The Sunday Times - Money Comment 31/05/09

Posted by Jill Kerby on May 31 2009 @ 21:39


Now that the effect of the health and income levies on our paycheques has finally sunk in, anyone who owns a pension or life insurance or assurance policy – the kind you contribute to for your children’s long term education costs – might like to know that they’re about to mugged on this front too. 


Tucked into the Minister’s budget speech last April was an additional levy – just 1% - on all life insurance and pension contract premium contributions.  (He also increased the existing general insurance levy from 2% to 3%.)


The implementation of the new life levy has been delayed until August 1st, but if it isn’t withdrawn or amended, I think it’s fair to say that the insurance and pension companies won’t absorb it themselves; they’ll pass it on to you and me. 


In other words, for every, €100 a month that you pay into a life assurance savings plan, or for every €500 a month you might be putting into a private pension, PRSA or AVC, the government will now expect to receive €12 and €60 respectively from your contribution. Every year. And that’s before all the other policy fees and charges. 


But this new levy is not a once-off event. It applies to all premiums and a very unlucky pension holder, could end up not just paying the levy on substantial premiums over the course of a year, but in they event they needed to transfer their pension to a new employer, to a buy-out bond or PRSA or use it to buy a retirement annuity or ARF (an approved retirement fund), the entire single premium value of the fund would be subject to the levy:  a €250,000 fund would now be €2,500 lighter; a million euro pension fund would be relieved of €10,000. 


The Irish Insurance Federation has pointed out how unfair this is, as is the fact that it does not apply – for some unknown reason - to self administered pensions used by high net worth investors or larger occupational schemes.  It also violates the fixed limits on charges that apply to PRSAs.


If the government insists on the levy, the least it should do, says the insurers, is to impose the 1% on all investment funds under management instead of individual premium payments. One pension company executive told me the levy on individual customer’s premiums will cost the firm €1.5 million to adapt their existing software package – a cost they will be forced to pass on. 


“The Pensions Board, which is already funded to the tune of 0.5% of pension premiums from all providers,” he said, “could simply add 1% to their bill which the Board would then pass onto the Exchequer. The life companies could simply send 1% of all life insurance premiums they take in and investment funds under management.” 


Bad tax policies that are formulated under pressure, and on the back of an envelope, are a speciality of this government.  


But this levy is just another nail in the coffin of private pensions, already hammered by high costs and charges, poor asset selection, the clawing back of tax incentives and our propensity to live longer. 




The Financial Services Consultative Consumer Panel, in its report ‘Perspective of the Consumer Panel on the Current Financial Regulatory Framework 2009’  has now added its two cent worth of criticism to all the other well-deserved abuse that’s been heaped upon of the Financial Regulator over the past year. 


It blames the Regulator’s “failure to act” for the worst of the financial downturn here, and especially its failure to control the property market bubble, the high-risk lending game that the banks were playing and the poor general standard of governance in the banking sector. 


The Consumer Panel has no authority or power so its conclusions and recommendations which in places read like an indignant charge sheet laid against an unpopular school principal by a student council, has probably already been filed away on some high shelf on Dame Street.  


However, in spite of the wooly thinking, if we are ever to seen an improvement in the dysfunctional Regulator and Central Bank, some of the Panel’s more fundamental suggestions should be adopted. 


For example, they think if would be a good idea to widen the talent pool and no longer require that all senior staff in the Financial Regulator be recruited exclusively within the public service.  This might help to “limit political meddling” and help recruit staff who have a “proven track record of independent judgement”.  Under the existing system, the Panel points out helpfully, “The Minister for Finance may have previously been their boss and this could give rise to a conflict of interest.”



The Panel also wants a more transparent and independent selection process for appointments to the Regulator’s own board – i.e.  no more overlapping of board members between the Regulator and the Central Bank. They also think it would be a good idea introduce “independent inspection” of the Regulator in the event of a charge of “wrong doing”. Amending the legislation that “prohibits the disclosure of confidential information concerning ‘any matter arising in connection with the performance of the functions of the [Central] Bank or the exercise of its powers’” would also be a good idea in its view. 


That these things don’t happen already will be an eye-opener for anyone who may have naively assumed that such good governance would be automatic. If you fancy yet reading yet another denunciation of poor practices in a state agency the report is on-line at www.financialregulator.ie 


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