Hitting pensions in the budget was not unexpected and there was a cautious welcome from the sector for most of the provisions announced yesterday.
But the Government still drew fire over its new levy and for the complex way in which it is adjusting the method of measuring whether a pension fund meets or exceeds new limits for tax relief.
On the plus side, there was a general welcome that tax relief had been retained at the marginal tax rate of up to 41 per cent, and that the standard fund threshold was not reduced even further as had widely been feared.
From his perspective, Minister for Finance Michael Noonan has followed through on the Government's commitments – ending the pension levy that took 0.6 per cent a year over four years from accumulated private sector pension funds and reducing to €60,000 the retirement income that someone can receive while availing of tax relief on pension fund contributions.
But no one in the sector was last night giving him credit on the levy after, in the very next sentence, he announced a new charge.
Since the Government lost a European Court of Justice case over its failure to protect the pension rights of Waterford Crystal workers whose scheme collapsed, it has become obvious that the Coalition will have to find some way to fund a pension protection scheme.
A levy was seen as the likely choice – most probably confined to the rapidly diminishing number of defined benefit schemes at risk of such collapse. Such a move was consistently dismissed by Government. That unnecessary prevarication has only intensified the industry anger at the move, with sentiment further inflamed by the fact that it will be levied on all private funds, not just defined benefit schemes.
Sense of injustice
The Minister's fig leaf – that the new levy would also continue to fund job creation programmes – did nothing to disabuse them last night of their sense of injustice.
In the event, the old and the new levy will overlap next year meaning pension funds take an even bigger hit. And while the Minister referred to the new charge only in the context of 2014 and 2015, unlike the original levy, he gave no commitment that it would end there, or that the rate would not rise down the line.
Both the reference to supporting job creation and the return to the “pension pot” well for easy funds makes either or both likely.
The row over the levy is likely to overshadow what is essentially a pragmatic approach by the Minister to reducing the cost to the State of pensions in the future while still leaving in place the current attractive rate of relief on pension savings for most people. Hopefully the doubts instilled by the new levy will not undo those efforts.
