Pensions Levy

What Is The Pensions Levy

The Finance (No. 2) Bill 2011 introduces a levy on pension schemes and equates to an annual stamp duty of 0.6% on the market value of assets under management in pension schemes.

How Long Is It For?

The levy will apply for a period of four years (2011 to 2014), but there is scope for it to be retained longer (even indefinitely)

What Type Of Pensions Are Affected?

The schemes affected include:

• Occupational/Company Pension Schemes and individual AVC’s
• Personal Retirement Savings Accounts (PRSA’s)
• Retirement Annuity Contracts /Personal Pensions and RAC Trust Schemes
• Buy-out Bonds,

Can The Pensions Levy Be Avoided?

Other than retiring (and even that might be too late at this point), there is really little can be done to avoid this charge. Certain commentators have recommended contacting your pension provider in writing to forbid them make the payment, but in all likelihood the terms & conditions of your pension (that you signed) allows them make this type of withdrawal.

So We’re Stuck With Increased Fees?

Absolutely not. If anything, this is the perfect time to start revisiting your pension fund, plan and provider. While 0.6% is a huge charge, in reality it is nothing compared to the fees levied on your money by the following:

• Fund Manager: Normally 1 - 2% per annum, irrespective of performance. This is despite the fact that most studies now acknowledge that ‘active’ fund management (i.e. where a person makes decisions on what shares to buy and sell) perform significantly worse than ‘passive’ funds that simply track a market (like the S&P 500 or FTSE)
• Pension Provider: 2 – 4% per annum. Ever wonder what a ‘unit’ is? Next time you look at your pension benefit statement (if you get one), see how the value is calculated. What you will find is that you own a number of units, with a particular market value (though they can’t be sold anywhere else) on that date.
  By placing your fund in units, pension companies can hide indirect charges, such as sales & marketing, from the client. These charges, on top of what you see for administration (whatever that is) are the largest barrier to growth for most pension clients.
• Broker: Up to 25%(!) in the first year and anything up to 1% in the years after that.
  No doubt you were informed of this at the point of sale, right?

What Can Be Done?

Depending on your circumstances - employment status, age etc – there are any number of options open to you.

Ultimately the only way you can really grow current (or old for that matter) pension funds is by keeping the costs as low as possible.

When we meet with a client, we go through a comprehensive review of their current situation and present a number of alternative approaches. The client will select the one that most appropriately suits their needs -based on reviewing their attitude to risk among other things - and we will implement it for them. We will simply charge our hourly rate for the work done (though this can often be charged to the pension fund).

It is our promise to you that by the time we are finished, we will have completely cancelled out the effect of the government levy on your fund.