Burton fears pension levy may close company plans
Misgivings that scheme will hurt seven out of 10 defined benefit pensions already at risk
Published 21/06/2011 | 05:00
MINISTER with responsibility for pensions Joan Burton admitted yesterday her department had major reservations about the new levy on private pensions.
Social Protection Minister Burton acknowledged her department had written to Finance Minister Michael Noonan pointing out the levy could force some company pension schemes to close.
The levy on private schemes has been introduced to fund a jobs initiative, but it could "incentivise or force" some pension schemes to wind up in deficit.
Seven out of 10 defined benefit schemes are in deficit, and the levy would make the funding problems worse, the letter states.
The levy involves a 0.6pc charge on the value of pension funds at the end of June and has to be paid each September. Many schemes will be forced to reduce the pensions of retired members and the pension benefits of those who have yet to retire.
Asked about the letter yesterday, Minister Burton said the levy has implications for her department.
Launching the annual report of the Pensions Board, she said her reservations about it were lessened when it was pointed out the levy would only be in place for four years.
Chief executive of the Pensions Board Brendan Kennedy would not say if he had advised the Government against introducing the levy. "The question of the levy is a question for the Government," he said.
The board, which is the State's regulator for pensions and has a role promoting the provision of pensions, provided technical advice to the Department of Finance on the levy, Mr Kennedy said.
But he refused to say if the board had advised the Minister for Finance on the wisdom of introducing the levy.
However, Mr Kennedy admitted the levy would reduce the value of pension fund assets.
The Pensions Board boss strongly criticised trustees of pension schemes for taking on too much risk with scheme assets.
The average fund had around 60pc of its money in equities and property, exposing schemes to potential losses.
The board said it was more than three years since stock markets crashed, but it had seen no noticeable reduction by Irish pension schemes in their exposure to equities.
The board said that the greatest single risk to Irish pension schemes was investment risk and the failure to manage this risk was the main reason why so many people would have less at retirement then they expected.
The board estimated that 75pc of defined benefit schemes were in deficit with the funding deficit substantial in many cases.
Defined benefit schemes in the private sector traditionally promise half of salary on retirement for those with 40 years' service.
Losses in defined contribution schemes were similar.
The board has relaxed a deadline for schemes to achieve minimum funding standards.
There has been a sharp fall-off in the numbers saving for their retirement.
Last year, 43,400 fewer people were in a pension scheme than in 2009. This brought down to 810,000 the number of people with a pension. But some 330,000 of these people were in the public service.
Asked about plans to reduce the tax reliefs on pensions, Ms Burton said this was a budgetary decision.
But she favours a move similar to the one in the UK where there is a lifetime cap on the size of each pension pot of £1.8m.