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The Government’s proposal to fund its jobs initiative by imposing a levy on private pension savings is short-sighted, arbitrary and unfair according to pension and investment experts Mercer.
Recent media reports indicate that the Government are preparing to impose a pension levy on private sector pension savings to fund a jobs initiative. As recently as last month, a document submitted to the European Commission by the Department of Finance acknowledged the sustainability of Ireland’s public finances to be ‘high risk’ due to the large age-related spending pressures that lie ahead, as well as the current budgetary position.
According to Aisling Kennedy, Senior Consultant with Mercer: “Both jobs and pension savings should be prioritised, rather than one at the expense of the other. Given the budgetary pressures that Ireland faces in the future as a result of an ageing population, the Government should be encouraging more pension saving, instead of a ‘smash-and-grab’ on the savings that individuals and their employers have already set aside for the future.”
Pension schemes are already in difficulties due to the impact of the financial crisis on fund values. The liabilities of defined benefit plans are also increasing because people are living longer. The proposed levy will further jeopardise existing pension schemes. “It will most certainly discourage new pension savings: why save money for your retirement, if the Government can dip into your savings whenever it sees fit?” said Ms Kennedy.
Pension and investment experts Mercer believe that a pension levy is a completely arbitrary and unfair way for the Government to raise revenues. It penalises those who have been most prudent in planning for retirement– employees and employers alike, companies who have made no pension provision for their employees will make no contribution to the jobs initiative. Some members of pension schemes may have their benefits reduced, but others won’t (if, for example, their benefits have been secured by purchasing annuities). Members of defined contribution schemes who are close to retirement will pay more than younger members who are only starting to save and won’t have time to build their savings back up to their former level. “It’s Mercer considered opinion that the proposed levy is inequitable in a host of different ways”, said Ms Kennedy.
Finally, the IMF deal envisaged raising tax revenues by reducing tax relief on pension savings. Mercer does not believe that pension schemes could possibly bear the dual burden of reduced tax relief and the proposed pension levy. We share and support the view expressed by the Irish Association of Pension Funds that this scenario could spell the death knell for pension savings in the longer term.
Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercer’s investment services include investment consulting and investment management. Mercer’s 20,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges. For more information, visit www.mercer.com