Pension Funds call on Government to rethink Pension Levy
With almost €500m deducted from private sector retirement savings last weekend to pay the 2012 pensions levy, the Irish Association of Pension Funds (IAPF) has called on the Government to rethink this policy, as it is clear that the jobs initiative it is supposed to be funding is not working. Today it was revealed that on a seasonally adjusted basis the Live Register total recorded a monthly increase of 2,700 bringing the June 2012 seasonally adjusted total to 440,600.
According to Jerry Moriarty, CEO with the IAPF, “We said last year that the levy was poorly thought out and that there were better options and we now urge the Government, once again, not to continue to make the same mistakes”.
Jerry continued, “When the Minister for Finance was recently asked to report on the number of jobs that have been created over the past 12 months as a result of pension levy deductions, he was unable to identify any specific jobs created from the first €465m that was confiscated from workers pensions. He did point to “tentative signs of an improvement in labour market conditions” but couldn’t attribute any directly to the levy, which must be galling for all those employees and pensioners whose incomes have been reduced because of this levy. He also reiterated that the Government is giving its highest priority to job protection and job creation. It is clear from today’s unemployment figures that this strategy is not working”.
The IAPF contend that if the Government continue with the levy for the next 2 years, pension savers will pay another €1bn to the Government that will disappear into general exchequer finances and the pensions paid to those savers will be reduced. The IAPF believes there are opportunities to use that money, and possibly more, such as investing in infrastructure projects that can provide a return to funds and help to give the economy the kick-start it needs.
Jerry went on to say, “Pension funds throughout the world are looking to diversify their investments and infrastructure represents one asset classthat can provide that diversification and a steady long-term return that can be used to match the liabilities of funds. While the primary obligation of pension funds is to invest prudently and for the benefit of their members, the Government can provide the structure that would also allow the creation of employment”.
Jerry concluded, “One year after the announcement of the levy we are starting to see more pension benefits being reduced. Allowing funds invest, rather than being raided, will help avoid that. We urge the Government to be more positive and not to continue with a policy that forces funds, which are already experiencing huge difficulty, to take decisions that worsen the situation of pension savers and some of those in retirement. This is on top of the Pensions Board looking for additional funding from employers and members of defined benefit schemes at a time when the Government is raiding them”.
Example of Levy in practice
Take a pensioner on a pension of €10,000 from a defined benefit pension scheme. To fund this pension, the pension trustees need to set aside a reserve of approximately €150,000 within the scheme. The Department of Finance demanded a €900 levy in 2011 (.6% of €150,000). As most Defined Benefit schemes are in deficit it would not be possible for that €900 to be absorbed within the scheme. The employer is unlikely to be in a position to absorb it. In the most extreme case, the pension would be reduced from €10,000 to €9,100. This 9% reduction would apply for at the next 4 years, the lifetime of the levy.
Note to the Editor
Established in 1973, the Irish Association of Pension Funds (IAPF) is a non- profit, non-commercial organisation whose aim is to promote financial security for all retired people.