The €1.9bn levy on private pension pots has been branded a tax on jobs and savings.
Financial advisors have warned that the Government‘s target of €470m a year from retirement funds would wipe out savings.
Trade union group Congress, pensions provider Irish Life and industry experts warned it was an attack on average earners.
Jerry Moriarty of the Irish Association of Pension Funds (IAPF) said the €1.9bn bill could see the start of bigger levies.
“We just see it as a tax on working people saving – that‘s what pension funds are,” he said.
“The Government thinks that it is just a pot of money and that 0.6% is not a lot, but this is money that people have saved for retirement. It could be the start of something bigger.
“It‘s a wipeout, there‘s no question.”
The four-year levy, based on pension values from January 1, 2011 will not be imposed on public sector workers, non-residents or on funds linked to businesses being wound up.
New laws will be brought in to allow fund administrators to impose the tax, although the IAPF warned legislation may be open to challenge under laws on constitutional property rights.
Finance Minister Michael Noonan claimed the levy was relatively short term to improve the environment for job creation.
“The levy is being confined to pension funds because I believe that the alternatives for increases in taxation elsewhere at this time would be more damaging to the economy,” the minister said.
“The pension levy represents a very significant contribution by the pensions industry and the many individual savers it represents to our commitment to getting the economy moving again.”
Irish savers have about €75bn in private pension plans and €93bn in deposit accounts.
The Government said targeting the pension pot was “reasonable” and “less damaging economically than raising other taxes”.
It also said only private pension funds will foot the bill as public sector workers and pensioners have already taken a cut in incomes.
Diarmuid Kelly, the Professional Insurance Brokers Association chief executive, said: “It is very difficult to justify the decision of the Government not to impose the levy on accrued benefits in public sector pensions. It is inequitable.”
Mr Noonan said funds have had generous tax relief for years and generally avoided tax penalties in budgets since 2008.
Mike Kemp, Irish Insurance Federation chief executive, said the levy was onerous, and added: “This levy does not penalise those that are well-off, but ordinary middle income earners.”
Mr Moriarty said the levy will be counter-productive.
“There‘s a danger here. It‘s hard to get people to save for something they are going to see the benefit of in the future,” he said.
“I think with the uncertainty that the Government has created it will have an impact on the amount people pay in and it goes against what another arm of the Government has been saying for years.”
The IAPF said there are fears this is the first step in a line of additional levies on savings including credit union accounts.
Sally Anne Kinahan, assistant general secretary at Congress, said: “(Congress was) concerned about the impact of the imposition of a levy on pension funds as many funds are already in considerable difficulty.
“We believe a small levy on top earners would have been a better prescription.”
Gerry Hassett, chief executive of Irish Life, the biggest pensions provider in Ireland, said it was a disappointing move.
“Just a few years ago there was a broad consensus that we needed to plan now to avoid a pensions time bomb in this country,” he said.
“Unfortunately every policy announcement on pensions since that time has undermined confidence in retirement planning and has contributed to an escalating pensions problem.
“Clearly we have to deal with today’s crisis in the public finances ... but we must avoid creating an even bigger fiscal crisis for the next generation in the process.”