How will the new 0.6% pension fund levy work?
- Thread starter ajapale
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It sounds like a tax on the value of the fund. My pension fund is now worth less than half the amount I contributed, now it seems the rest will slowly be siphoned off. I guess the defined benefit schemes will suffer the same fate, but the employer will be forced to increase contributions.
Presumably the proposed Levy will apply to funded semi-state schemes (such as ESB etc). It seems that unfunded schemes escape the Levy, mainly -but not exclusively- civil servants. It might be argued that working Civil Servants have made a contribution (the increase in their pension contribution - though that is arguable) but the group that seems to escape entirely is retired civil servants and retired politicians whose pensions are not paid by annuity but rather out of the public purse.
For those in DC arrangements, the effect of the proposed Levy will be to increase the typical annual fund management charge from say 1% p.a. to 1.5% p.a. for at least 4 years. For those in DB schemes it is less clear how the Levy will impact on members benefits (unless they/employer simply pay an additional contribution directly to the Revenue). In the case of ARFs it would seem that the ARF provider will simply reduce the fund value by 0.5% (in addition to the 5% p.a. drawdown that the individual must take each year - and pay tax on). This will put ARF under greater pressure of running out of funds in older age.
It seems life my mother was right all those years ago - "a good pensionable job in the Civil Service".
For those in DC arrangements, the effect of the proposed Levy will be to increase the typical annual fund management charge from say 1% p.a. to 1.5% p.a. for at least 4 years. For those in DB schemes it is less clear how the Levy will impact on members benefits (unless they/employer simply pay an additional contribution directly to the Revenue). In the case of ARFs it would seem that the ARF provider will simply reduce the fund value by 0.5% (in addition to the 5% p.a. drawdown that the individual must take each year - and pay tax on). This will put ARF under greater pressure of running out of funds in older age.
It seems life my mother was right all those years ago - "a good pensionable job in the Civil Service".
Yes, I cant see how the government could discriminate between:
A)funded commercial semi state DB schemes.
B)funded former semi state DB schemes.
C)funded private DB schemes.
I know that some distressed DB schemes have upped employee contributions in recent years and some benefits have been curtailed.
Also since these schemes are final salary schemes current employees who have or will endure pay cuts will presumabley be retiring on pro rata reduced pensions? Is this interpretation correct?
I agree.
May I suggest that we keep this thread to discuss the detailed mechanics of the of the proposal and its impact?
I wouldnt like to see the discussion degenerating into another Public/Private sector ding dong.
It appears to me that substantial parts of the public sector (and former public sector) will be impacted (funded DB schemes).
The other huge area impacted is employees in private dc schemes.
Yes the proposals as I understand them do not impact on Civil and Public Servants. And (as yet) people who have made alternative or no provisions for retirement.
Do we have any concrete details of the proposals other the Irish Association of Pension Funds (IAPF) press release? While it is far better than nothing they have a legimate interest in defending their various stakeholders. For instance Im not sure about the assertion that "This measure is solely being targeted at private sector pension savers".
Also I think the government should be aware of the "law of untended consequences" when enacting the proposed new pension fund tax.
Also I think the government should be aware of the "law of untended consequences" when enacting the proposed new pension fund tax.
The value of a DB scheme isn't simply the assets in the fund as of today though so is this a tax on assets or values?
The IAPF clearly have had some sight of the proposals and are setting out their stall. Do we have any idea whether any other "interests" been informally consulted.
Brendan Burgess
Founder
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I have moved all the Letting Off Steam posts to a new thread. The new pension levy is a disgrace!
Please confine your posts on this thread to the mechanics of the scheme.
Any posts with commentary will just be deleted from now on.
Please confine your posts on this thread to the mechanics of the scheme.
Any posts with commentary will just be deleted from now on.
Duke of Marmalade
Registered User
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There are three ways in which a private sector person actually receives their pension.
(1) DB pension from their employer
(2) ARF
(3) An annuity purchased from a life company
To be consistent all three should be subject to the levy and in the case of (1) and (3) the employer/insurance company should be empowered by law to reduce its payment to the pensioner.
(1) DB pension from their employer
(2) ARF
(3) An annuity purchased from a life company
To be consistent all three should be subject to the levy and in the case of (1) and (3) the employer/insurance company should be empowered by law to reduce its payment to the pensioner.
Tangential posts relating to the existing public service pension levy moved here: €2.3M fund cap applies to the notional value of DB Public Service pensions.
Duke of Marmalade
Registered User
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Further thoughts
If this is to be applied fairly to DB members, this is what will be required.
Existing pensioners: 0.5% reduction in pension for 4 years
Active members: 0.5% reduction in accrued pension for 4 years; 0.5% reduction in 2012 accrual for 3 years etc. no reduction for accruals after 2014
Yes, I can see job creation alright, in pension administration departments
If this is to be applied fairly to DB members, this is what will be required.
Existing pensioners: 0.5% reduction in pension for 4 years
Active members: 0.5% reduction in accrued pension for 4 years; 0.5% reduction in 2012 accrual for 3 years etc. no reduction for accruals after 2014
Yes, I can see job creation alright, in pension administration departments
For existing pensioners, this would be a 0.5% reduction each year for 4 years, so that after this time your annual pension would be 2% lower. If your pension starts at 10,000, it would then drop to
9950.00
9900.25
9850.75
9801.50
9801.50
9801.50
etc.
Also, will the levy apply to pensions (annuities) from DC schemes?
Interesting but tangential discussion concerning non commercial semi state schemes moved here:
List pub service DB schemes non commercial semistate exempt from the funding standard.
If these public service schemes still have a ring fenced (all be it in defecit) fund then I would expect the new pension fund tax to apply to them equally.
List pub service DB schemes non commercial semistate exempt from the funding standard.
If these public service schemes still have a ring fenced (all be it in defecit) fund then I would expect the new pension fund tax to apply to them equally.