Minister for Finance Michael Noonan has been accused of "abdicating responsibility" for Government decisions on pensions, most particularly in his attempts to blame the industry when he announced plans in the budget to increase the pension levy for this year.
Rachael Ingle, chairwoman of the Irish Association of Pension Funds (IAPF) which represents fund managers responsible for investing the assets of pension schemes, said the Minister for Finance had unfairly sought to lay the blame for increasing the levy to 0.75 per cent of all funds saved by people in the private sector – giving the Exchequer a €675 million boost at the expense of people who had saved for their retirement.
Three days after the budget, Mr Noonan told the Dublin Economic Workshop: “I fulfilled my side of the bargain and the industry who gave very detailed figures did not fulfil its side of the bargain, so when they come back to me and deliver I will take away the (pensions) levy.”
Last night, speaking at the IAPF’s annual dinner, Ms Ingle said it had taken part in a group on taxation policy to try and “come up with ways of helping the Government achieve the financial targets it set itself as part of the Troika agreement and programme for government”.
“The fact is that this group’s work and recommendations were ignored by Government, leaving a gap to be filled,” Ms Ingle said. “This, as we all know will now be filled by a further tax on pension savings for this year and next year,” noting that over €2.2 billion had already been levied from pension funds.
Consumer trust had been “annihilated” by the decision to continue the levyand, “as importantly, the ease, with which their hard earned and hard saved money can be taken from under their noses”, she said, adding that it made it that much more difficult to persuade people of the need to be compelled to save under Government plans for a universal mandatory pension.
The IAPF conducted a survey of pension plans that were wound up in 2013 to determine the level of benefits being paid to members in those defined benefit, or final salary plans.
Only 15 per cent of plans that were wound up delivered 100 per cent coverage “on a statutory basis” while as many as one in three of the people covered by these plans received less than 80 per cent of their expected transfer value.
“Eighty per cent transfer value, while it sounds high, will not provide for 80 per cent of the expected benefit, or anywhere near it,” Ms Ingle said.
As a result, while the current generation of pensioners had seen a fall in those at risk or in consistent poverty, she said, “our next generation of retirees will see a significant number of people with lost pension promises and the poverty index unfortunately going up”, she said.
Accepting that pension scheme members and fund managers can no longer rely on higher interest rates, a continuing stock market rally or earlier death to improve the outlook for defined benefit pension schemes, Ms Ingle called on the Government to establish a permanent, non-political and independent pension body to focus on what pension provision should look like that would be secure, fair and simple, and get rid of “existing complex structures”.
“When we have a problem like this, we can either save more, work longer or live on less in retirement and I think any reasonable person would do a little of each,” she said. Noting that there was €90 billion in private sector pension savings, two-thirds of it in defined benefit schemes, and a €400 billion-plus “pending liability” on the State pension and public sector pensions, she said: We need to be clear about what the pension promise is, if any, who is backing up the promise and what the Government is responsible for?
“We have a chance of successfully managing the pension crisis that is circling around us,” said Ms Ingle. “If we don’t start thinking about change and reform, and taking action now, then there will be no pension left for our children and grandchildren.”