Thousands face significant income cuts over pension levy

THOUSANDS of pensioners may be facing significant cuts in their incomes over the coming months, but may remain unaware of this until a letter from the trustees of their pension scheme drops through their letterbox.

This is what happened to 267 Tara Mines pensioners who have recently been told that their pensions may be reduced by 10% a year.

It is remarkable to think that while a proposed household charge of €100 a year can dominate the media, a government measure that could cost pensioners €1,000 a year, €2,000 a year, €3,000 a year, or even more (regardless of their ability to pay) has as yet failed to grab public attention.

The pension levy, a 0.6% tax on private pension funds, passed into law in June 2011. At that time, warnings were sounded that this so-called “modest” levy would have a significant impact on pensioners, such as income cuts of 10% per annum or greater, but Government ignored or dismissed these concerns.

All the indications now suggest that the Government was fully aware of such implications before introducing the levy but decided to proceed anyway and then blame somebody else (such as pension trustees, fund managers, etc).

In the run-up to the legislation, the Taoiseach and the Finance Minister studiously avoided discussing any detail and it seems they also decided not to fully brief their own TDs on the implications.

Indeed, it seems that many government TDs and ministers do not understand the impact of the pension levy, as numerous queries have been met with no more than “cut and paste” type responses, indifference, and, in some cases, downright ignorance.

However, in August, 267 Tara Mines pensioners were told they had to either accept a 10% cut in their pensions for the duration of the levy, or a reduction of at least 2.5% in their income for the rest of their lives.

With 75% to 80% of defined benefit pension schemes already in deficit and unable to absorb the levy, it is now likely that many more pensioners will face similar or greater cuts.

A letter dated July 14, 2011, from Finance Minister Michael Noonan, states that “The Pension Fund Levy provisions of Finance (No 2) Act 2011 have been amended to ensure that pension fund trustees will not be allowed to reduce disproportionately the benefits of any member or class of member of a pension scheme”. In reality, however, the amendments actually provide greater protection to administrators to recover the levy by reducing members’ benefits.

The fact is that the pension levy has always been wrong, and has always been unjust.

The levy is a clumsy ill-conceived discriminate measure that will reduce many pensioners’ incomes significantly, and disproportionately, regardless of their ability to pay. The income cuts facing the Tara Mines pensioners is merely the first proof of this, if proof indeed be needed.

By September 25, pension funds will be obliged to hand over an estimated €470 million to the Government.

This is an enormous amount of money, and the consequences for many pensioners may be disastrous. It is not too late to reverse this unjust levy and to look to fairer, more progressive options to fund a jobs initiative.

As yet, it seems that most pensioners are blissfully unaware of the impact this levy may have on their incomes.

It is said that information is power, and it is time perhaps for pensioners to arm themselves with information and to make their voices heard.