortable making your own investment decisions or prepared to pay charges that would be quite high,” said Jerry Moriarty, director of policy at industry body, the Irish Association of Pension Funds.

“There was a lot of property and things wrapped up in these. This was not something for ‘run-of-the-mill’ workers.”

While access to Approved Retirement Funds has been widened to allow it as an option for all holders of defined contribution pension schemes, this only came into force in the 2011 Finance Act and so will not apply for the pension levy this year.

Meanwhile, the pensions industry has hit back at suggestions in the Dáil that the levy should be met by reducing advisers’ charges.

Taoiseach Enda Kenny yesterday offered to examine alternative ways of raising the money by cutting costs in the pensions industry. He was responding to a proposal from Independent TD Shane Ross, who described the pensions industry as “a goldmine, a gravy train for a large number of people who perhaps ought to be taxed”.

Mr Ross said what the Government had done was to hit the contributors to the pensions industry rather than tackling those who were milking the industry for their own benefit. He said rough estimates were that fund managers were receiving between €250 million and €500 million per annum.

The Taoiseach said the suggestion was “constructive” and pointed out that he had already emphasised the need to reduce the administrative costs in the pensions industry to the level applied in the UK.

“The Government’s levy is on the funds,” the Taoiseach said in the Dáil. “There could be a reduction in the administrative costs associated with these funds and, consequently, the take by those in senior positions in the industry.”

Gerry Hassett of Irish Life said the comments were an attempt to “shift the blame” to the industry.

“The idea that there is sort of shelter or cocoon here is completely wrong,” he said. “Ireland is a very competitive market.” He said there was “zero evidence” to support assertions that pension fees in the UK are substantially lower than in Ireland.

Mr Hassett said the €470 million the levy will raise each year was “many multiples” of the total profit earned by the pensions industry each year. The idea that the industry could absorb that “pain” instead of workers is disingenuous, he said.