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Wednesday, July 04, 2012
As the Government introduces legislation with one hand to force pension schemes to meet certain solvency levels, it has withdrawn over €800m from Irish pension funds with the other hand.
The pension levy was introduced as part of the Finance Act in 2011. The scheme imposes stamp duty of 0.6% on pension scheme assets for four years, from 2011 to 2014
To meet the payments required by the Government, pensions schemes may be forced to cut payments to retirees.
The calculation for the payment on the 0.6% levy on pension funds was completed on Saturday, June 30. It is estimated that pension funds will have to pay €433m this year. Last year the levy took in €463m.
Director of IFG corporate pensions Fionán O’Sullivan, said the Government levy was resulting in uncertainty in the pensions industry.
"However, while this is the second year of the levy, there is still a great deal of uncertainty throughout the industry as to how trustees are going to deal with the impact of the levy," he said.
"In an Irish Association of Pension Funds survey on defined benefit [DB] pension funds, it was found that 35% of respondents had not yet agreed how the levy would be dealt with. Another 35% said that they had/would reduce benefits and a further 20% said it would be built into the funding proposal. Just 10% said that employers would pay the cost of the levy."
Mr O’Sullivan said that defined benefit schemes would be required to meet the levy by cutting future benefits or either reduce the pensions by a small amount for the remainder of the member’s life, or cut the pension payable in the year the levy applies: "The key difference between the two approaches is that one reduction is for life whilst the other is an annual reduction," he said. "Under the second approach once the levy is paid the pension will increase to its previous pre- levy reduction level."
An OECD report noted that Ireland was one of the only countries in the world taxing pensions while facing a massive pension crisis.
The report noted that Ireland has been actively discouraging people to save for their old age by taxing pensions.
"The traditional way of encouraging people to save for their old age has been tax incentives," the OECD report said.
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