Pension levy on private sector not always ‘fair’

Pensions Ombudsman makes comments to Oireachtas finance committee

Pensions Ombudsman Paul Kenny says  in “most cases”, the effect of the reduction in payment would “last for the lifetime of the pensioner”. Photograph: Johnny Bambury/MQ Photo

Pensions Ombudsman Paul Kenny says in “most cases”, the effect of the reduction in payment would “last for the lifetime of the pensioner”. Photograph: Johnny Bambury/MQ Photo

 

The Pensions Ombudsman has told the Oireachtas finance committee that the Government’s imposition of a 0.6 per cent levy on private sector pension schemes in 2011 was “legal but not necessarily fair”.

Paul Kenny, who has been ombudsman since 2003, said the levy has also hit payments to pensioners as trustees sought to share the burden among scheme members.

“In paying out the levy, amounting over four years to 2.4 per cent of the value of the assets held, trustees were faced with a permanent reduction in the assets which they had to ‘back’ the pensions already in payment,” Mr Kenny stated in a three-page letter sent to the clerk of the committee on January 22nd and seen by The Irish Times.

Full brunt

Mr Kenny said that, in “most cases”, the effect of the reduction in payment would “last for the lifetime of the pensioner”.

This contrasts with the public sector pensions levy which, “although it is very high, is intended to be temporary”.

Mr Kenny said Government statements at the time of the levy’s introduction, to the effect that employers could be requested or required by trustees to meet the costs of the charge, were never going to be right. This was because about 80 per cent of defined-benefit schemes were already in deficit and the majority of employers were in financial difficulty.

“Consequently, most trustees of defined-benefit schemes had no option but to pay the levy from the assets of the schemes,” he said.

Mr Kenny noted that in the case of a number of public-sector-funded, defined-benefit schemes, the State has taken both the public service pension reduction and the levy, “which I deem to be penal and unfair”.

In relation to the impact on defined-benefit schemes into the future, Mr Kenny said it was “conceivable” a number of the funds would survive in a modified form but that trustees would still impose the charge on pensioners.

“They would have to do this, even if the schemes could afford to pay the full benefits, simply because they would be treating current pensioners unfairly vis-a-vis the rest of the members.”

He closed his letter by stating that the levy would result in a “permanent reduction in the annual pensions of a great many scheme members”.

The levy was introduced by Minister for Finance Michael Noonan in 2011 to fund a reduction to 9 per cent in VAT on tourism services to create jobs. It was levied at 0.6 per cent in the first four years and 0.15 per cent this year, when it will end. It has has delivered more than €2.1 billion to the exchequer in revenues.

Future impact

Pearse Doherty

“Over the last number of weeks I have been approached by a number of retired workers in private pension funds who have been informed that, because of the levy, their pensions will be cut until the end of their lives,” he said. “For these pensioners and workers who have not yet retired, the levy is another austerity tax that will not end in any recovery. The Government spin that the levy has ended is meaningless for these pensioners and workers.” Mr Doherty said he would press the issue with the finance committee and Mr Noonan.