Few major tax changes have raised more revenue with less public outcry than the Government’s private sector pension levy, which affects many hundreds of thousands of people saving for their retirement. This year, the levy is expected to raise over €700 million. And since its introduction in 2011 – as a time-limited and temporary measure – the revenue raised by 2015 will have reached an estimated €2.32 billion. The Government has long justified the levy as a means of financing its Jobs Initiative: it helped to pay for a VAT rate reduction for the hospitality sector.
The Government initially claimed that some of the cost of the levy would be borne by the pension providers, via lower management fees, thereby reducing its impact on pension savers. Unsurprisingly, that did not happen. The Government also promised the levy would not be extended beyond 2014. That too has not happened. Instead, the levy was raised – from 0.6 per cent to 0.75 of the value of fund assets in 2014 – in what was meant to be the final year of the tax on pension savings. However, Minister for Finance Michael Noonan in his budget speech last October, announced that the pension levy would, in effect, continue to operate in 2015, but at a lower (0.15 per cent) rate.
On no major issue has the Government behaved quite so dishonourably as on the pensions issue. By continuing the levy – and by raising it this year – the Government has broken faith with pension savers many of whom are in a financially-distressed state. Many defined-benefit (final salary) schemes have been closed, and some members face a huge drop in their retirement earnings. In parallel, the State retirement age has increased to 66 – and is set to go much higher. The state pension has not increased since 2009, and the sustainability of the current level of state pension is in question.
But, as yet, the Government has offered no pension reform plan. This despite the Government requesting the OECD to review Ireland’s pension policy. Last year the OECD recommended a mandatory pension scheme – about which the Government, while committed to the idea in principle has done nothing to advance. The Government has failed both to alleviate the difficulties of pension savers, and to encourage saving and investment more generally in society.
Mercer, a financial consultancy, in a recent report concluded that by 2020, there will be one third fewer final salary schemes than this year, and said it was unlikely that any of these schemes would then be open to new members. In a future where more people will be healthier and live longer, there will also be fewer in the working age groups to support those in retirement. That should make adequate pension provision a key consideration of Government; one in which a pension levy has no place.