A 0.5% levy on private pension funds rather than any increases in income taxes will be the main funding tool for the Government’s €500m jobs initiative to be published next month, according to The Sunday Times.

The likely two-year programme will lower the Vat rate on labour-intensive services from 13.5% to 12% and halve employers’ PRSI on pay up to €356 a week in an effort to stimulate employment.

The newspaper says the Government has already spoken to senior figures in Irish pension funds about its proposal. As a sweetener, there would be a postponement of the plan to phase out the 41% tax relief on pension contributions for higher earners from 2012-14.

However, the Government could still have a fight on its hands over the issue. The Irish Association of Pension Funds termed it “an attack on the savings of ordinary workers”, pointing out the vast majority of schemes were in deficit and arguing the initiative would only increase the pensions gap between workers in the public and private sectors.

“Any such levy would be borne by those with pension savings and would in our view be unfair and inappropriate,” said Jerry Moriarty, the organisation’s director of policy. “We already have enough problems with not enough people saving for retirement and this would just worsen that.”

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