Friday 26 December 2014

Levy to cost working couple €2,500 in pension savings

Charlie Weston, Personal Finance Editor

Published 27/03/2014 | 02:30

Young couple calculating budget
Levy to cost working couple €2,500 in pension savings

A WORKING couple will have €2,500 taken from their retirement savings this year by the pensions levy, IBEC has calculated.

The employers' body is to launch a campaign today to have the levy scrapped, the Irish Independent has learned.

It says the levy eats into the retirement savings of private sector workers.

The levy was introduced as a temporary measure to boost job creation, but it was extended in the last Budget and is now expected to be in place indefinitely.

IBEC has calculated that a person in their 20s earning €25,000 will end up losing €10,000 from their pension pot over their working life.

And a couple – where the wife is earning €80,000 and the husband is getting €45,000 – will be hit hard by the levy this year alone.

The 0.75pc hit on the value of their funds will mean a combined €2,528 will be paid out of their pension funds this year.

The couple are in their mid- 40s and each has a defined contribution scheme. She contributes 5pc of her earnings to the fund, and he pays 7pc a year.

Senior pensions adviser with IBEC Loughlin Deegan said the levy was a "uniquely unfair and unacceptable tax".

"It eats into the retirement savings of workers. It should be abolished in Budget 2015."

He said a pension fund is just a particular type of savings account which is designed to help people save for their retirement.

The pension levy operates by taking money directly out of these retirement savings accounts.

"The fact that the Government is taking tax from money already saved – rather than from income or interest – is a radical and unwelcome departure in Irish tax policy. The pension levy might not feel as bad as other taxes because you don't have to write the cheque yourself – but it is still your money that is being taken," Mr Deegan said.

He said the Government has reversed its commitment that the pension levy would end in 2014. Now, it is not known when it will end.

"If the Government has its way, the levy may continue indefinitely," the IBEC pensions expert said.

ASSETS

He said the incentive for saving for retirement is greatly reduced as a result of the Government taking people's retirement savings.

The four-year pension levy was supposed to finish at the end of this year but is now set to continue at different rates.

It is on target to raise €2bn from private retirement funds, with the money raised being used to create jobs.

The levy has ended up reducing the size of pension funds of those who are yet to retire and has lowered the payments to those who are already retired.

It has been applied at a rate of 0.6pc in June of every year on the value of pension assets.

But in October's Budget the minister decided to increase the levy to 0.75pc of the assets of pension funds for 2014 and then to impose it at 0.15pc up to 2015.

The pensions levy is expected to generate more revenue for the Exchequer this year than the property tax.

The property tax is expected to yield €550m, compared with €675m from the levy, the Government has indicated.

Irish Independent

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