Kenny defends pension tax loophole for wealthy
The Government was fighting a desperate rearguard action last night to defend the exclusion of high-earners from the controversial new pension tax.
In a further damaging development, it was claimed disgraced former bank chief Michael Fingleton will be among the high-earners to escape from the pension levy.
Mr Fingleton left the wholly nationalized Irish Nationwide Building Society with a €27m pension pot.
And financial advisers said ministers are clocking up the equivalent of €10,000 a week in pension benefits at a time when they are imposing a levy on the pensions of ordinary workers.
The revelation that high-earners who have put their pensions savings into a special fund will escape the controversial new levy prompted outrage from the Opposition parties, consumer bodies and unions.
Taoiseach Enda Kenny confirmed the holders of Approved Retirement Funds (ARFs) will not be subject to the pension levy announced this week.
But the Finance Department stressed that tax is already applied to ARFs and this was hiked in the last Budget.
Fianna Fail public expenditure spokesman Michael McGrath said the exemption meant the levy was a wealth tax -- but not for the wealthy.
"I'm sure Michael Fingleton with his €27m pension fund would have put it through an ARF," he said.
Individuals leaving company pension schemes in recent years were faced with three options -- buying an "annuity" insurance product that would guarantee them an income for life, taking out an Approved Retirement Fund (ARF) or setting up a PRSA.
Department sources said they were "mystified" by the lack of information regarding pension rules as ARFs are fully taxed.
An ARF is a fund to which certain people can transfer pension assets on retirement rather than buying an annuity that pays a set annual pension.
They were initially only taken up by wealthy and financially sophisticated pensioners but are now more widely available.
Most holders of ARFs are high-earners or self-employed people who have retired in recent years.
Mr Kenny said ARFs were not considered pension funds, and such funds were not free of tax.
"Approved retirement funds are not covered by the levy as they are not pension funds. They are closest in nature (and are an alternative) to an annuity," he added.
Where the pensioner with the ARFs has to take out 5pc of the value of the assets every year, they end up paying income tax and the universal social charge (USC) on this sum.
But otherwise the funds do not get taxed.
This means someone with a €100,000 in an ARF has to draw out €5,000 a year and pay €2,650 a year in tax on it.
The Finance Department added: "Budget 2011 increased the annual notional distribution from 3pc to 5pc. This is a permanent not a temporary change, whereas the levy is temporary."
Siptu general president Jack O'Connor said if ARFs escape the levy, it could "utterly destroy the prospect of the Government securing the kind of societal co-operation that is needed in order to weather the economic crisis".
He said: "The Government must find a way of ensuring wealthy people are seen to play their part in the national effort to restore economic stability."
Consumers Association chairman Michael Kilcoyne accused the Government of hitting ordinary workers hard, while letting the wealthy off the hook.
Tax experts said that it would be difficult to impose the levy on ARFs as tax is already imposed on the amount drawn down.