Noonan: "Pensions industry broke their promise on pensions levy"

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Brendan Burgess

Brendan Burgess

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I was at the Dublin Economics Workshop yesterday and I asked the Minister about his decision to introduce a new levy after giving a commitment to end it after 2014.

You can see his response here

http://www.rte.ie/player/ie/show/10209488/

The piece starts at 3.14


This is what he said according to the RTE report
Minister signals pension row
The minister hinted that a row with the pension industry may lie behind the decision to extend the levy on pensions in the Budget, despite assurances last year it would be scrapped.


Michael Noonan said he had fulfilled his side of the bargain but the industry had not delivered on its side.


He declined to say what that agreement related to.[ after my follow up question]



"We're being recorded publicly here, but they know and I know and if they want to come and talk to me we'll talk," he said.


It is believed that as part of a complex formula to limit tax-free pension contributions, the industry had suggested the Government would gain a certain amount of revenue.


However, so far this year the revenue is far below that level, prompting the Government to continue with the levy.
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Michael Noonan said he had fulfilled his side of the bargain but the industry had not delivered on its side.

He declined to say what that agreement related to.[ after my follow up question]

"We're being recorded publicly here, but they know and I know and if they want to come and talk to me we'll talk," he said.
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Handbags at dawn.

Thats just flat out unacceptable,I wouldn't take that off a pair of 10 year olds in a school yard let alone as an explanation from a Finance Minister for the continued theft from citizens pension funds.
 
That fact that he's refusing to clarify the way in which pension funds have failed to live up to their part of the bargain is, unfortunately, typical of how the current government is operating. They seem to be trying to out Fianna Fail Fianna Fail.

What could he be talking about?

Providers reducing their fees?

Hard to see how that would provide additional revenue to the exchequer.

Members taking refunds of up to 30% of their AVC values?

OK, that would lead to additional revenue to the exchequer, but scheme members cannot be FORCED to take refunds and it's hard to see how the industry could be held responsible for what members choose to do.

Something else?

Hard to imagine what this could be, but maybe swami Noonan might provide some obscure hint to enlighten us.
 
I did'nt fully hear it, but the rte radio show Saturday with Brian Dowling today at 1pm (piece was on towards the end of the show) said it was something to do with limiting tax relief on pensions worth more than 60k and that Noonan initially announced it in last year's budget
 
Delboy said:
I did'nt fully hear it, but the rte radio show Saturday with Brian Dowling today at 1pm (piece was on towards the end of the show) said it was something to do with limiting tax relief on pensions worth more than 60k and that Noonan initially announced it in last year's budget
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Yes, they changed that too in this year's budget. But that's something the minister did, not something the pensions industry failed to do.

I think the minister will be called to task on this and asked to explain what exactly he meant by his comment. I'm not convinced that he's going to be able to come up with a good answer to the question.
 
In yesterday's Irish Times, this was also reported under the heading

"Noonan points finger at insurance sector over levy" (It doesn't seem to be online)

It is a similar report to the RTE report, but adds the important point:

"He added that should the pensions industry decide to fulfil its obligation, he would fulfil his"

Brendan
 
Seemingly this is the shortfall that Noonan is using to justify breaking his promise on getting rid of the pension levy.

Firstly I'm a bit confused about why the DoF would rely on the pension industry to calculate savings from a change to tax relief.
Secondly I'd like to know exactly how the DoF diluted the pension industry proposal - my suspicion would be it was done in a way to protect the very highest government pensions.

http://www.rte.ie/news/business/2013/1023/482221-pensions-tax-relief/

The new limit on the amount of tax relief people can get for putting money into pensions will deliver €130m less in revenue than the Government originally expected.
The disclosure has emerged in a written reply from Finance Minister Michael Noonan to Fianna Fáil's finance spokesman Michael McGrath.
In Budget 2013, the Government said it expected the changes would deliver €250m in additional tax revenue annually when introduced in 2014.
However, in his reply to Mr McGrath, Minister Noonan said the figure would be €120m.
..

Gerry Moriarty, chief executive of the Irish Association of Pension Funds, said the measures implemented by the Department of Finance were introduced in a different manner to pensions industry proposals.
He said this had the effect of diluting the impact of the measures.
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ashambles said:
Seemingly this is the shortfall that Noonan is using to justify breaking his promise on getting rid of the pension levy.

Firstly I'm a bit confused about why the DoF would rely on the pension industry to calculate savings from a change to tax relief.
Secondly I'd like to know exactly how the DoF diluted the pension industry proposal - my suspicion would be it was done in a way to protect the very highest government pensions.

http://www.rte.ie/news/business/2013/1023/482221-pensions-tax-relief/
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Summary..........Dof made a mess of the calculations so Joe Public has to pay more and DoF blame someone else.
 
Given the speed at which Mr Noonan changed his tune over the past week, I can only surmise that he realises that he's been caught out and is hoping that he can still get away with it. Contrast these two messages: -

Last Friday in Limerick, in answer to a query by Brendan Burgess of this parish, he said...
Now I fulfilled my side of the bargain and the industry, who gave me very detailed figures, didn’t fulfil their side of the bargain, so when they come back to me and they deliver on what they promised last year, I’ll take away the levy again.
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http://screenr.com/EezH

In other words the extension of the levy was entirely the fault of the pensions industry reneging on some secret deal.

Yesterday, Roisin Shortall asked him about "the nature of the deal which he expected to make with the pensions industry in respect of the promised introduction of a cap on a pension tax relief."

In his reply, he admitted that the Department of Finance had changed the suggestions offered to them by the pensions industry.

These changes differ in some respects from those proposed by the pensions sector and reflect, on legal advice, the requirement to protect pension rights at the date of change.
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So if you've been following this - the pensions industry gave the Minister proposals which would have yielded an amount of tax savings. The Minister and staff changed these proposals, resulting in the projected tax savings being reduced. He then tries to blame the pensions industry last Friday for not keeping to their side of the bargain.

Yesterday, he even tried to distance himself from his Limerick comments about fulfilling "their side of the bargain"...

I would not categorise my engagement with the pensions sector on this matter as a “deal”, in the manner suggested by the Deputy.
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http://www.kildarestreet.com/wrans/?id=2013-10-24a.202&s=section%3Awrans+speaker%3A209#g204.r
 
According to the Sunday papers it seems there's at least two reasons for the difference in anticpated savings from restrictions on pensions above 60k.

The DoF decided they needed to phase in the 60k limit for DB pensions - worries about constitutionality, judges, lavish retirement plans in France for themselves. So for the next 5 years their is no impact on DB pensions and after that the change is being phased in. The DC changes take effect immediately it seems.

The other reason given was that the DoF felt the pension industry estimates were relying on increased taxes as employer pension contributions were switched from pensions into direct pay rises. They felt it wasn't certain companies would do this, i.e. they'd reduce the pension contributions but wouldn't increase the pay. I think this is a legitimate concern.

Noonan was hinting at the second reason. However his backtracking is probably because the first reason is impossible to defend, he himself is supposedly likely to retire after this term so will benefit from it personally.

This looks like a "Yes, minister" style stitch up by the senior civil servants, the levy will now be used to fill in the shortfall due to delays in phasing in changes to their pensions. It'd seem that Noonan hadn't fully realized this when he made his remarks to the pension industry. (This reminds of that time that senior public servants bamboozled Lenihan into giving them a reduced pay-cut relative to their lower paid colleagues.)

http://www.independent.ie/irish-new...eight-of-hand-over-pensions-cap-29702905.html
 
ashambles said:
The other reason given was that the DoF felt the pension industry estimates were relying on increased taxes as employer pension contributions were switched from pensions into direct pay rises. They felt it wasn't certain companies would do this, i.e. they'd reduce the pension contributions but wouldn't increase the pay. I think this is a legitimate concern.
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I'd heard this one expressed during the week. Bear in mind that it only applies to someone with benefits valued at €2 million+, so we can assume that these are senior people in their organisations. Is it realistic to think that someone in such a position is going to say "Listen lads, I'm at my €2 million limit - sure just stop the employer contribution and we'll call it quits." Depending on the age of the person, the employer contribution could well be 100% of salary or more. Do you really think that they're likely to just let that go without insisting that it gets paid to them through salary? I don't.
 
When the cap was first introduced (at €5m) and later reduced (to €2.3m) it was common practice for those impacted (who could not accrue further benefits) to receive a taxable salary in lieu.
Nonetheless the way that the multiplier was introduced originally (at 20:1) which was itself favourable to DB members and now the way they have gone about trying to equalise the DB/ DC comparison is still designed to protect DB members for years to come. Whilst a DC member is restricted to a pension of €60,000 p.a. immediately, DB members can retire on a pension of circa €115,000 p.a
So it seems that DB members have a higher level of protection than DC. Where is the equity in that?

And who gives this advice? Would it be a senior Civil Servant? So much for senior politicians leading by example!

And if all that was not bad enough, guess whose pension benefits are not hit with a Levy? One guess.......yes it the same senior civil servants.

The joys of democracy!!!
 
Conan said:
And if all that was not bad enough, guess whose pension benefits are not hit with a Levy? One guess.......yes it the same senior civil servants. !!
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FYI - all public sector pensions were hit with a deduction/levy for the last couple of years, depending on the level of pension paid.
 
Slim said:
FYI - all public sector pensions were hit with a deduction/levy for the last couple of years, depending on the level of pension paid.
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Do you mean the Pension-Related Deduction? Let's look at that.

Take a public servant with full service, close to retirement, on a salary of €90,000 - married with modified PRSI. According to the final table on this ready-reckoner the net effect of the PRD is €3,995 per year.

A private-sector employee would need to have a pension fund of around €1.5 million accumulated to get the same benefits. If so, the net effect of the private-sector pension levy would be €9,000 in 2013 and €11,250 in 2014.

Fair?
 
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