Pensioners face €500-a-year cut from their retirement pot
THE Government has been heavily criticised for plans to use a levy on private pension schemes to fund its much heralded jobs initiative.
The leading private sector pension body, the Irish Association of Pensions Funds (IAPF), has attacked the plan as an attempt to confiscate private retirement savings.
What is this about a levy on private pension schemes?
The Government is planning to impose a levy of between 0.5pc and 0.6pc on the value of assets in all private pensions.
The levy will be imposed annually and is expected to be in place for four years. It is expected to raise around €450m a year.
It will mean that someone who has accumulated a pensions pot of €100,000 will be forced to pay over €1,000 every year. There are some 750,000 private sector workers who have pensions. This means the average cost of the levy works out at €500 a year per pension fund member.
The law will have to be changed so that the levy can be imposed on those who are receiving their pensions.
This is likely to mean pensioners will see their income cut by an average of €500 a year, the IAPF said.
Is it fair?
No, because it will penalise those who have been sensible enough to take out a pension.
The Government has spent decades trying to encourage people to take out pensions. Almost 900,000 private sector workers have no pension.
Who will the levy apply to?
The levy will not apply to public sector workers.
But it will apply to those in the private sector who have their own private pension or a pension through their job. It is also likely to apply to those who have pensions in semi-state companies.
It will apply to approved retirement funds, and to those making additional voluntary contributions.
But don't public servants already have a pension levy imposed on them?
The Department of Finance argued yesterday that public sector workers have already taken a pay cut of an average of 14pc. This is made up of a pay cut of 6pc and a public sector pension levy of 7.5pc.
However, the public sector pensions levy is tax deductible. This means that in net terms it amounts to around 3pc to 3.5pc for higher rate taxpayers.
The department did not respond when it was put to them that public sector pensions are calculated before the pensions levy is imposed.