The Irish government has reneged on repeated promises to abolish the pensions levy on private sector pension funds and instead lowered it to 0.15% for 2015 in a move branded “outrageous” by the Irish Association of Pension Funds (IAPF).
In his Budget speech, minister for finance Michael Noonan was keen to present the levy as a new charge meant to help the state prepare for any liabilities incurred as a result of the European Court of Justice ruling in the Waterford Crystal case, rather than a continuation of the 0.6% stamp duty introduced in 2011 that he last year pledged would end.
He told the Dáil he wished to “confirm” that the 0.6% rate would be abolished from the end of next year.
“I will, however, introduce an additional levy on pension funds at 0.15%,” he said. “I am doing this to continue to help fund the Jobs Initiative and to make provision for potential state liabilities that may emerge from pre-existing or future pension fund difficulties.”
Noonan said the new 0.15% levy would only apply until the end of 2015, raising an estimated additional €135m next year.
However, due to the overlap between the new levy and the existing charge, the stamp duty applied to pension fund assets would next year rise to 0.75%.
Mercer and employer groups joined Jerry Moriarty, chief executive at the IAPF, in condemning the new levy.
Moriarty told IPE the announcement was “fairly outrageous” and condemned the “disingenuous” way in which Noonan went about introducing the new charge in his speech.
“It was announced in his speech that he was abolishing the levy, and, as from next year, he’ll be introducing a 0.15% charge,” he said.
“But there wasn’t any reference to the fact it was actually going to be 0.75% next year. We’ve got a double whammy.”
Questioning whether the government would not simply introduce a further levy next year, Moriarty added: “The minister himself talked last year about the need to restore confidence for pension savers – this does the exact opposite.”
“The minister himself talked last year about the need to restore confidence for pension savers – this does the exact opposite.”
Employer lobby group IBEC – which earlier this year said the government should “under no circumstances” extend the current levy or introduce a new measure – also made its displeasure with the announcement known.
Its chief executive Danny McCoy said: “The retention of an unfair pension levy, which the government had promised to drop, is a major disappointment.”
The increase to 0.75% comes despite the fact that the nearly €520m raised in 2013 from the current levy has exceeded the Department of Finance’s expectations.
The department noted the “over-performance relative to expectation” from a number of taxes.
In a document detailing Budget measures, it said: “In particular, the over-performance of the pension levy in 2013 relative to expectations is welcome and comes as a result of an appreciation of the capital value of pension funds.”
Niall O’Callaghan, head of defined contribution at Mercer, was also highly critical of the move.
“This announcement of a new levy is yet another attack on pensions and will deter people from saving for their future,” he said.
According to an IAPF annual pension investment survey, assets held within defined benefit and defined contribution funds rose by 11%, to €80.5bn, over the course of 2012.
Despite Noonan’s insistence that the new charge would help the government “make provision for potential state liabilities” stemming from a pending High Court ruling to interpret the ECJ judgement, he gave no indication the assets would be set aside in a standalone protection arrangement similar to the UK’s Pension Protection Fund, also funded by a levy.
Martin Haugh of LCP previously suggested that it would be “very hard” for a protection fund to be set up in Ireland without the introduction of a statutory debt upon the employer requiring any existing deficit to be funded on insolvency.