Pension Board warns levy will erode private contributions

ANNUAL contributions by employers and employees to private pension schemes will be wiped out in many cases over the next four years to pay for the Government’s controversial pension levy, according to the Pensions Board.

Documents released to the Irish Examiner show the Pensions Board warned the Government that the pension levy to fund its jobs’ initiative would probably exceed the annual contributions made by members of already struggling defined-benefit schemes.

The 0.6% annual levy, which was announced by Finance Minister Michael Noonan last May, is expected to raise almost €1.9 billion over the next four years.

The documents, which were released under Freedom of Information legislation, have revealed that the Pensions Board’s chief executive, Brendan Kennedy, advised the Department of Finance a month earlier that the fact that the levy would exceed annual pension contributions in many cases could be represented as the Government “sequestering those payments”.

He also warned that the solvency position of all defined-benefit schemes would worsen as a result of the levy. Launching the Pensions Board annual report last June, Mr Kennedy declined to comment when asked about the board’s view on the pension levy, claiming it had merely provided “technical input” to the Department of Finance about the proposal.

However, the documents show Mr Kennedy alerted the Government that many defined benefit scheme would have to generate cashflow to fund the levy.

“The obvious source of cashflow is the annual employer and employee contributions,” he added.

Mr Kennedy continued: “The minister should be aware that, in some cases, the effect of the levy will be equal to, or greater than the annual contributions for a scheme.”

Separately, the Pensions Board’s chairwoman, Jane Williams, advised the Minister for Social Protection, Joan Burton, that the proposed levy would worsen the solvency position of defined benefit schemes, 75% of which are currently in deficit.

The Pensions Board predicted the levy would force some schemesclose and would result in members facing the likelihood of increased contributions or benefit reductions.

It also said the levy could be applied to approved retirement funds, which are normally used by wealthy individuals. However, the Government chose to ignore the Pension Board’s recommendation that any changes to the tax treatment of pensions should be consistent between different forms of pension as it excluded approved retirement funds from the levy.

In a separate note, a senior official in the Department of Finance admitted a submission being prepared for Mr Noonan concerning the introduction of the pension levy was “deliberately light on the current state of the pensions industry here and on the impact of a pension levy on the industry”.

Fianna Fáil finance spokesperson Michael McGrath said it was clear that the Government was aware of the Pension Board’s concerns about the impact of the levy on private pension funds. He also accused the government of failing to reveal its contacts with the Pensions Board, as Mr Noonan had claimed in a parliamentary reply to the Cork South Central TD there was “no formal consultation” between his department and the board in advance of the decision to introduce the levy.

Mr McGrath also criticised the Government’s failure to include approved retirement funds in the pension levy as it exempted some of the wealthiest people in society.