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No new cash from pension levy this year

Wednesday, July 04 11:42:20

The State's yield from the pension levy will likely be less than the E463m brought in last year, according to IFG Corporate Pensions today.

The pension advisors say that, from their estimated calculation, the amount this year should total in and around E433million, but that even 12 months on from its introduction there is still great uncertainty surrounding the practical application of the levy on pension funds.

"As per Finance (No. 2) Act, 2011 a Stamp Duty of 0.6pc will be imposed on pension scheme assets for 4 years from 2011 to 2014 and the calculation date of payment is June 30th. In practice, insurers have encashed units at June 30th and will pay the levy in early July. However, while this is the second year of the levy, there is still a great deal of uncertainty throughout the industry as to how trustees are going to deal with the impact of the levy. In an Irish Association of Pension Funds Survey on Defined Benefit (DB) pension funds earlier this year it was found that 35pc of respondents had not yet agreed how the levy would be dealt with. Another 35pc said that they had/would reduce benefits and a further 20pc said it would be built into the funding proposal. Just 10pc said that employers would pay the cost of the levy," said Fionan O Sullivan, Director, IFG Corporate Pensions.

He calculates that Irish Pension assets at 31 December 2011 were E72.8 billion, citing the IAPF 2011 Pension Investment Survey, and that 2012 year to date growth for average Irish Managed Fund is about 0pc.

Therefore, he says, E72.8 billion growth to 30 June 2012 was zero while no information could be obtained on total contributions into Irish pension funds in a given year (2011 or 2012). "However, within IFG the Corporate Pension clients contribute about 10pc p/a of the total AUM."

"If it is assumed that Irish DC and DB pensions contributed 5pc of Irish pension funds AUM in the first 6 months of 2012, then IFG estimate E3.6 billion (10pc of E72.3 billion divide by 2 = E3.6 billion) was contributed into Irish pension funds in the first 6-months of 2012. As a result IFG estimates the current value at 30 June 2012 of all Irish Pension funds is E75.9 billion. Based on IFG Corporate Pension's calculation with the above estimated numbers therefore the 0.6pc levy will equate to E433 million (2012 figure was E470 million), however, on the whole IFG Corporate Pensions do not believe the levy take for 2012 won't change too much compared to last year's," he added.

"Trustees in virtually all DB plans will be obliged to reduce all pension benefits where the employer is not meeting the pensions levy. For active members and ex-employees who still have entitlements in a scheme (deferred members) their future benefits have been/will be reduced. Pensions in payment for current pensioners will also be reduced."