Michael Noonan (Limerick City, Fine Gael)

I thank the Deputies for their contributions some of which were listened to by the Minister of State, Deputy Brian Hayes, who left me notes.

If I could revert to the topic of the ARFs we were discussing when I left for half an hour, I wish to inform the House of my position. I intend to examine as part of my preparations for budget 2012 in December next how best to increase the percentage national distribution for higher value ARFs while ensuring that more modest ARFs are protected. It is not true to state that ARFs are only availed of by wealthy people. Many people have ARFs with modest amounts in them and they are modest savers.

An ARF is not a pension, it is an investment. If we make changes, as well as trying to take an additional tax take we will consider applying a cap below which the additional imposition would not apply. Any increase would apply to 2011 asset values because the measure applies to the previous year, which is one of the reasons we could not do it this year, and the tax due will generally be paid by the end of February 2011. If we made changes in next year's finance Bill, the tax would be due in February, immediately after the finance Bill, and it would be based on the asset value of the ARFs in 2011. Consequently, we cannot make it retrospective by introducing it now in a hurry. That is my thinking on it. I will be disposed to take this course of action. Of course, I must discuss it and obtain the agreement of my Cabinet colleagues for any such change but we will be working on it.

Deputy Hayes was asked whether the Pension Board was consulted about the introduction of the levy. My officials have been in contact with a wide number of interested parties in both the public and private sectors, including the Pensions Board, about the practical logistical and other issues surrounding its introduction. I listened with interest to Deputy Ross, who raised this on Leaders' Questions with the Taoiseach one morning. Deputy Ross's views on fees across the financial services industry, particularly in the pensions industry, are well known. It is difficult to find out what the management fee is and what additional charges are made on top of the management fee, for example, whether there is a distinction between commission and management fee. There seems to be such a distinction in some of the funds. My information, the accuracy of which I cannot vouch for, is that management charges were caught at a rate of approximately 1.5% rather than at 0.6% as Deputy Ross states.

I mentioned previously that the reaction of the pensions industry was quite hypocritical because its members were predicting ruin and devastation and the sky would fall down if a levy of 0.6% was imposed. This, when some of them were taking charges of one sort or another which amounted to three times that sum and had no impact on the fund, apparently such charges were not a problem. If, however, the State imposes a stamp duty of 0.6%, the sky falls down. They are not living in the real world. Those of them who participated in debate were not frank because they did not tell their own stories, yet they have laid charges of an exaggerated kind.

Arising from the Deputy's conversation with the Taoiseach here one morning, I wrote to the representatives of the pension industry who I had met advising that in the first instance they should endeavour to absorb the levy within their own cost base, and I intend pursuing that. They might not absorb it all. Even if we got them to absorb some, if we got them to tighten up a little, everybody in the country is tightening up and managing with less. I do not see why pension fund managers should be exempt. I do not know how much progress I will make. We have a little time on this and if we do not get it in the first round of the levy, we might get it in the second round of it. I intend pursuing it. Of course, it is important to have information in the first instance.

I take Deputy Pringle's point and his concerns. We have introduced the Revenue Commissioners as a kind of monitor in case there are raids on pension funds, in effect, by their own management. We want to ensure there is a mechanism in place to prevent anything like that happening and also to ensure there is a link into the payment of the levy. We have that protection in place also.

The concept of the levy arose from a consideration of how to pay for a jobs initiative which would cost a certain amount of money and where the money was used principally to get the tourism industry back on track. Over the past three years the tourism industry has fallen by 30% in volume terms, that is, in terms of the number of people coming into the country. From the UK alone it has declined by 32% in value terms. We knew the President of the USA and the Queen were coming so we took the view that if we timed an initiative on VAT three or four weeks in advance then we could get quite a good effect. It seems to be coming through but it is difficult to quantify these things. One gets a fine weekend and there are tourists all over the place but if it rains one sees no one. However, the people representing the business seem to take the view that there is an increase in tourists this year and that there has been a significant increase in inquiries.

Then, we went to try to fund it. It is a simple principle of economics that if one spends money but takes the equivalent amount out of the economy, the effect is pretty neutral. Certainly, there is no demand stimulus effect. We identified the pension industry of which, according to my information, 94% is invested abroad. Through the levy we are bringing the money back into the domestic economy and it is paying for the jobs initiative. We also justify it on the basis that the pension pots, especially the larger ones, were built up with very generous tax relief at a marginal rate of 41%. This is a bit of a clawback of generous tax relief that was given in the good years of the economy, or, at least, when we thought things were good. These generous reliefs were in place at the time. We are taking a bit back from it but it is modest enough. I do not believe the alarmist talk from those in the pensions industry. The House will note how quiet they have become since I started calling for them to offset it against their charges. The debate ended just like that. There has not been a whisper since. Deputy Ross stood up here one morning and one could nearly benchmark the debate from the morning he spoke about charges and the Taoiseach replied to him and the steam went out of it.

It would damage the industry if it went on for the next 30 years, of that there is no doubt. All Deputies are aware of the way pensions are constructed. Most people paying into pension funds have no expectation of drawing from them for a long time. If we kept it going on an actuarial basis there would be a difficulty as we go along. However for four years, the industry can take it, especially if some of it is absorbed in the charges. I have stated in the House that I am committed to talking to the pensions industry. The Government has not yet decided how we will handle the tax relief on contributions to pensions in future.

The IMF-EU troika maintain the relief is far too generous, totally out of line with what is happening elsewhere in Europe and one of the great generosities of the Irish pension system which is no longer affordable. They want it pulled back to the standard rate. We will consider other options but I am unsure whether we can afford them. Certainly, there is a strong argument in principle to continue to encourage people to make provision for their retirement through contributions to pensions schemes. Traditionally in Ireland the principal encouragement was to give tax relief. I am unsure of the way to engineer it in future but it is something we will consider carefully as we go through the autumn. I was missing for some of the early part of the debate but I hope I have replied to everyone who raised a specific point. I will come back again if I have to.

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