Parliamentary Question to the Minister for Finance

5th November 2013 - Olivia Mitchell TD

To ask the Minister for Finance the way it is anticipated that the levy on individual private pension funds will convince the pensions industry to deliver on agreements made with him by the industry in view of the fact that the contributors have neither control over nor leverage with fund managers; and if he will make a statement on the matter?

Reply:

In Budget 2013, I made a number of commitments in relation to the tax provisions affecting supplementary pension provision. I said that tax relief on pension contributions would continue at the marginal rate of tax. In addition, I gave an undertaking that the 0.6% pension fund levy would not be renewed after 2014.

I considered that I was in a position to make these significant commitments on foot, among other things, of proposals in late 2012 from the pensions sector for changes to the Standard Fund Threshold (SFT) regime, as an alternative to standard rating of pension tax relief, which it was claimed would yield savings and tax revenues in the region of €400 million. Pending further analysis of this claim, I included a much lower figure of €250 million in the Budget 2013 arithmetic. That analysis has since revealed significant downside risks to the achievement of even this lower level of yield or savings. The estimate of the yield from the changes to the SFT regime which I announced in last week’s Budget is €120 million. These changes differ in some respects from those proposed by the pensions sector and reflect, on legal advice, the requirement to protect pension rights at the date of change. In addition, valuation factors to place a value on Defined Benefit pensions for SFT purposes will vary with the age at which the pensions are drawn down thereby improving equity within the regime

I would not categorise my engagement with the pensions sector on this matter as an “agreement” or “bargain”, in the manner suggested by the Deputies. However, the assessment that the changes to the SFT regime required to deliver on the Budget 2013 commitment to cap taxpayer subsidies to higher value pensions would have a considerably lower yield than originally put forward, meant that the achievement of the overall budgetary objectives (including the continuation of the reduced VAT rate for the tourism sector) necessitated the imposition of the additional 0.15% pension fund levy for 2014 and 2015.

Parliamentary Question to the Minister for Finance

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