How will the new 0.6% pension fund levy work?

thedaras said:
Looks like it may be challenged
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Jerry Moriarty, IAPF director of policy, confirmed legal advice had been sought on the basis the levy could be an interference with property rights. There is also a question of discrimination given that only private sector pensions would be affected.
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I dont think the provisions can be challenged on the grounds that the measures only apply to private sector schemes since it appears to me that the very large schemes in the ESB and other funded public sector superannuation schemes will be effected.

It is of course impossible to place a pension fund levy on an unfunded scheme as there is no fund to levy!

But this raises a question: is it possible to raise a levy on an under funded scheme or scheme in defecit? And if it is where is the cut off 90%, 80%, 20%, 10%, 5%...? The public service unfunded schemes are equivalent to a funded scheme with no funds (0%) in it!
 
Since DB schemes are pooled arrangements its quite easy to deduct the 0.5% levy, the charge is just deducted from the overall scheme value each year regardless of whether the scheme is in surplus or deficit.

Whats harder to qualify is who is ultimately going to pay the levy.

Since all DB schemes are effectively subsidised by the employer the additional cost will be born by the employer unless the employer decides to change the scheme rules. This would be unlikely given the extra headache of calculating each members notional value of whatever their share of the pool is worth and asking the member to pay this. The alternative would be even more complex, ie; reducing the members pension at retirement to allow for the levy, as this would mean ringfencing all the affected employees for that were employed for the 4 years the levy will be in operation and treating anyone who joined the scheme after differently.

I can see the fund just paying the levy and either the employer taking the hit or ultimately like what happens many DB schemes, the scheme is wound up with a deficit of funds and the employees get reduced pensions based on their share of whatever is left in the pot.


www.CheaperLifeAssurance.ie
 
Hi Stevie,

Thanks for that well written piece.

Could the DB scheme rules be changed to take say an extra 0.5% in employee deductions?

aj
 
Anyone a link to the Ministers actual proposal wrt the 0.6% pension fund levy?

Does anyone have a link to the Minister's actual proposal with respect to the 0.6% pension fund levy?

Im not interested in the other proposals just the pension fund levy.
thanks
aj
 
Pension Levy
The various tax reduction and additional expenditure measures which I am announcing today will be funded by way of a temporary levy on funded pension schemes and personal pension plans. I propose that the levy will apply at a rate of 0.6% to the capital value of assets under management in pension funds established in the State.

It will apply for a period of 4 years commencing this year and is intended to raise about €470 million in each of those years. The levy will not apply to pension funds established here and providing services and benefits solely to non-resident employers and members. Further details regarding the proposed application of the levy are set out in the Summary of Initiative Measures.

I am conscious of the concerns of the pensions industry about the impact of a levy in circumstances where the pensions sector, in common with other sectors in our economy and society, is finding the current economic and financial environment very challenging. However, the imposition of the levy is for a relatively short period and its purpose is to improve that environment by providing the means to encourage job creation in areas of our economy most likely to deliver that employment quickly.

The levy is being confined to pension funds because I believe that the alternatives for increases in taxation elsewhere at this time would be more damaging to the economy. I will be glad to consult with the pensions industry on the legislative provisions which will give effect to the levy so as to seek to minimise, where possible, any unnecessary difficulties which this measure may give rise to.

The pension levy represents a very significant contribution by the pensions industry and the many individual savers it represents to our commitment to getting the economy moving again. I am aware that the pensions sector is also concerned, given the temporary levy, about the commitment in our agreement with the EU/IMF to reduce the tax relief on pension contributions starting next year. I will examine this issue in the context of the results of the Comprehensive Review of Expenditure currently being undertaken by the Minister for Public Expenditure and Reform, and any resulting scope for fiscally neutral changes to the EU/IMF agreement.
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From http://finance.gov.ie/documents/publications/reports/2011/Jobinitiative.pdf

My blog now lists a summary of the main tax measures announced today.
 
We know no more.

Will it apply to ARFs?

Will it apply to annuities in payment?

Most importantly how much power will DB Trustees be given to pass this on to its members and will these members be treated fairly as between Actives, Deferreds and Pensioners?

Will it apply to funded semi State sector schemes?

He has not ruled out reducing pensions contribution relief, which was the quid pro quo that the industry lobbied for.
 
Will the pension fund levy apply to DB schemes?

Will the pension fund levy apply to funded public sector DB schemes (ESB)?

Will the pension fund levy apply to funded former public sector DB schemes (Eircom, AerLingus)?

Will the pension fund levy apply to distressed/in defecit private sector DB schemes?
 
This will be very interesting to see how they operate this in relation to ARFs. I have been told all year by revenue that ARFs are not deemed Pension funds but individual assets. I had an issue in relation to PRSI being charged on an ARF and this was the response i got. Annuities on the other hand are deemed/classified as Pension funds so lets see what develops. I for one will be watching closely..
 
KarlC said:
Annuities on the other hand are deemed/classified as Pension funds so lets see what develops. I for one will be watching closely..
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There is no consistent measure for the market value of funds on an annuity in payment so I doubt they will be included.

ARFs can be converted to annuities at any point so they shouldn't be included (but possibly will).

Active pensioners in pension schemes can take a transfer value and purchase an annuity with their benefits, so it seems inconsistent to tax them (but they probably will be subject to it).

Say a company took a responsible measure and injected €40m to address a pension deficit, it will pay €1m in extra taxes over the next 4 years for doing right by its employees.
 
ARFs cannot fall under this levy as the revenue this year wrote to me and confirmed the following:
"Unlike Annuity products, ARFs are not Pensions, but are tretaed as assets".

Their words not mine...
 
My take on it based on interviews I have heard and yesterdays proceedings is;

DB pensions will definately be hit, regardless of surplus/deficit positions.

I believe that this levy will apply to semi state DB and former semi state DB schemes. In the case of semi state DB schemes, these already have had deficits topped up by the taxpayer, I can see taxpayers ultimately paying this levy either through higher service charges (ESB and the like) or by direct intervention from the public coffers. There is no reason why former state schemes would be treated any differently now to any other private DB schemes.

ARF's will be hit in my opinion. There is no mention that people who have reached retirement age have a get out of jail free card.

People in receipt of pension annuities could be hit, the maturity value of pensions is typically used by companies to buy gilt funds to pay for peoples pensions, there will be notional values somewhere kept by company actuaries to which this levy could apply. I would welcome if anyone could show me a quote that says otherwise.
 
Another headache looms for employers that operate both DB and DC schemes.
If employer takes the hit on the DB scheme it will be unfair to employees who will suffer the hit on DC schemes.
 
Looks like it will only apply to occupational pension schemes, Retirement Annuity Contracts and Personal Retirement Savings Accounts (and not to ARFs).

It also looks like it is up to the Trustees/Pension Provider to pay the Levy and it is then up to them whether or not to pass on the levy to the member.

Dept of Finance have published some FAQs http://www.finance.gov.ie/viewdoc.asp?DocID=6830

Full details to be included in the Finance (No. 2) Bill which is being published on Thursday 19th May 2011
 
I have been receiving an Annuity for about 2 year now, will this effect existing Annuity (pension) converted from a DB scheme? They are already taking USC off it.
 
roker said:
I have been receiving an Annuity for about 2 year now, will this effect existing Annuity (pension) converted from a DB scheme? They are already taking USC off it.
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I don't think it applies to annuities in payment?

A levy of 0.6% on the market value of assets under management in pension funds and pension plans approved under Irish tax legislation is being introduced to fund the Jobs Initiative. The market value will be determined as at 1 January 2011. This will be a temporary measure for a 4 year period.
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boaber said:
Looks like it will only apply to occupational pension schemes, Retirement Annuity Contracts and Personal Retirement Savings Accounts (and not to ARFs).

Dept of Finance have published some FAQs http://www.finance.gov.ie/viewdoc.asp?DocID=6830
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It appears to me (correct me if I am wrong) that the 0.6% levy will not be applied to existing annuities. So, if your fund has been used to purchase an annuity, you're in the clear. This would make sense.
 
Most DB schemes fund annuities out of the funds so it will be up to the schemes as to whether they will pass on the levy or not.
 
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