THE PENSION levy being introduced to fund the Government’s jobs programme will hasten the closure of final salary pension schemes and could damage Ireland’s reputation as a centre for international financial services, according to benefits advisory group Towers Watson.
“The recent changes . . . are hasty, ill conceived and are storing enormous problems for current and future generations,” said Raymond McKenna, managing consultant at Towers Watson.
“If the cost of funding the levy is absorbed by employers, this could lead to a significant reduction in competitiveness, and ultimately jobs, caused by the burden of €470 million per annum,” he said.
A survey by the company, which says it represents more than 250,000 members of private sector pension schemes, found that 60 per cent of companies with defined benefit schemes had said they would not be able to absorb the cost of the levy and would look to pass it on to members in the form of a reduction in benefits.
Over 80 per cent said the levy will mean “they are likely to scale back or cease, defined benefit pension provision”. A quarter of the company’s clients surveyed said they would consider offshoring pension schemes to avoid the levy.
The proposal impacted already hard-pressed private sector companies and ignored high net worth individuals with ARFs [Approved Retirement Funds], public sector pensions and annuities secured with insurance companies, Mr McKenna said.
Towers Watson is the latest in a series of industry players to criticise the 0.6 per cent levy which is expected to raise €470 million per annum over the next four years, or €1.9 billion in total.
“For many years, Ireland has developed, and marketed itself, as a financial services centre and now, arising from this single measure, we may well see a significant outflow of funds and the related services employment from the country, perhaps even extending beyond pension assets,” Mr McKenna said.
The company’s survey also says that a proposal to impose a tougher funding standard on final salary, or defined benefit, pension schemes will critically undermine the sector. Three quarters of those surveyed felt any tightening of the funding standard should be deferred for at least five years.
Ninety per cent confirmed they “felt the outlook for defined benefit pension provision in Ireland is bleak if the proposed changes are introduced”.
About 200,000 private sector workers are members of defined benefit schemes.
“There needs to be a rational and measured approach, and meaningful consultation, in advance of any changes, particularly as the current proposals could fundamentally destabilise retirement provision for current and future generations, at least in the private sector,” Mr McKenna said.
