Public sector exemption on pensions levy 'unfair'
'Dark hand of social partnership' behind Noonan's 'desperate' move
Published 08/05/2011 | 05:00
The "dark hand of social partnership" was behind Finance Minister Michael Noonan's decision to exempt public sector workers from a new penal pension levy, senior government sources have revealed.
It has emerged that the new Government is striving to maintain industrial peace "at all costs", and State employees were let off the hook, despite enjoying far more generous pension terms then their private sector counterparts.
"The unions have been successful in arguing that public sector workers have taken a big enough hit, and the Government is freaked about the threat of strikes or escalating unrest. This was seen as the pay-off," one senior government source said.
The full details of the controversial levy on the private sector pensions, which is expected to raise €450m a year, will be announced in the Jobs Initiative on Tuesday.
"The dark hand of social partnership is at play here, no doubt about it," said another government source.
Irish Congress of Trade Union boss Jack O'Connor said yesterday he was unaware, but could not say for definite if any lobbying had taken place.
Some 65,000 people receiving private pensions will end up having their annual payment cut by an average of €500 because of a new levy, the Irish Association of Pension Funds (IAPF) has said.
A further 700,000 workers and the unemployed who have private sector pensions but have yet to retire will also end up having their pension funds hit for €500 a year, according to Jerry Moriarty, the IAPF's director of policy.
Deep fury has erupted among private sector workers who feel they are being targeted again, while those working for the State are being protected. The planned announcement has drawn stinging criticism from the pensions industry, which says that at a time when the Government should be promoting private pensions, it is doing the exact opposite.
Gary Owens, CEO of IFG Ireland, said: "The pensions crisis is likely to be bigger than Nama, and not only is this move massively unfair on the private sector, it only widens the gap between public and private sector workers.
He added that what he called a raid on private pension savings by the State would mean that people would now be less inclined to take out a pension.
The Department of Finance claimed yesterday that public sector staff had already taken a pay cut of an average 14pc, while public sector pension payments had gone down by an average of 4 per cent.
However, the pensions levy imposed on public servants, which amounts to around 7 per cent, is tax-deductable. This means that in net terms it amounts to around 3 per cent to 3.5 per cent for higher-rate taxpayers.
According to Mr Noonan's department, the proposal for a levy on private sector pensions was put forward in advance of the general election.
"The Jobs Initiative is targeted to assist those most in need in our country -- the unemployed. The levy on pension funds will allow recipients of past tax relief to make a contribution to assist those who are looking for jobs," it said.
The levy will apply to defined-benefit pensions, defined-contribution pensions, personal pensions, the pensions of the self-employed and PRSAs (personal retirement savings accounts).
However, it will not apply to those who have public sector pensions.
Mr Moriarty accused the Cabinet of introducing another "stealth tax" which ministers won't have to pay themselves.
"The current Cabinet have insulated themselves from this new stealth tax, but over 750,000 private sector workers are expected to pay this money out of their pension savings," he said.
Mr Moriarty added that despite imposing the levy, the Government was still expected to go ahead with reducing the tax reliefs for those who put money into a pension, from 41p to 20 per cent for everyone. This will mean that it will cost a higher-rate taxpayer an additional €20 for every €100 they put into a pension, compared with the current situation.
Yesterday, speaking on behalf of their private sector workers, Ictu official Fergus Whelan said the levy is "short sighted" and "makes no sense". He added the levy will heap further pressure on already troubled pension schemes.
James Fitzsimons, Page 24