IRELAND - The introduction of a 0.5% pensions levy on accrued funds risks exacerbating funding shortfalls in Ireland's defined benefit schemes, the Irish Association of Pension Funds (IAPF) has warned.
The proposals, put forward by Fine Gael in its election manifesto ahead of the party winning the largest share of votes in last week's election, was suggested as accrued payments enjoyed more beneficial tax relief than currently in place and would allow pension savers to contribute toward the recovery.
Jerry Moriarty, director of policy at the IAPF, said that while all policy options were up for discussion, as Fine Gael was expected to negotiate a coalition agreement, the organisation was still opposed to any such levy.
"The defined benefit schemes are in deficit, and if they have to pay out to the government, then that's only going to make the deficit worse," he said, echoing recent criticism from IAPF chairman Marie Collins, where she rebutted the claim that a levy enjoyed industry support.
However, Philip Shier of Aon Hewitt said that while the levy may not be a desirable outcome, it was preferable to other proposals put forward by the outgoing government, including a reduction of pension tax relief to one rate for all employees.
He argued that any tax changes would be likely to deter further pension saving.
"I suppose a levy is probably the better of two evils if one accepts that some contributions in the overall cutting back of the budget have to come from the way pensions are treated," he said.
Shier argued that funding positions would not be any better or worse than before if benefit entitlements were cut to coincide with the 0.5% levy, a policy suggested in Fine Gael's manifesto.
Additionally, the manifesto suggests public sector pensions should also be subject to a 0.5% benefit cut. Shier was in favour of the proposal, noting there was no way of directly taxing these unfunded pensions.
On the future of the remaining assets held by the National Pension Reserve Fund (NPRF) - much of which has been used to support Allied Irish Bank and Bank of Ireland's bailouts - the IAPF's Moriarty was less than optimistic.
"There's no discussion about whether it should be spent or not - it was a case of how it should be spent," he said of the rhetoric during the recent election campaign, adding that there seemed to be a "very strong view" that the next series of stress tests on Irish banks would reveal further need for recapitalisation.
Fine Gael's manifesto proposes the creation of the New Economy and Recovery Authority, in charge of the sell-off of a number of state-owned companies. It would also see the NPRF's Commission - in charge of investment decisions - folded into the new authority.