# Good points on the unfairness of the Pensions Levy



## LDFerguson (30 Jan 2014)

There was a good piece in yesterday's Prime Time about how Michael Noonan's deceitful U-turn on the pensions levy in the last Budget is very unfair and will affect an awful lot of private sector workers when they come to retirement.  

You can watch it back on the RTE player here.  Click the "Resume" option on the screen.


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## Steven Barrett (31 Jan 2014)

Thanks for putting that up Liam. There were very good points raised. FG don't give a damn though. 



When I was watching George Lee's piece outside Leinster House, I was thinking "Did he avail of his free Dail parking spot when he arrived to film that?"


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## Alexmartin (1 Feb 2014)

Amazing how many people didnt actually thing that that pension grab was a huge issue.
I stopped paying into my pension fund when the government first started playing with pensions.  A pension should be something you can use for retirement planning.  If they keep stealing money from pensions and playing with pensions its impossible to plan using them.


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## LDFerguson (2 Feb 2014)

What's incredibly stupid about Noonan's deceit and U-turn on the levy is that he's taking money from people's private sector pension funds but at the same time has to be aware that the State Pension will not be able to be continued for too many more years at its current levels due to the changing demographics of the country.

So how do you reckon people will be able to live in retirement then Minister Noonan?  Oh sorry - I forget that Noonan will have retired on a fat ministerial pension long before any of this comes home to roost for everyone else.


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## Baracuda (2 Feb 2014)

It was a pity that the segment had to be pared back due to other important item that cropped up that morning. The panel just brushed upon the reason that the new 0.15% levy was introduced. It appears that Minister Noonan has multiple reasons for bringing in the new levy.
  First being that the pension industry misled him in how much the pension levy would raise. This I think is a lot of waffle as it would be very easy to find out how much pension assets are under management

  Second being that as a result of the Euro Courts ruling regarding the Waterford Crystal DB scheme the Government needs to raise funds to cover this cost. So what does the Minster do, turn around and continue with a levy on not just private and DC scheme's but also on DB schemes thus making it even more difficult for other these schemes to meet the funding standard and pushing them ever deeper into insolvency. 

 I would love to know how he square's that equation?


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## LDFerguson (2 Feb 2014)

Baracuda said:


> Second being that as a result of the Euro Courts ruling regarding the Waterford Crystal DB scheme the Government needs to raise funds to cover this cost. So what does the Minster do, turn around and continue with a levy on not just private and DC scheme's but also on DB schemes thus making it even more difficult for other these schemes to meet the funding standard and pushing them ever deeper into insolvency.


 
Yes - I'm still raging over the notion that the pensions levy will be used to fund a form of compensation scheme to provide a minimum level of pension to Defined Benefit pensioners in the event of a double insolvency of both scheme and employer.  

While I agree with the idea of a minimum level of pension for scheme members in that situation, why should it be funded out of other people's pension funds?  That's unfairly targetting people who have pension funds.  It should be funded out of general taxation so that everyone contributes, not just those who have private-sector pension funds.  Although I try to refrain from "private vs public sector" debates, in this instance it's unfair that the public sector escape contributing towards the minimum pensions for insolvent DB schemes.


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## ashambles (3 Feb 2014)

I get the impression politicians and RTE are bemused by DC pensions. They understand DB pensions, they understand not having a pension, but a DC pension? Ex-teacher politicians may have an even greater mental hurdle to leap as their understanding of DC is from their AVCs for the tax free lump sum. 


> First being that the pension industry misled him in how much the pension levy would raise. This I think is a lot of waffle as it would be very easy to find out how much pension assets are under management


Noonan's excuse got undermined afterwards, as far as I remember the pension industry had estimated how much having a cap on pensions would save, but the DoF decided they'd phase in the cap on public service pensions (such as Noonan's) so as a result the DoF savings figure was less than the pension industry's.


> I stopped paying into my pension fund when the government first started playing with pensions.


This is probably the worst outcome from the levy, people altering their behaviour with pension savings. The last couple years since the levy has seen sustained pension fund gains. 

In general I'm dismayed by how badly Irish DB funds are run. Aer Lingus pension funds piling into Aer Lingus shares to block Ryanair, recently it came to light that one of the big investors in Irish banks shares was the FAS & third level fund that Lenihan bailed out by pulling it into the NTMA a few years ago. Other DB funds were over invested in Irish commercial property. 

To a large extent we're basically being asked to bail out reckless investment decisions.


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## Gerry Canning (3 Feb 2014)

To Ld & Ashambles.
Covering some of the Waterford Scheme is directly the law from European judgment.
 The  last Bunch ie Fianna (Failed) should have sorted that years ago.
The Raid on Defined Contribution Schemes means less people will have the confidence to go for pensions . That is pure Bad Management by Fine Gael.

From all I can read , the Public Service Pension Bill will become unsustainable .If Fine Gael had the honesty , that subject should be brought up now.
I worry for any Public Servant that thinks they will get their FUll pension in say 15 years .. 
As things stand they will not !
Not only should Public Servants be contributing to cover the likes of Waterford (social solidarity) they should realise that their position on pension expectations is simply not tenable.

I am not into the Public servantVState PensionsV Private Pensions ,
But not only are Public Servant pensions at risk , so too are State old age Pensions.

Everyone should realise , all certainties are off.


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## RainyDay (3 Feb 2014)

Alexmartin said:


> Amazing how many people didnt actually thing that that pension grab was a huge issue.
> I stopped paying into my pension fund when the government first started playing with pensions.  A pension should be something you can use for retirement planning.  If they keep stealing money from pensions and playing with pensions its impossible to plan using them.



I presume you take the same harsh view on the state interference through provision of tax relief for pension contributions, right?


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## Gerry Canning (3 Feb 2014)

RainyDay; 

I hear you, but once pension is drawn down ,Income Tax is applied , so its a kind of deferred tax take that encourages people to provide for old age.
To change (as has happened) the ground rules means people will distrust having savings eg pensions, and will be scared off long term provisioning.

Noonans Raid , is short-termism at its worst !!


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## RainyDay (3 Feb 2014)

Gerry Canning said:


> RainyDay;
> 
> I hear you, but once pension is drawn down ,Income Tax is applied , so its a kind of deferred tax take that encourages people to provide for old age.


Yes, once the pension is drawn down, income tax is applied, AFTER taking the tax free lump sum, and AFTER allowing for the additional tax credit for older people, and AFTER allowing for the tax free growth.

If people are so adamant about avoiding Govt interference with pensions, they are very welcome to save for their pension from after-tax income and retain total control over their pension, subject to normal taxes of course.


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## Steven Barrett (3 Feb 2014)

Alexmartin said:


> Amazing how many people didnt actually thing that that pension grab was a huge issue.
> I stopped paying into my pension fund when the government first started playing with pensions.  A pension should be something you can use for retirement planning.  If they keep stealing money from pensions and playing with pensions its impossible to plan using them.



No need to cut off your nose to spite your face. Even with the pension levy, it is still the most tax efficient way of planning for retirement. 




LDFerguson said:


> What's incredibly stupid about Noonan's deceit and U-turn on the levy is that he's taking money from people's private sector pension funds but at the same time has to be aware that the State Pension will not be able to be continued for too many more years at its current levels due to the changing demographics of the country.
> 
> So how do you reckon people will be able to live in retirement then Minister Noonan?  Oh sorry - I forget that Noonan will have retired on a fat ministerial pension long before any of this comes home to roost for everyone else.



I know all parties only look at the short term as long term planning doesn't win votes but this government is particularly blatant in what they are doing. The average age of the cabinet must be at least 60, so they have 1 election left in them at most, then retire on massive pensions, leaving the next lot to kick the can down the road.


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## Conan (3 Feb 2014)

The difficulty with Pensions is that they are a long term investment whereas politicians have a purely short term perspective - to the next election. Whilst this current Govt have done much to stabilise the economy after the mess they inherited from FF, they have shown little understanding of the long term nature of pension funding.
The following highlights the lack of understanding:
- Pension contributions are largely a tax deferral exercise. Yes one gets tax relief on contributions invested, but one pays income tax + USC on income drawn down in retirement. So you might get 41% tax relief on the way in but currently might pay 48% tax on the way out.
- Yes the fund accumulates gross during the accumulation period but that not only increases the ultimate pension income but also the eventual tax recovery in retirement.
- The lump sum at retirement is effectively the only tax break 
- At the moment only about 50% of private sector employees + self employed have any private pension provision compared to 100% of public sector employees
- Private sector pensions involve funding in advance to provide the ultimate benefits. Such arrangements are subject to the vagaries of investment markets and increasingly to Govt regulation ( which in the case of DB schemes seems to be making such funding more difficult). Most Public Sector schemes are unfunded or effectively underwritten by the Govt (e.g. recent changes to Universities Superannuation Schemes). So when a Pension Levy was introduced it largely only impacted private sector funded schemes. Public Sector schemes escaped scott free.
- Apart from raiding private pension funds, many of which are struggling to meet funding standards, the other impact is that individuals are less likely to invest in private pension structures if they feel that the Govt cannot resist the temptation to continually raid their private pension fund.
- The Ministers excuse for continuing with the 0.15% levy was entirely deceitful. The pensions industry had worked out the potential tax saving to the Govt if they both reduced the pension fund cap to €2m AND increased the multiplier for DB pensions (because the original 20:1 multiplier grossly underestimated the real value of DB pensions). However in the Dec Budget whilst the Minister reduced the cap to €2m immediately (and therefore impacted DC immediately) the increase in the multiplier would only apply to DB benefits earned after Jan 2014. So guess what, the higher valuation factors would have minimal impact on current senior civil servants and current senior politicians. 
- The effect of the above, not well understood by most, is that a member retiring from a DC scheme in 2014 is immediately limited to the €2m cap which in reality would buy an annuity of about €65,000 p.a. whereas a senior civil servant retiring in 2014 could have a pension of €115,000 p.a. without exceeding the notional fund cap. Not exactly equitable.
- So private sector DC members are hit with a pension levy and immediately subject to a pension cap of €65,000 whereas senior civil servants are not subject to any equivalent pension levy and can earn a pension of up to €115,000 without exceeding the pension cap.

With increasing longevity, Govt policy should be on encouraging people to make provision for their old age rather than only relying on the State Pension (which itself is coming under financial pressure because of longevity). The problem is that there is no long term thinking in Govt when it comes to pensions. Unfortunately the Minister cannot pass up the opportunity to take a slice of private savings whilst similar public sector employees (whose pension benefits are largely funded by taxpayers generally) escape scott free.


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## Gerry Canning (4 Feb 2014)

I would ask everyone to read Conans post . It is simply a very good and informative post.


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## LDFerguson (4 Feb 2014)

Gerry Canning said:


> I would ask everyone to read Conans post . It is simply a very good and informative post.


 
+1 Agree wholeheartedly.


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## PSAndy (4 Feb 2014)

Gerry Canning said:


> I would ask everyone to read Conans post . It is simply a very good and informative post.


 
Apart from the bit about the Public Sector getting off scot free. Pension Related Deduction applies to all current PS workers, is applicable to all income including income which is not pensionable and is payable at 10% on all income over 20k. In addition all current pensions in the Public Sector were subject to a Reduction of up to 28% from 2013 under the Financial Emergency Measures in the Public Interest Act of 2013. 

Now, you might say it is still a great deal and everyone should be grateful, but to say there has been no effect, whatsoever on Public Sector pensions is simply untrue.

Don't forget most Public Sector workers also have AVC's so they were also subjected to this levy on any private income.


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## RainyDay (4 Feb 2014)

Conan said:


> The difficulty with Pensions is that they are a long term investment whereas politicians have a purely short term perspective - to the next election. Whilst this current Govt have done much to stabilise the economy after the mess they inherited from FF, they have shown little understanding of the long term nature of pension funding.


I know it's tempting when faced with a Govt policy that I disagree with or don't like or costs me money to assume that the folks involved don't get it. This generally isn't true. Whatever about Ministers, the officials and advisors involved generally get it. They generally know their areas very very well.
While there is a temptation for most politicians to be ‘short-termist’ (because most voters vote on ‘short-termist’), this Govt can genuinely stand up better than most Govts to this criticism.


Conan said:


> - Pension contributions are largely a tax deferral exercise. Yes one gets tax relief on contributions invested, but one pays income tax + USC on income drawn down in retirement. So you might get 41% tax relief on the way in but currently might pay 48% tax on the way out.


The ‘largely a tax deferral’ line is spin, usually coming from those who make a living from pension commissions. Yes, you correct to point out the USC percentages, but that only tells you half the story. It ignores the fact that by spreading income over the additional pension years, one pays considerably less tax due to tax credits. It ignores the fact that the additional tax credit for older people considerably reduces the tax take. It ignores the effect of the tax free lump sum. It ignores the effect of the tax-free growth. It ignores all these options that aren’t available to those who can’t or don’t invest in pensions. 


Conan said:


> - Private sector pensions involve funding in advance to provide the ultimate benefits. Such arrangements are subject to the vagaries of investment markets and increasingly to Govt regulation ( which in the case of DB schemes seems to be making such funding more difficult). Most Public Sector schemes are unfunded or effectively underwritten by the Govt (e.g. recent changes to Universities Superannuation Schemes). So when a Pension Levy was introduced it largely only impacted private sector funded schemes. Public Sector schemes escaped scott free.


Perhaps you missed the coverage of the Pensions Levy imposed on public servants as one of the first responses to the economic collapse.  Since early 2009, public and civil servants have paid between 5%-10.5% of gross income above €15k as a pensions levy, including some staff who don’t get any pension benefit at all. This 10%-ish deduction doesn’t quite meet my definition of escaping scott-free.
But while we’re on the topic of ‘scott free’, would this be a good time to talk about bondholders in Irish banks (which of course included many pensions funds) who got off scott free?


Conan said:


> - Apart from raiding private pension funds, many of which are struggling to meet funding standards, the other impact is that individuals are less likely to invest in private pension structures if they feel that the Govt cannot resist the temptation to continually raid their private pension fund.


The levy is no more a ‘raid’ than your income tax is a ‘raid’ on your salary, or the VAT on your supermarket bill is a ‘raid’. Really, you don’t do yourself any favours with the melodramatic language. If you want to decide that ALL taxes are ‘raids’, then so be it, but I don’t think it really helps the discussion.


Conan said:


> - The Ministers excuse for continuing with the 0.15% levy was entirely deceitful. The pensions industry had worked out the potential tax saving to the Govt if they both reduced the pension fund cap to €2m AND increased the multiplier for DB pensions (because the original 20:1 multiplier grossly underestimated the real value of DB pensions). However in the Dec Budget whilst the Minister reduced the cap to €2m immediately (and therefore impacted DC immediately) the increase in the multiplier would only apply to DB benefits earned after Jan 2014. So guess what, the higher valuation factors would have minimal impact on current senior civil servants and current senior politicians.
> - The effect of the above, not well understood by most, is that a member retiring from a DC scheme in 2014 is immediately limited to the €2m cap which in reality would buy an annuity of about €65,000 p.a. whereas a senior civil servant retiring in 2014 could have a pension of €115,000 p.a. without exceeding the notional fund cap. Not exactly equitable.
> - So private sector DC members are hit with a pension levy and immediately subject to a pension cap of €65,000 whereas senior civil servants are not subject to any equivalent pension levy and can earn a pension of up to €115,000 without exceeding the pension cap.


There does indeed seem to be an equity issue here. It is worth pointing out that the number of politicians or civil servants who retire on pensions of €115k pa is tiny, probably something like 20-ish people each year, at an uneducated guess. I’m not condoning the inequity, just putting it in context. 


Conan said:


> With increasing longevity, Govt policy should be on encouraging people to make provision for their old age rather than only relying on the State Pension (which itself is coming under financial pressure because of longevity). The problem is that there is no long term thinking in Govt when it comes to pensions. Unfortunately the Minister cannot pass up the opportunity to take a slice of private savings whilst similar public sector employees (whose pension benefits are largely funded by taxpayers generally) escape scott free.


Public sector employees have by no means escaped scott free, and have paid more than their fair share in the area for years before the levy on private schemes was introduced. Yes, the Govt should be encouraging people to make provisions, but there is a difference between ‘encouraging’ and ‘subsidising’. Certainly, the Govt was right to introduce the caps on tax relief, and any inequity between DB and DC schemes should be addressed by bringing the DB cap down.

This discussion highlights the more fundamental point of the reliance of the pensions industry on tax relief to add value. It seems that there is a whole industry out there whose main purpose is to exploit tax relief. If the industry is really that concerned about Govt ‘raids’ or meddling, then it is very welcome to offer services and value to consumers for their after-tax income. If indeed the tax relief is as worthless as many of the posts here would seem to suggest, then surely the industry should be taking up this option regardless.


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## RainyDay (4 Feb 2014)

PSAndy said:


> Don't forget most Public Sector workers also have AVC's so they were also subjected to this levy on any private income.



Do most public sector workers have AVCs? Wouldn't most spare money have gone into Notional Service Purchase, until the rates for NSP increased in recent years to make it uneconomic.


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## Gerry Canning (4 Feb 2014)

to PSANDY,

I was not 100% agreeing with all his comments but Conan is largely correct.

To say Public Servants have paid their (fair) share is at best Questionable.

What is VERY ,is this; 
Public Servants have in GOOD faith paid what they were asked and it is NOT fair that they will too get reductions in Pension expectations.
Public/Private etc , we are all being led by all Governments short-termism into a poor future pension problem.

For what it is worth ,
 if I was a Public Servant , I would, if I could afford it, set up a Pension Fund outside of my (expected) Public Servant pension.
if I was Private, I would , if I could afford it,set up a Pension Fund outside of my State Pension.

And then Pray my funds are not raided by Noonan Mark 2 !


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## Daddy (6 Feb 2014)

I think I am right and it should be pointed out that while one can get  tax relief at the higher rate going in that depending on income at other end I presume most people in DC schemes will be taxed at the lower rate coming out.  So that is another reason to contribute to a fund.


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