IRELAND - The Irish government has unveiled details of its "damaging" pensions levy, revealing a 0.6% per annum charge on all domestic pension funds.
Under proposals to be enacted as part of the Finance Bill, the four-year levy will see schemes pay the charge on their assets as valued at the beginning of January 2011, with the estimated €470m in yearly earnings used by the Irish government to stimulate the employment market and fund construction projects.
Minister for Finance Michael Noonan said he was "conscious of concerns from the pensions industry" but that the "imposition" caused by the charges would be relatively short due to its four-year limit.
He added: "These pension funds, the vast majority of which are invested in overseas assets, have been the beneficiaries of massive tax relief in recent decades.
"In our current circumstances, there is sound economic logic to clawing back some of the tax relief on capital invested overseas to finance greater domestic employment in Ireland."
However, critics have warned that the levy could be "damaging" to pension funds far beyond the simple cost alone.
Aisling Kennedy, senior consultant at Mercer, warned that it would erode members' confidence in schemes.
"Why would you put your money aside in a place where you can't reach it, but the tax man can?" she said.
"Also, given the scale of the challenges faced by defined benefit schemes and the recovery plans that they already have either put in place or need to put in place, this is just an extra burden that may be a tipping point."
Kennedy had previously criticised the "smash-and-grab" approach of the policy.
A spokesperson for the Irish Pensions Board said that while some schemes' recovery plans could be adversely affected by the levy, it was still too soon to tell if this would be the case.
Addressing the Dáil after the announcement, opposition Fianna Fáil TD Willie O'Dea indicated that possibly as much as 90% of the private pension industry was currently insolvent.
"Many pension schemes, because they will be unable to meet the minimum funding requirements, will be forced to wind up," he said.
"The losses crystallised at that point will fall on those who have contributed - they will receive no pensions and only get back only a fraction of what they have put in."
The Irish Association of Pension Funds was highly critical of the policy in the run-up to its introduction, conceding that while the money generated needed to be found somewhere, the levy "was not the way to do it".
The organisation's director of policy Jerry Moriarty said at the time: "We thought the government would see sense - but they don't seem to have engaged with anyone."