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What is the Pension Levy?

Written by John O' Connor on May 16, 2011

Pension Levy in Brief

michael-noonanThe Pension Levy was introduced by the Minister of Finance, Michael Noonan (picture), to fund the Goverments ‘Jobs Initiative’ of May 2011 as a 0.6% charge on Pension Fund assets held in the state.  It will be charged for a period of 4 years only.

Its impact on your Employment Pension Fund Contributions

If you are working and you or your employer are putting funds into a Pension Fund, the impact on you will differ depending on whether you are contributing to a Defined Benefit (DB) scheme or a Defined Contribution (DC) scheme.  Because depending on what type of scheme you are on, either you take the hit for the Pension Levy, or your employer takes the hit.  Let’s see why…

Defined Benefit Schemes

With a Defined Benefit (DB) scheme, The employer guarantees to pay you a agreed pension amount at the end of your employment – for example 2/3’s final salary.  If the Pension Fund has a shortfall, then the employer has to meet that shortfall.   So in simplistic terms, the Pension Levy will cause a shortfall of 0.6% per year for 4 years that the Employer will have to meet.  So as an employee as it stands, you do not have to worry about this charge.

Defined Contribution Schemes

With a Defined Contribution (DC) scheme, the amount of your final pension on retirement is not agreed, but instead depends on how successfully your pension contributions are invested.  In this case, the pension levy will reduce the amount of fund money you will have available to buy a pension on retirement, so it’s you as the employee who takes the hit.

If you are not sure which type of scheme you are in, then you can check with your employer.  But a bit like having a Tracker Mortgage, if you have a Defined Benefit scheme you’d know it already and rightly feel smug!