First – pensions. Not the ones the government is still managing to pay to retired public servants or old age pensioners, but the kind that you save for yourself or your company manages to contribute to and turns into an income for you once you turn 65.
Those are the ones in trouble, especially since the government seems hell-bent not just on raiding to the tune of 0.6% of their fund value for the next four years, but over which they are now going to fine trustees and administers who don’t collect and hand over your money, a fine of .0219% of the fund value (8% per annum) plus €380 a day will apply if they decline to do so, or are even late with the payment.
The first levy instalment for over 800,000 pension holders will be due on 25 July 2011.
Now it isn’t just you who are going to be penalised by the pension levy to pay for the ‘Jobs Initiative’ but the scheme trustee, who may include your fellow worker who you elected or volunteered to help run the company pension plan to which they also belong.
This pension levy and the cutting of tax relief on pension contributions for anyone who pays higher rate tax (anyone now earning over €32,800) is going to discourage all but low earners - perhaps - to make pension fund contributions.
However, threatening scheme trustees with huge fines that are not covered by trustee indemnity insurance if they refuse to or cannot collect the levy, is a guaranteed way to stop anyone coming forward to be a trustee.
I expect the other consequence of the Finance Bill (no 2) 2011 will be the resignation, post-haste of hundreds of scheme trustees. (My husband was a former worker trustee at The Irish Times and if he was still working there I wouldn’t hesitate to tell him to resign immediately given the penalties outlined in the Bill.)
Two weeks ago this column listed the reasons why the pension levy is a bad idea and will be a bad law: aside from the disproportionate impact that skimming cash from a retirement fund does for its final income value, especially for people who are close to retirement, for the first time the State is going directly after your savings.
The levy is supposed to last just four years, after which the government will have walked off with what they project will be €2 billion worth of looted cash. But levies (on income or insurance premiums) don’t lapse in this country, they get turned into permanent ones or taxes. The most obvious next target for this cash strapped government, (unless it’s pensions again) will most probably be the cash you keep in bank and credit union deposit accounts and life assurance investment plans.
Eddie Hobbs, who is leading the denunciation of this raid on private property – that is, the actual assets, rather than a tax on income or on capital gains on assets including inheritances - is now stepping up the anti-levy campaign.
He is requesting, that should the bill pass the two chambers of the Oireachtas that President McAleese send the bill to the Supreme Court for a Constitutional ruling, based on the principle enshrined in it, of the sanctity of private property from confiscation – without compensation - by the State. (Anyone who has had property confiscated by CPO – compulsory purchase order – will understand this principle.)
You can sign a petition on his website blog at www.eddiehobbs.com or on the Right Hook Newstalk website, firstname.lastname@example.org
Meanwhile, an increasing number of large occupational pensions schemes are looking into legally shifting their funds to other European jurisdictions to avoid the levy; the majority of defined benefit schemes are already in deficit and cannot meet existing liabilities, let alone the accumulated loss of 2.4% of their current negative value. Financial advisors are recommending early retirement and fund transfers to exempt ARFs (Approved Retirement Funds) to clients with large funds who are in position to do so.
Speak to your trustee or fund administrator (usually a life company) or your broker if you believe you fall into these categories. If you don’t, then all the more reason to write an instruction to your trustee/administrator instructing them not to hand over your money without your permission (see Eddie’s website) and to sign the Presidential petition.
Finally, with the Greek debt crisis coming to a head in the next couple of weeks and the EU/ECB unlikely to act until the last minute before coughing up another €30-€60 billion (depending on who you read) to plug the latest gaping Greek cash hole, you might want to consider what contingent action you can take yourself just in case the proverbial hell breaks loose and somehow a Greek sovereign default and exit from the euro happens.
More on that next week.
I will be in Dooley’s Hotel, Waterford this Wednesday, 1 June from 6.30pm to 8pm for a free “Wealth & Health” personal finance seminar and will be suggesting various options you may want to consider to protect them both. I hope to see you there.
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