The Irish government has admitted it was forced to introduce a controversial second pensions levy after savings from pensions tax relief failed to materialise.
Minister for finance Michael Noonan last month appeared to renege on repeated promises that the current 0.6% pensions levy would end next year after the government’s budget speech saw the introduction of an additional 0.15% charge for two years, starting in 2014.
As a result, 2014 will see pension funds paying 0.75% of total assets under management in tax to the Exchequer, before the levy falls to 0.15% in 2015.
Speaking in the Dáil earlier this week, Noonan admitted his department was forced to introduce the additional charge after its estimated savings from changes to the standard fund threshold (SFT) fell short.
He said it was initially assumed the changes to the SFT would yield savings of around €400m, a figure revised downward for the 2013 Budget speech to €250m.
“That analysis has since revealed significant downside risks to the achievement of even this lower level of yield or savings,” he said, noting that the 2014 Budget estimate was instead for savings of just €120m.
The reduction in savings stemmed from a number of issues, including advice on the legality of some of the proposals under consideration and the decision to vary the SFT depending on at what age pension income would be drawn down.
Noonan said: “The assessment – that the changes to the SFT regime required to deliver on the Budget 2013 commitment to cap taxpayer subsidies to higher value pensions would have a considerably lower yield than originally put forward – meant the achievement of the overall budgetary objectives […] necessitated the imposition of the additional 0.15% pension fund levy for 2014 and 2015.”
Answering a second question, Noonan said the current 0.6% levy had so far yielded €534m in income for 2013.
Despite stating that the second, 0.15% stamp duty was being introduced to help the Irish government prepare for the fallout of the Waterford Crystal case, the Department of Finance has admitted the assets will not be ringfenced and are instead earmarked for general expenditure.