Sponsors never going to pay cost of Irish pensions levy – Ombudsman
Irish employers were never going to foot the cost of the country’s 0.6% pensions levy, despite the government’s “hope and expectation” this would occur, according to the Pensions Ombudsman.
Paul Kenny said the imposition of the stamp duty, which was eventually extended beyond its initial four-year run, would be likely to lead to a permanent reduction in the pensions of “a great many” savers.
In a letter to the joint parliamentary committee on finance, public expenditure and reform seen by IPE, the ombudsman said many trustees felt they had no other option but to reduce payments after the government imposed the 0.6% charge in 2011 but praised them for doing the best possible to deal with the situation.
“At the time of the imposition of the levy, government spokesmen expressed the hope, or even expectation, that employers could be requested or required by trustees to make good the levy,” he said.
“That was never going to happen.”
Kenny noted that a large majority – around 80% – of defined benefit (DB) funds were unable to meet the minimum funding standard after its reinstatement, and that the majority of employers were also suffering financial difficulties, “even disregarding the deficits already accumulated in the occupational pension schemes”.
The government has since repeatedly argued that the pensions industry would be able to absorb the cost of the levy by lowering management fees, despite the Department of Social Protection’s 2012 report on fees highlighting the “worst charges possible”, according to the Irish Association of Pension Funds.
Kenny also noted the unequal distribution of cuts – as many defined contribution (DC) funds affected were unable to spread the cost across the entire member base, as pensioners who had annuitised could not see payments cut.
The ombudsman said it was “at least conceivable” that some funded DB schemes would survive into the future, offering a lower level of benefits than initially promised.
“In principle, it is possible some schemes will become fully solvent and regain the ability to pay their benefits,” he said.
However, he added that trustees were likely to be required, in the interest of equality, to reduce the benefits of those members who had been part of the scheme during the imposition of the levy.
“They would have to do this, even if the schemes could afford to pay the full benefits, simply because they would be treating current pensioners unfairly vis-à-vis the rest of the members if they did not in the future impose the effects of this levy on future pensioners,” he said.