Pensions levy hitting those over 50 hardest
Published 21/08/2014 | 02:30
An analysis of the Government's levy on private sector pensions shows it is mainly hitting older workers.
The Irish Brokers Association (IBA) has carried out a study on the impact of the levy, which suggests that it is hurting those in their 50s and 60s most.
It also shows that more than half of all levy funds collected are being paid by those over the age of 60.
Chief executive of the IBA Ciaran Phelan said: "We believe that the pension levy could cost the Government the private sector 'grey-vote' in the next election."
The study found that because those over the age of 60 tend to have higher pension assets they are being hit hardest by the levy.
Once this is realised by those who are later in their careers they will exact their revenge at the ballot box, Mr Phelan said.
The controversial levy was introduced by the current Government in 2011. It was originally to be imposed at a rate of 0.6pc on the value of private sector pension funds, and was to be in place for four years to generate €470m a year, with a promise the funds would be used to create up to 100,000 jobs.
It was originally due to end this year, but in the last Budget it was increased for 2014 and will continue to be imposed at a lower level throughout 2015.
Some €700m in levy payments are due next month.
Mr Phelan said the Government has been talking about reversing public sector pay cuts, but there has been no mention of the impact of the levy on private sector workers and pensioners.
"Our figures reveal retirees and those close to retirement in the private sector have had their pensions eroded because of the pension levy and will continue to do so until he Government rows back on what can only be described as a completely inequitable financial measure," he said.
Mr Phelan said the levy only served to exacerbate the pension crisis and adversely affect the level of retirement saving in the private sector.
The analysis shows that those in their 60s hold around 36pc of private sector pension assets, which means they end up paying more than a third of the levy.
People in their 70s have 12pc of pension fund assets, with around 3pc held by those in their 80s.
"Once those aged over 60 realise that more than half of the pension levy is coming from their pension savings, many of them are likely to query their support for the Government in the next election.
"We believe that this is likely to be a major issue on the doorsteps unless the levy ceases as promised," Mr Phelan said.
"This partisan levy has reduced private pension funds of those over 60 by circa €1bn and this has only served to exacerbate the pension crisis and adversely affects the level of retirement saving in the private sector," he added.
"Our members advised their clients to save for their retirement on the basis of tax savings on contributions to make such saving affordable and adequate, to have tax free growth on funds, and a pension that is fully taxed in retirement."
The levy hits those already retired from a private sector scheme, and those who are paying into a pension plan.
Calculations by Samantha McConnell of IFG Pensions show that someone on the average industrial wage who starts savings at 35 will end up with a pension pot of €200,000.
But the impact of the levy on all private sector schemes will mean that this person will have their pension reduced by €1,000 every year once they retire, she calculated.