Minister for Finance Michael Noonan TD - Second Stage Private Member Business - Pension Fund (Prohibition of Levies) Bill 2016


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Private Member Business, Thursday 25th May 2017

Pension Fund (Prohibition of Levies) Bill 2016:

Second Stage

Minister for Finance Michael Noonan TD

Thank you a Ceann Comhairle.

I am pleased to speak on this Bill presented by Deputy O’Dea which seeks to prohibit any future legislation that would impose a levy, or similar charge, on pension funds. Specifically the Bill proposes that

“No legislation, Statutory Instrument, or Ministerial Directive shall be proposed or accepted which would allow the Stamp Duties Consolidation Act 1999, the Taxes Consolidation Act 1997, any amendments to those Acts, or any similar existing or future legislation, to provide for a Stamp Duty Levy, or any similar charge, to be unilaterally applied to pension funds legitimately set up under appropriate pension legislation.”

Legal issues

At the outset I want to outline some important legal issues in relation to the Bill. I am advised that the proposed fettering of discretion in this manner is contrary to the exclusive legislative making power of the Oireachtas, contrary to Article 15.2 of the Constitution, and the ability of the Oireachtas to amend law in the future. The Bill is also arguably contrary to Article 17 and 28 of the Constitution as it fetters the power of the executive to propose a money bill to raise future funds. I am further advised that these two fetters on both the Oireachtas and the Executive would require a constitutional amendment to allow for such legislation into the future which would bind successive Oireachtas and the Executive. It will also have a significant impact on the Executive as to how it proposes to raise public funds in accordance with the constitutional architecture for tax measures under Articles, 11, 17 and 28 of the Constitution.

While it is of course a matter for the Ceann Comhairle to determine, I am advised that there is also an argument that the bill is a money bill, since Article 22 of the Constitution also refers to bills which either repeal or relate to the remission of taxation. The bill is a measure to prevent a type of taxation in the future and a way of raising money.

I note that Deputy O’Dea acknowledged in his comments when he was initiating this Bill that it would inescapably involve an amendment to the Constitution. However, I note that the Bill he has presented for debate today makes no reference whatsoever to the Constitution. It is not clear then how section 2 of the bill would work as it provides that the bill would become law 21 days after having been passed.

More broadly, the function of our Constitution is to set out our fundamental legal provisions in areas such as how Ireland is governed and the rights of Irish citizens. A hallmark of successful constitutional arrangements is that they provide both stability and necessary flexibility. Bunreacht na hÉireann, like most Basic Laws, is a relatively rigid constitution in that it be changed only by amendment or replacement entirely through a referendum of the people. However, the necessary flexibility is achieved through decisions made by the Oireachtas and its constituent elements, the legislature and the Executive. This flexibility is vital so that Government, in the broader sense of the word, can be in a position to react appropriately and sometimes swiftly to changing circumstances and events in the life of the nation.

The Deputy’s Bill would I think involve a deviation from that fundamental constitutional construct by requiring the placing of a provision directly into the Constitution in relation to a very narrow area, concerning a specific asset, namely a pension. That is not a sound legal practice and is not something therefore that the Government can support.

Pensions levy

The circumstances in 2011 when the stamp duty levy on pension schemes was introduced were probably the most perilous economic conditions the State has experienced since its foundation. It was necessary that every sector of Irish society made its contribution towards our national recovery.

It is an unavoidable fact that the unprecedented economic situation required extraordinarily hard and very often unpopular decisions. Radical action simply had to be taken to preserve and boost jobs. The pension levy was designed to claw back a small amount of the generous tax reliefs that those contributing to pension arrangements had benefitted from over many years.

Stamp duty levies applying to the assets of funded pension arrangements were introduced in 2011 to pay for the Jobs Initiative, the chargeable persons for which are the trustees of pension schemes and others responsible for the management of pension fund assets.

The original 0.6% stamp duty levy on pension fund assets ended in 2014. The additional levy of 0.15% which I introduced for 2014 and 2015, mainly to help continue to fund the Jobs Initiative, also ended in 2015. It is worth noting that annual tax relief on supplementary pensions is estimated at €2.4 billion, while the total yield of the pensions levy between the years of 2011 and 2015 was €2.4 billion.

The position is that the equivalent value of all of the money raised from the stamp duty levy has been used to fund the wide range of measures introduced in the Jobs Initiative to protect existing jobs and to help create new jobs and the Initiative has been a success in this regard. The measures introduced include expenditure measures such as the JobBridge and Springboard schemes, as well as a number of tax and PRSI incentives such as the reduction in the VAT rate from 13.5% to 9% for the tourism and hospitality sectors and the temporary halving of the lower employer PRSI rate.

The value of the funds raised by way of the pension levy have been used to protect and create jobs and this has helped to create the improving financial and economic position of the State. Taxpayers to whom the impact of the levy may have been passed on by the chargeable persons responsible for the payment of the levy i.e., the pension scheme trustees, etc., will benefit from the changes which I began in Budget 2015 and which have continued in subsequent Budgets to reduce the tax burden on low and middle income earners.

Pension reform

I note the concerns expressed by Deputy O’Dea when he introduced his Bill in relation to the sustainability of pensions in Ireland having regard to an aging population and the future ratio of workers to people over 65.

The Deputy will be interested to know that, consistent with the commitment in the Programme for a Partnership Government to work to make our older years better years, the Minister for Social Protection is currently developing an Action Plan for pension reform. This is expected to set out a vision and five-year plan to enable sustainable and adequate income for people in retirement. My understanding is that the Minister is examining areas for inclusion in a comprehensive plan including reform of the contributory State Pension, the introduction of automatic enrolment in a new earnings-related retirement savings system, measures to provide for improved standards and governance of existing schemes and the establishment of an Inter-Departmental pensions reform and taxation group. The Action Plan is expected to be brought before Government before end year.

The Deputy will also be aware that the Minister for Social Protection recently announced that the Government had approved the publication of the General Scheme of the Social Welfare and Pensions Bill 2017. That Bill contains key measures to increase protections for members of Defined Benefit Occupational Pension Schemes and respond to the difficulties in Defined Benefit schemes.

Firstly it requires employers who sponsor DB schemes – whether or not those schemes are in deficit – to give 12 months’ notice of their intention to cease contributions. For a scheme in deficit, the employers and trustees are required to enter into discussions to agree a funding proposal before the 12 month period expires. The Bill also introduces a time limit of six months, from the date of the actuarial funding certificate for trustees of a DB scheme which is in deficit to submit a funding proposals to the Pensions Authority. The Bill further provides powers to the Pensions Authority to determine a schedule of contributions that will restore DB pension schemes, which do not satisfy the funding standard or funding standard reserve, to an adequate funding position, in circumstances where a funding proposal has not been agreed.


Taking the various factors I have mentioned into account, including the legal and constitutional issues I mentioned at the outset of my speech, the Government cannot support Deputy O’Dea’s Bill.

Thank you.