Extra levy on pensions would be ‘unfair’

A pensions expert has said it would be “grossly unfair” on members of defined contribution schemes if the Government were to impose a another pension levy on all schemes to fund the insolvent ones.

Samantha McConnell, chief investment officer with IFG corporate pensions, pointed out that a 0.6% levy already exists on pensions which is raising over €2bn for the exchequer each year for the duration of the four years of its existence.

She said based on the €48bn size of defined benefit assets at the end of the year, if another levy of the same size were to be introduced it would raise €288m.

Ms McConnell said that would go most of the way to covering the Waterford Crystal situation in the space of one year. However, she added that if the Government were to keep the levy at 0.6% to get the Waterford workers covered off, “there would be a lot of pushback on that from the industry”.

“If one assumes they keep it at the same level and raise the €288m, does that mean the levy will continue for an extra year? The problem with the Waterford Glass deal is that there could be other schemes in the woodwork that we are just not aware of at this point in time.”

She said that the Government has an option of keeping a new levy at 0.6% for a year or to opt for a lower level but spread “ad infinitum”.

She said the second option would mean a short term loss but over time the fund would be built up.

The pensions expert said it will be up to the High Court to set the extra amount the Waterford workers should receive before the Government assesses how to find the money to cover that settlement.

Ms McConnell said the OECD has suggested some form of pension protection fund to be set up.

“That would suggest an ongoing fund rather than a once-off fund and therefore you would go for a lower level so 0.6% may go to 0.3% or below,” she said. “The issue is that if you start putting a levy on DB schemes it is another nail in the coffin of DB. From an employer perspective it is another cost to making up the deficit.

“The funding regime in place is already forcing schemes and employers to consider winding up given the steep cost of meeting their pension obligations in the current low yield environment. Adding another layer of stress to this may well push companies over the edge.”

However, she added that it would not be fair for DC pension members to pay a levy because they get absolutely no benefit from DB schemes.