Employer Action Code: Monitor
In May, Ireland's Minister for Finance confirmed the introduction of a tax levy of 0.6% on pension funds approved by the Irish authorities. The levy will apply to corporate and personal pension funds, as well as defined benefit and defined contribution plans. The levy is imposed for a four-year period with its permanence to be determined. It applies to private-sector pension funds. Public pensions will not be affected. Estimates are that the levy will generate about €450 million per year for the government. Pension fund trustees will be able to reduce pension payments to reflect the burden of the levy.
Separately, a newly released consultation paper discusses possible changes in the funding standard for defined benefit plans. The changes would likely result in more onerous funding requirements and higher administrative costs because different funding approaches are being contemplated for accrued benefits and those earned for future service.
Implications for Employers
While the levy might only be temporary, its introduction undermines the implied contract of trust between pension sponsors and the government. The more onerous funding standards may also accelerate an already advanced trend in Ireland away from defined benefit pension plans.
More pension tax treatment changes are expected in the coming months.