Budget 2019: Irish Life calls for levy and tax reforms

Ireland’s largest life assurance group has called for the abolition of the levy on life policies introduced in 2009 and for the Government to set the health insurance levy at a flat rate.

In a pre-budget submission, Irish Life has also again asked the Government to align the exit tax on life assurance policies with deposit interest retention tax (Dirt), which is now 37 per cent. It also wants the "socially regressive" health insurance levy changed.

“As life assurance policyholders pay both the 1 per cent life assurance levy at entry and the 41 per cent exit tax on exit they are being penalised twice on their saving and investment choices,” Irish Life said, adding that it wants “ all savers to be treated equally by reducing exit tax in line with Dirt”.

Until 2016, Dirt and the exit tax were charged at the same rate – 41 per cent – but since then a disparity has emerged. Dirt fell to 39 per cent in 2017 and 37 per cent this year, while the Government has committed to cutting it to 33 per cent by 2020, to bring it in line with capital gains tax (CGT).

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Exit tax, however, has remained at 41 per cent; and given the strong gains in equity markets, it has been a significant contributor to the exchequer. In 2012, the tax yielded just €43 million but by 2017 the yield had soared to €184 million. The yield from Dirt meanwhile has fallen from €473 million in 2011 to €118 million in 2017.

‘Clear disincentive’

Cutting exit tax from 41 per cent to put it on a par with Dirt, at 35 per cent from next year, would cost €22 million, according to Irish Life.

The company argues that the problem with exit tax is being compounded by the 1 per cent insurance levy on life assurance payments that was introduced as part of the Finance Act 2009.

This levy means that if you have a mortgage protection policy, life assurance cover, or simply a savings policy with a life assurer, you will have to pay 1 per cent of the value of this to the government in the form of a levy each year.

“The levy acts as a clear disincentive to saving, when low or negative interest rates make other savings options such as bank deposits, unattractive,” Irish Life said, arguing that the levy is an “austerity measure” which should be phased out, as happened with the stamp duty on private sector pensions.

The cost of phasing out the levy over three years would be about €7.5 million in year one, rising to about € 22 million in year three.

The life group, which also operates Irish Life Health, wants the way the health insurance levy is charged to be changed. At present, the levy is set at two flat rates on “non-advanced” (€177)and “advanced” (€444) plans. But this means that people on lower-based plans are “disproportionately subsidising people on higher-level plans,” Irish Life said, arguing that, as such, it’s a “ socially regressive tax”.

Instead, it wants to see the levy charged on a per cent of the premium. This would be revenue-neutral for the Government, but could make health insurance more affordable for customers on entry-level plans, Irish Life said.