Documents released to Fianna Fáil under Freedom of Information show that serious concerns were raised by the Pensions Board with the Government about the impact of the pension levy on schemes before the coalition made the decision to proceed with the levy.
A confidential briefing note prepared by The Pensions Board for Minister Joan Burton stated:
‘Approximately 75% of defined benefit pension schemes are currently in deficit. Paying a 0.5% levy will add to the scheme’s deficit position. A reduction in the assets of the scheme is likely to impact on the ability of a scheme to pay benefits to its members…….it is possible that the introduction of a levy will force some schemes in deficit to wind up.’
The documents released under FOI show that the CEO of the Pensions Board Brendan Kennedy endorsed the briefing document prepared for Minister Burton. This briefing note formed the basis of a letter Minister Burton sent to Minister Michael Noonan expressing her concerns about the planned pension levy.
The Chairperson of the Pensions Board Jane Williams wrote separately to Minister Burton on 20 April 2011 and noted:
‘..the application of a levy on pensions is more complex than might be thought, and raises a number of issues, especially those of equity among the different types of pensions, the effect of a levy on scheme solvency, equity among pension contributors………’
‘……it should also be borne in mind that private sector DB schemes are already under significant funding pressures at present with members facing the likelihood of increased contributions or benefit reductions……’
Significantly, the letter from the Pensions Board clearly sets out the view of the board that Approved Retirement Funds (ARFs), traditionally used by wealthy individuals, should be included in any levy. This advice was ultimately ignored by the Government. The letter states:
‘Again, if it is decided to include the assets of occupational schemes corresponding to the obligations to retired members, consistent treatment of ARFs should be considered……….It is important that any changes to the tax treatment of pensions are consistent between different forms of pensions and do not create any anomalies….’
Commenting on the information released to Fianna Fáil under FOI, Finance Spokesman Michael McGrath said: ‘It is clear from these documents that the Government was aware of the very real concerns The Pensions Board had about the impact of a levy on private pension funds and that the levy could result in schemes being wound up. These concerns were completely ignored by the Government.
‘In fact, the Government deliberately chose not to reveal these contacts with The Pensions Board to the Dáil. In a parliamentary reply to me, Minister Noonan said “There was no formal consultation by me or my Department with the Pensions Board in advance of the Government’s decision to introduce the pension levy to fund the Jobs Initiative.”
‘What Minister Noonan or the Taoiseach didn’t tell us was that The Pensions Board had advised Minister Joan Burton on the proposed levy and she in turn raised these concerns with the Government.
‘One of the most significant decisions in applying the pension levy was the Government’s decision to exempt the funds of some of the wealthiest individuals in the country who use ARF’s. It has been said that Michael Fingleton and Sean Fitzpatrick are two such people who have availed of ARFs to channel their pension funds.
‘In summary, the Government pushed through the pension levy despite being warned about its impact by The Pensions Board; denied to the Dáil that there was any consultation with the Board in advance of the decision and exempted some of the wealthiest people in society from the levy contrary to the advice of the Board.’
The documents released to Fianna Fáil are available here: Pension Levy FOI.