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James Fitzsimons: This Budget is punishing the elderly for living too long


James Fitzsimons

James Fitzsimons

James Fitzsimons

ALL eyes to the future, but if you're elderly and can't see too far ahead then Michael Noonan's Budget just hammered another nail into your coffin – maybe the last one.

The majority of people in this country don't have adequate pensions to be financially independent in retirement. Successive governments didn't have the foresight to put something aside for the future, not, that is, until Fianna Fail and Charlie McCreevy came along.

He had the foresight to see that we needed something to tackle retirement poverty and he set up the National Pension Reserve Fund. It started with a contribution from the privatisation of Telecom Eireann in 2000 and McCreevy legislated for an annual contribution of 1 per cent of GDP.

By 2006 it had already built up €17.61bn and by 2025 it was due to reach €140bn. But look at it now – plundered to subsidise rotten banks and we are back to what the Telecom flotation paid and that will be whittled away soon.

Medical cards will be taken from the elderly and given to the under-fives instead. The children have parents, some of whom are struggling to pay the bills, but time is on their side.

What have the elderly got? Their working days are over. If they saved when they had it, well done to them, we need more of the same, but let them keep their medical cards, their phones and their home help

This was a desperate Budget by a desperate Finance Minister. He hasn't even left enough to bury yourself.

In 2011, they told us the 0.6 per cent levy on the private sector pensions would be temporary, but even that is to continue. It will be replaced by a 0.15 per cent levy, with which they hope to grab €100m or €200m a year.

At least they didn't cut tax relief on pensions for those who pay tax at the highest rate. Tax relief for pension contributions is already capped and they are subject to PRSI and the USC. That is at least 11 per cent that the Government keeps. But what is happening to public sector pensions?

They are still not funded on commercial terms that would provide a fund to pay the outrageous pensions that top civil servants get. If teachers' and doctors' pensions were funded on a realistic basis, there is no reason why a fund couldn't be accumulated over a long career to pay their pensions. If they are underfunded today, they need to contribute whatever it will take to pay for what they expect. The sooner they start, the better.

As for the career civil servant who works up through the ranks and retires at 58, or younger, on an outrageous unfunded pension, it's time to call a halt. Pay them what they have earned. Pay what it takes to cover their pensions, but do it now so that we can see what it costs and if we don't have the money, then we have a problem.

Brendan Howlin was given the ball. Not only has he dropped it, he lost the plot completely when it comes to reform of the public sector.

Those in the private sector who made provision for their pensions watched them being hit and even wiped out. Not only are they dealing with their own problems, but they are expected to fix unfunded public sector pensions first.

There is no arguing that tax relief for pension funding was abused by a handful of people (maybe 200) in the private sector, because they could. They did nothing wrong, but the cushioned elite, whose job it was to prevent abuse, did nothing to stop it and it went on for years. Maybe it's time to accept the fact that we don't have enough to pay pensions that were expected in the private sector or the public sector and force the introduction of mandatory funding for all before it is too late.

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Restrictions were put on private sector funds in 2005, when they were capped at €5m (the typical size of a fund for a retired Taoiseach, or top civil servant). In 2011 it was cut to €2.3m. Funds above this size are subject to penal rates of tax. It is easy to see how this would apply to funded schemes that have a pot to tax, but not so easy for public sector schemes that are paid out of current tax revenue. But even they must be valued. Now the cap is changing to €2m.

Defined benefit schemes, such as civil service pensions, will be valued using more realistic multiples. For a typical 60-year-old, a multiple of 30 will be used and for those aged 50 and under a factor of 37 will be used.

But the new rules will only apply to pension rights accumulating from 2014. The pension will continue as planned, but the entitlements earned up to now will be valued using the lower rate of 20. This will keep top civil servants out of the tax net.

They claim their Budget will lead us out of the recession, but it won't. They use them to collect what they need to pay their own outrageous salaries and pensions, and what they can't collect in tax, they borrow and leave it to the rest to pay back.

They didn't cut pensions this time, but they've taken away the fringe benefits that so many people relied on to make things bearable. They already reduced the threshold that brings over-65s into the tax net.

They've taken away so many medical cards and now they've cut what little tax relief there is for medical insurance that the elderly rely on.

They are taxing our parents for living this long.

James Fitzsimons is an independent financial adviser specialising in tax and financial planning

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