Willie O'Dea (Limerick City, Fianna Fail)

Whoever they approached, this was what the quid pro quo was supposed to be. Is the Taoiseach now taking the position that as a result of the fact that we have taken the offer to bring in the levy, no changes to tax relief will be made and the present tax relief regime will stay in place? It was presented by the Taoiseach as a choice and he made the choice. Does this mean the tax relief regime will remain untouched?

As I stated, some 80% of defined pension schemes are under water at present. Those of us in the Houses of the Oireachtas are the beneficiaries of a defined pension scheme but we are in the public sector. This thing is specifically aimed at defined pension schemes in the private sector. The Minister and others may hold that this will not have much of an impact in practice etc. However, let us consider the wording of the amendment No. 30 12(b), which states "the diminution in value of those benefits shall not exceed the amount disbursed from the assets attributable at the valuation date to the scheme's liabilities in respect of that member". To a certain extent that gives the game away when one considers how much of the funds' assets are attributable to what is payable to a member under a defined benefit scheme.

The experts tell us that for someone to get a pension of €10,000 per year, which is no fortune, the fund necessary to produce that is approximately €150,000. Some people maintain it is more but let us assume the figure is €150,000. Deputy Michael McGrath reckons that in 50% of cases - I believe it will be more - everything will be passed on directly and there will be no money to meet the levy from the members' funds unless the employer wishes to contribute voluntarily and thereby endanger more jobs or increase the cost of employing the people in place. If the entire levy is passed on, let us consider how this will operate in practice. Some 0.6% of €150,000 is €900. Let us consider a person on €10,000, which is the pension attributable to that amount. The pension of that person goes down from €10,000 to €9,100 in the first year and decreases a further €900 in the second year to €7,200 and so on.

That person will finish up with a pension of approximately €6,400, which means one third of the pension is lost as a result of the four-year levy. The loss would be 50% if the higher figure of €200,000 is taken into account.

Unfortunately, in most cases, the levy will be passed on practically in its entirety to the beneficiaries and will have a devastating effect on pensions. The fund managers of many defined benefit pension schemes have unilaterally changed the terms of the schemes, with the principal change in most cases being the loss of indexation for inflation because it is simply not affordable. A person on a fixed pension of €10,000 a year to whom the levy is applied on the basis that the defined benefit scheme must pay out in full and must ask its members to make the full contribution is facing a very serious imposition. We are not talking about extremely wealthy people like the owners of some the pension pots under approved retirement funds, ARFs; we are talking about people on fixed pensions of €10,000 a year. They have received tax relief on their contributions but would still have had to save long and hard to secure that pension entitlement only to be subjected to this type of treatment.

This will bear hard on people. On Second Stage I remarked that the 1998 budget was the nearest any Government came to attempting something similar when the then Minister for Finance, Ray MacSharry, sought to impose a tax on the capital gains from pension funds. The scheme was designed to yield €15 million, which it did, and was applied for only one year. At that time the Minister, Deputy Noonan, was Opposition spokesman on finance and seemed to believe the sky would fall in because of €15 million. Now he proposes taking €1.8 billion out of pension funds which are already struggling. We are told it is acceptable because some pension administrators are earning three or four times that amount. If that is true we should go after them and find some way of obliging them to play their part in this. The levy proposal may be politically clever but its effect will be to take money out of the economy by reducing demand. Reduced incomes will leave many people living from week to week. It may be politically clever but it is economically and socially unsound.

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