Sector and unions unite in criticism of funding move

REACTION:REACTION TO the pensions levy was uniformly negative last night, with industry sources saying it was likely to undermine people's faith in private pensions savings.

Jerry Moriarty, director of policy at the Irish Association of Pension Funds, described the move as “ill thinking and illogical planning”.

He said it “will see the pensions of some people in retirement cut by approximately 9 per cent”.

The Society of Actuaries said it was a serious blow to employers and workers “who have engaged in good faith to resolve the current pensions funding crisis”.

It estimates that for members of defined contribution schemes – the majority of those in the private sector – “it equates to cutting benefits by 2 per cent”.

The €1.9 billion bill “can only be made up by reductions in benefits or increased contributions by employers or members at a time when both groups can least afford it”.

In a statement, the society added: “These changes will have the cumulative effect that people will lose faith in the stability of the system and will lose the confidence to commit to future pensions savings.”

While welcoming the overall package, employers group Ibec said the decision to fund the jobs initiative through a pension levy would have “serious consequences”.

“It is likely to herald the reduction of benefit levels to scheme members and the closure of some defined benefits plans,” director general Danny McCoy said last night.

Irish Congress of Trade Unions president Sally Anne Kinahan said Ictu was concerned about the impact on funds already in difficulty.

“A small levy on top earners would have been a better prescription,” she said.

Brian Keegan, director of taxation at Chartered Accountants Ireland, said the levy would have been unthinkable only a few years ago. However it had to be considered in the context of the overall necessity to get Ireland back to work.

“However, there really can be no legitimate explanation as to why this levy should be confined only to those making pension provision within the private sector,” he said.

Gerry Hassett, the chief executive of the State’s largest private pension provider Irish Life, urged Minister for Finance Michael Noonan to provide clarity “around future policy on pension taxation and to reassure the million plus workers who are saving for pensions”.

“Unfortunately, every policy announcement on pensions [in recent years] has undermined confidence in retirement planning and has contributed to an escalating pensions problem,” Mr Hassett said.

Pension levy: what it means

The levy amounts to a charge of €600 for every €100,000 in your pension fund annually, or €2,400 over the four-year life of the scheme.

A pensioner in receipt of, say, €10,000 per year, funded from an employer's defined benefit scheme rather than an annuity bought from an insurance company, typically faces a reduction in income of €900 a year for those four years, according to the Irish Association of Pension Funds.

This is assuming the employer passes on the full cost of the reduction.

A pensioner in receipt of income from an annuity bought from an insurance firm faces no charge.

If you are employed in the public service, there is no impact.