Of all the revenue-raising measures introduced over the past five years, the pension levy is arguably the most successful and the most unjust. Since 2011, the Government will have expropriated some €2 billion of people’s savings with barely a murmur of protest.
It is the fact that pensions are people’s retirement savings that is the basis for the claims that the levy is unjust. In practice, the levy is little different to the Government going in a helping itself to peoples deposit accounts. However, the fact that the money is taken at the level of collective private sector pension funds rather than individual accounts disguises this.
And when you combine it with the fact that most people are unaware – or disinterested – in how their pensions work, the Government has got away with the fiscal equivalent of the perfect crime, according to its critics..
The justification – in so far as anyone bothers to try and find one – is that pension contributions and pension fund gains attract generous tax relief. The Government could have chosen to reduce these reliefs directly. Instead it make contributions subject to the USC and PRSI whilst in effect clawing back some of the tax free gains through the levy.
Whilst this argument is not without merit, the Government cannot avoid the fact that it has helped itself to people’s hard earned savings.
For this reason, the revelation today that strong market returns over the past 12 months mean that the proceeds of the levy will exceed expectations should not be a cause for celebration. If anything, it should spur the minister to reduce the levy in the coming years or phase it out.