The Irish Independent has obtained a recent letter spelling out his position, which leaves hundreds of thousands of retirement savers at a continued disadvantage – and at a time when the Russian war on Ukraine has crushed returns.
Mr McGrath, through his private secretary, told a complainant who sought Budget steps to restore the shortfall, imposed by Fine Gael predecessor Michael Noonan: “As you are aware, the pension levy on private pension funds was introduced in the wake of the financial crash and at a time when the economy was in serious difficulties.
“The intent of the levy was to raise revenue in respect of the tax reliefs that those contributing to pension arrangements had benefited from over many years.”
This is the first time it has been officially suggested that the Government was simply clawing back money it had already given to pension savers in tax incentives.
Under the legislation, the payment of the levy was treated as a “necessary expense” of a pension scheme and it was a matter for the trustees or insurers to decide when and how the levy should be passed on to scheme members and to what extent, given the particular circumstances of the pension schemes for which they were responsible.
In practical experience, the entire levy was skimmed off the top of personal saving funds, drawing in billions for the Exchequer. The levy was discontinued in 2016. Remarkably, the measure was never challenged in the courts by any individual, despite fears that it might actually prove unconstitutional.
The pension industry chose not to mount any resistance as a body.
Mr McGrath’s private secretary now writes explicitly in the September 2023 letter: “The Minister for Finance has no plans to repay the levies raised on private pension funds.
“It was never the intention that any levy payments would be repaid when the economy recovered, as is the case with any other tax or duty that was paid in the wake of the financial crash.”
However it was pointed out to the minister that many other emergency measures have since been fully restored – including the pay of public servants.
A number of top mandarins are now on €250,000 a year, with secretary general Robert Watt of the Department Health – where the HSE has a near €2bn budget overrun – paid €294,920.
The value of the funds raised by way of the levies have been “used to protect and create jobs”, said Mr McGrath’s office on his behalf. “This has helped to support the improved financial and economic position of the State.”
In a final paragraph, showing no acknowledgment of the Government breaking faith with its private individual partners in prudent provision for retirement, the letter adds: “Taxpayers who may have ultimately borne the impact of the levy will have since benefited from tax reductions and other measures in the last number of budgets.”
Private pension provision in the Irish workforce has been dropping sharply since the snatch from pension pots – and only one worker in three is now making adequate provision for the years after their retirement.
The long-term implications for the State have caused much angst in Government in recent years, with a planned move to the auto-enrolment of new workers, although this has been bogged down in bureaucratic delays, accompanied by references to problems caused by the pandemic.
Mr McGrath will, meanwhile, on Budget Day announce a new state rainy-day fund for pension and demographic commitments, alongside a strategic investment fund to ensure major infrastructural projects are completed, even in future years of downturn.
