In serious need of revenue,
Ireland’s government is turning its attention to one of the
remaining reliable sources of tax to dig the country out of its
economic plight: pension funds.
The brainchild of Enda Kenny,
Ireland’s Prime Minister since March this year, the proposal is to
tax private sector defined benefits and defined contribution
pension funds at 0.6% of their assets.
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Public pension funds are
excluded in the proposed tax which will initially be in place for a
minimum of four years, during which it is anticipated to reap total
revenue of some €1.8bn ($2.5bn).
According to consultancy
Towers Watson, the taxation of pension fund assets will form part
of an initiative to raise funds to stimulate job creation. The
proposed change to tax legislation will also introduce a power to
enable the reduction of pensions in payment to reflect the
tax.
The consultancy added that it
appears the proposed tax levy will run alongside, rather than
replace, other measures signalled in last year’s National
Recovery Plan, with the aim of delivering a €700m annual
contribution towards recovery from the private pensions
sector.
Strongly condemning the
government’s proposal, private sector pension fund body the Irish
Association of Pension Funds (IAPF) has termed the proposed tax
levy a “stealth tax” and “an attack on the savings of ordinary
pensioners and workers”.
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By GlobalData“The government is preparing
legislation which will allow for the reduction of pensions in
payment to over 65,000 pensioners to allow for the levy to be
paid,” the IAPF said in a statement. “While the current cabinet has
insulated itself and public sector workers – who already have the
best pension benefits – from this new stealth tax, over 750,000
private sector workers are also expected to pay this money out of
their pension savings.”
Quoted in the statement, IAPF
director of policy Jerry Moriarty stressed: “Pension schemes are
already in crisis, and many defined benefit pension schemes are in
a precarious position.”
He added that many pension fund members have already taken
a significant cut in their benefits as schemes struggle to regain
solvency.
