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May, 2011

Lawyers and actuaries are busy advising clients how to mitigate or even avoid the 0.6% pension levy according to Jill Kerby in The Sunday Times, who is telling people with private pensions to ask their trustees, administrators or advisers about the effect of the levy on their projected incomes in retirement.

Kerby notes advisers believe “it will probably not be worth investing in a private pension under these circumstances”.

She cites figures from IFG Corporate Pensions showing 21% of the value of a pension would be wiped out if the levy becomes permanent. As noted last week, this isn’t as fanciful as it sounds given that the “temporary” levy imposed on life assurance policies in the 1980s ended up lasting more than eight years and was actually raised after the first two.

Kerby fully expects a legal challenge to the constitutionality of the levy but pending this she has written to her own fund’s administrators instructing them not to hand over her assets to the Government “without first testing [the levy’s] legitimacy through the courts and without seeking written authorisation from me as the beneficial owner of the assets”.

Meanwhile, The Sunday Business Post reports the pensions industry “appears to be retreating from proposals to plug the gaping holes in pension schemes by investing in high-yielding Irish government bonds amid concerns that such bonds are too high risk”.

The threat of default is now hanging over the whole Irish economy – at least judging by the flight of savings and the attitude of pension fund managers, who consider investment in “sovereign annuities” backed by Irish government bonds a virtual non-starter .

“The soaring interest rate on Irish government paper is now seen to reflect serious fears that Ireland could default, leaving pensioners out of pocket,” writes Kathleen Barrington.

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