Budget 2012 - Towers Watson Ireland Budget Briefing

Considered review welcomed

In a welcome move, the Minister for Finance avoided the big ticket pension items that had been expected to be on his budgetary radar this year. While pensions did not escape entirely unscathed, the anticipated reduction in the Standard Fund Threshold did not materialise, nor did the reductions in reliefs on employee contributions that had formed part of the EU/IMF agreement and the programme for Government.

The areas where changes have been introduced are:

• Employer PRSI relief on employee contributions made to pension plans has now been fully removed, having been halved last year
• The "deemed distribution" on Approved Retirement Funds (ARFs) in excess of €2 million has been increased slightly from 5% to 6% of value; The deemed distribution remains unchanged at 5% for smaller ARFs
• ARF capital taxes have changed so that the rate of tax payable on death, where the assets of an ARF holder are transferred to a child aged over 21, has been increased to 30%
• Vested PRSAs will now be subject to the "deemed distribution" regime that applies to ARFs. That is, tax will be charged on a deemed distribution of 5% or 6% of the vested assets, depending on size.

That pensions have largely escaped the Minister's attention this year was attributed to the significant contribution of €750m already made through the pension levy that was introduced in June and through changes in contribution patterns.

However, the Minister also signalled that, thanks at least in part to the commitment to the Troika on tax reliefs, there is still need for a review. This review will take place over the coming year and apart from considering reliefs, there was a signal that investment by pension funds in Ireland could be on the agenda for that review.

The biggest surprise was the absence of any mention of reductions to the Standard Fund Threshold. This had been widely expected, having been signalled by Government in recent months, and its absence may perhaps be due to pressure from within the public sector.

Initial reaction

The light touch given to pension change in this year's budget is very much to be welcomed.

Concerns that changes would be of a scale that would lead to reassessment by employers, and their employees, regarding their commitment to prudent long term retirement funding have there fore receded. Whether the outcome proves in the long term to be a welcome one depends on the forthcoming review being truly consultative, balanced and coherent.