Written answers

Tuesday, 5 November 2013

Department of Finance

Pensions Levy Issues

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Independent)
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164. To ask the Minister for Finance further to Parliamentary Question No. 98 of 27 June 2013, where he stated I made a point of confirming that the pension fund levy introduced as part of the jobs initiative will not be renewed after 2014, the reason the levy has been renewed after 2014; if he will confirm what happened between June and October to cause him to make this change; and if he will make a statement on the matter. [45938/13]

Photo of Lucinda CreightonLucinda Creighton (Dublin South East, Independent)
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165. To ask the Minister for Finance the reason it is the case that all private sector workers' pensions are subject to a pension levy but it is only the very high earners of public pensions which are subjected to a levy; if he will detail the exact number of pension arrangements that have been subjected to the pension levy for 2011, 2012 and to date in 2013; and if he will make a statement on the matter. [45940/13]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 164 and 165 together.

I announced in my recent Budget speech that the 0.6% Pension Fund Levy introduced to fund the Jobs Initiative in 2011 will be abolished from the 31st of December 2014. I also indicated, however, that I would be introducing an additional levy on pension funds at 0.15%. I am doing this to continue to help fund the Jobs Initiative , including the continuation of the reduced 9% VAT rate for the tourism sector which was due to end this year and to make provision for potential State liabilities which may emerge from pre-existing or future pension fund difficulties. The additional levy, within the existing legal framework, will apply to pension fund assets in 2014 and 2015.

In Budget 2013, I made a number of commitments in relation to the tax provisions affecting supplementary pension provision. I said that tax relief on pension contributions would continue at the marginal rate of tax. In addition, I gave an undertaking that the 0.6% pension fund levy would not be renewed after 2014 (and this remains the case).

I considered that I was in a position to make these significant commitments, on foot of, among other things, proposals in late 2012 from the pensions sector for changes to the Standard Fund Threshold (SFT) regime, as an alternative to standard rating of pension tax relief, which it was claimed would yield savings and tax revenues in the region of €400 million. Pending further analysis of this claim, I included a much lower figure of €250 million in the Budget 2013 arithmetic. That analysis has since revealed significant downside risks to the achievement of even this lower level of yield or savings. The estimate of the yield from the changes to the SFT regime which I announced in the recent Budget is €120 million. These changes differ in some respects from those proposed by the pensions sector and reflect, on legal advice, the requirement to protect pension rights at the date of change. In addition, valuation factors to place a value on Defined Benefit pensions for SFT purposes will vary with the age at which the pensions are drawn down thereby improving equity within the regime.

The assessment that the changes to the SFT regime required to deliver on the Budget 2013 commitment to cap taxpayer subsidies to higher value pensions would have a considerably lower yield than originally put forward, meant that the achievement of the overall budgetary objectives (including the continuation of the reduced VAT rate for the tourism sector) necessitated the imposition of the additional 0.15% pension fund levy for 2014 and 2015.

As regards the pension fund levy itself, it applies to the market value, on the valuation date (generally 30 June each year), of assets under management in pension funds and pension plans approved under Irish tax legislation. It is not a charge on all supplementary private sector pensions in payment. I am advised by the Revenue Commissioners that the person responsible for payment of the levy is the "chargeable person", as defined in the legislation, rather than the pension scheme itself. The chargeable person, as respects pension scheme assets held under contracts of assurance, is the insurer, and as respects other pension scheme assets is the administrator of the pension scheme. The administrator is defined in the relevant legislation as meaning the trustees or other persons having the management of the assets of the scheme.

In light of the fact that it is the chargeable person that is liable for payment of the pension fund levy in respect of the pension schemes for which they are responsible, I am further advised by the Commissioners that it is not possible to state the exact number of pension arrangements that have been subjected to the levy in each of the years 2011, 2012 and 2013.

The payment of the levy is treated as a necessary expense of a pension scheme and the trustees or insurer, as appropriate, are entitled, where they decide to do so, to adjust current or prospective benefits payable under a scheme to take account of the levy. It is up to the trustees to decide whether and how the levy should be passed on and who should be impacted and to what extent, given the particular circumstances of the pension schemes for which they are responsible.

Finally, the Deputy makes reference to a levy on public service pensions. I assume the Deputy is referring to the Public Service Pension Reduction (PSPR). The PSPR was introduced on 1 January 2011 under the Financial Emergency Measures in the Public Interest Act 2010. The PSPR is not a levy. It is a pension cut affecting certain public service pensions.

At the time of its introduction, the PSPR was designed to cut all public service pensions above €12,000 in payment or awarded up to the end of a "grace period", which ultimately expired at the end of February 2012. The PSPR did not originally apply to any pensions of post-grace period retirees, on the basis that their pension awards had otherwise been reduced by being based on actual reduced pay rates reflective of the 2010 pay cuts, not "pre-cut" pay rates as applied to retirees during the grace period. On introduction, the PSPR was estimated as reducing public service pensions by 4% on average, with more severe effects experienced at higher pension levels due to the progressive multi-band structure of the reduction.

A change to PSPR was made on 1 January 2012, when a 20% reduction rate (previously 12%) was imposed on pension amounts above €100,000. With effect from 1 July 2013, more changes were made to the PSPR to deliver on the Government's commitment to further reducing those public service pensions above €32,500 by between 2% and 5% in certain circumstances, including the pensions above that level of individuals who retired after end- February 2012.

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