Pension levy on DC schemes to fund deficits in DB schemes

Status
Not open for further replies.
A

ashambles

Registered User
Messages
735
From http://budget.gov.ie/Budgets/2014/Documents/Budget Speech by Minister for Finance.pdf

I wish to confirm that contributions to pension schemes will continue to attract income tax relief at the marginal rate of tax. I wish to confirm that the 0.6% Pension Levy introduced to fund the Jobs Initiative in 2011 will be abolished from the 31st of December 2014. I will however, introduce an additional levy on pension funds at 0.15%. I am doing this to continue to help fund the Jobs Initiative and to make provision for potential State liabilities which may emerge from pre-existing or future pension fund difficulties. The levy within the existing legal framework will apply to pension fund assets in 2014 and 2015.
Click to expand...

So as most people guessed underfunded DB pensions will now get subsidized by DC pension fund owners regardless of how impoverished this will make the DC fund owner. In general it's a form of robbing from the poor to pay the rich.
 
Not much comfort but the levy applies to DB funds as well as DC schemes - so it's not strictly a levy only on DC schemes as in the thread title.

But it will be a circular hit - levying troubled DB schemes making it more likely they will be troubled...
 
Spot on.

The Waterford Crystal case is still up for decision in the high court, it alone could cost the state €200m+. http://www.independent.ie/business/...-ecj-battle-over-pension-losses-29221584.html

I shudder to think about the rest. ESB, AIB, BOI & Aer Lingus have about €5bn in pension scheme deficits between them.

I'd estimate the 0.15% p.a. will raise about €100m per annum (haven't seen the official estimate), so you ain't seen nothing yet!!!
 
Like TRS30 I'm also going to have to leave my computer soon to go outside as I'm really angry about this. The language is vague enough that this levy can be continued for as long as the Government needs a soft victim to steal from. Not that the language makes any difference anyway.

The Pension Levy announced as part of the Jobs Initiative will not be renewed after 2014.
Click to expand...

Michael Noonan, 5/12/2012
 
A levy of 0.15% on a pension fund of 100,000 Euro will amount to 150 Euro per year.

Is this a big deal?
 
Put it this way, OkeyDokey, my pension fund has not recovered yet to the amount I contributed. That is before considering the losses due to inflation, or the interest I would have gained had I put the money into the bank.
I am being taxed on a loss.

The levy plus management charges strips out any possible growth in my fund.
 
OkeyDokey said:
A levy of 0.15% on a pension fund of 100,000 Euro will amount to 150 Euro per year.

Is this a big deal?
Click to expand...

It's the same principle as if the Government decided to dip into your bank account and take out a few quid. DIRT tax applies only on the interest you make. This would be the equivalent of them taking a percentage of the savings as well as the interest each year.

It's a dangerous precedent.

There's also the matter of compound interest. If they didn't take it from you, that €150 would earn some sort of return annually until you retire. So would next year's €150. And the next.

So yes it's a big deal.
 
OkeyDokey said:
A levy of 0.15% on a pension fund of 100,000 Euro will amount to 150 Euro per year.

Is this a big deal?
Click to expand...
I gave this example in another thread
orka said:
I wonder do they have any idea of the effects of compounding? With 20 years to retirement, the last 4 years at 0.6% plus another 20 at 'only' (sure it's only teeny tiny...) 0.15% will talk 5.3% off fund value. So effectively a surcharge tax of 5.3% on retirement income.
Click to expand...
SO yes, it's a big deal to me. I'll be taxed when I draw down my pension - having already been taxed 5.3% along the way.

For the pensions industry it is a huge deal because it has created massive uncertainty about what could happen to pension savings once they are locked away. Taking money from locked-up savings is like shooting fish in a barrel - a fact not lost on the government. As long as people believed the government that it was a four-years-only austerity/recessionary times measure, there was at least some certainty (even though many were dubious that the levy would go away). Now, who can believe the government when they say the levy is for 2 years or 5 years or whatever?

So it's both the compounding % and the principle that make this a very big deal.
 
orka said:
I

For the pensions industry it is a huge deal because it has created massive uncertainty about what could happen to pension savings once they are locked away.

... Now, who can believe the government when they say the levy is for 2 years or 5 years or whatever?
Click to expand...

This really is the most serious aspect of it.

I would be very slow to recommend to people that they should contribute to a pension scheme. The uncertainty is just too great. If I invest in shares and the government changes the tax treatment, I can switch to some other way of investing. You can't do that with a pension.

I would have no problem with a levy on future funds. Then people can invest in pensions knowing that.

Brendan
 
orka said:
....

For the pensions industry it is a huge deal because it has created massive uncertainty about what could happen to pension savings once they are locked away. Taking money from locked-up savings is like shooting fish in a barrel.....
Click to expand...


This is absolutely uncredible, at a time when our nation needs to be encouraging people to plan for their retirement, through private pensions and help transfer obligations from the state for future retirement planning.

I'd expect the Pension Industry to lobby the Government very hard and very publically, prior to the publication of the Finance Act, in the hopes of having some small "tweeks" or clarifications put into the documentation, before it becomes detailed law.
 
I thought I had calmed down some since yesterday however reading this again I realise I have not!

This is wrong on so many levels I don't even know where to start.

This government seem intent on make the the big issues in this country worse rather than better. Ask any financially minded person and they will tell you that the pensions crises is one of the biggest financial issues facing this country over the next 30 years however not only have the current 'leaders' failed to do anything to address this, they have actually made it worse. If it wasn't so serious you would laugh!

Short term planning, i.e. what can we do to give us the best chance of getting elected again, is ruining this country.
 
I think people need to run the numbers on this one before losing the run of themselves. Just to use an example:

If you are a higher rate tax payer you can still put €100 into a pension at a cost of €59.

If this grows at 3% p.a. you will have proceeds of €180 after 20 years.

Assuming a 25% tax free lump sum, you will get €45 tax free and €135 will be taxed as income. The rate of tax on the €135 will be 31% if you pay the standard rate of tax in retirement (20% income tax, 4% PRSI, 7% USC), leaving you with a total of €138 (€45 + €135 * 69%) after tax.

A 0.15% charge per annum reduces this to €134.

What are the alternatives?

Put €59 into a bank or investment policy. Assume 3% interest/growth per annum, but 41% tax on that interest / growth.

Proceeds after 20 years are €89

I hope this helps people calm down.
 
I think it's the principle that my savings capital can be seized whenever the government overcommits to another interest group that is outrageous about the levy.

The impact at 0.16% is small, that's if this is targeted to pay the Waterford crystal pensions hole, but what if they decide that Defined Contribution pensions are pay for the 1.5 billion overcommitted to the ESB pension fund also? Would the % change to 3%?
 
circle said:
I think it's the principle that my savings capital can be seized whenever the government overcommits to another interest group that is outrageous about the levy.

The impact at 0.16% is small, that's if this is targeted to pay the Waterford crystal pensions hole, but what if they decide that Defined Contribution pensions are pay for the 1.5 billion overcommitted to the ESB pension fund also? Would the % change to 3%?
Click to expand...

That's exactly it. It is a raid on people's savings. If they want to change the tax treatment of pensions, they should do that and live with the consequences. If a pensions company increased their management charge by the same amount, Joan Burton would be on the airwaves screaming about people getting ripped off by greedy pension providers.
 
What are the options (if any) available to people to move their pension funds (assume you have a "frozen" fund from previous employer) outside Ireland where the government can't rob them? I've heard of people moving pensions to approved schemes in Malta. Is this an option?
 
Sunny said:
If a pensions company increased their management charge by the same amount, Joan Burton would be on the airwaves screaming about people getting ripped off by greedy pension providers.
Click to expand...
That's certainly true!

There's about €80bn in pension funds in Ireland. A typical charge these days is about 1% p.a. or €800m. That policyholder charge pays for investment services, wages, broker commissions, etc across the entire industry employing 10,000+ people.

In 2014 the state will collect a further €600m from policyholders. Why? Because they are an easy target.

That said though, if you plan your pension in a sensible way there are still very significant incentives available despite this levy.
 
Status
Not open for further replies.
Back
Top