Funds asked for $4bn infrastructure assistance - UPDATED

Against a projected 7.7% economic contraction this year, the Budget included a range of measures designed to plug the shortfall and help restore growth to the beleaguered former Celtic Tiger. The Irish budget deficit is estimated at 12.75% of the country's gross national product.

The Irish government has promised €31.4bn (US$41.6bn) of investments between now and 2013 for infrastructure projects to get the Irish economy going again, and is in talks with the country's pension fund industry to provide up to a further €3bn (US$3.97bn) of private funding through a bond-like arrangement.

In his Budget address, Ireland's minister for finance Brian Lenihan said there was "scope to access significant private funds" through arrangements with pension schemes.

He said: "Discussions are in train with the pension industry about an initiative that seeks on a value for money basis to unlock additional private capital to complement debt financing provided by banks and the capital markets. This would support existing public private partnership (PPP) projects and other projects previously funded by the Exchequer."

Watson Wyatt Ireland managing consultant Ray McKenna said from a pension point of view, there was "not as much in the budget as we thought".

"There were potential changes that could have happened, such as changes to the taxation of pension lump sums, which Lenihan said would be reviewed in November, ahead of the next normal budget," he said.

Lenihan also said the controversial pensions levy, which will see civil servants subject to a 7.5% pension contribution level as part of efforts to save €1.4bn of public expenditure (Globalpensions.com ; 26 February 2009) will also remain in place.

He also announced a scheme allowing public servants aged 50 to retire from the public "without actuarial reduction of pension entitlements they have accrued to date" and receive up to 10% of their pension lump sum, with the remainder paid at the normal retirement age and both the entire lump sum and pension payments taxed under present tax rules.

Staff retiring from service would not be replaced, he said, leading to a reduction in overall headcounts of public servants.

McKenna said this was viewed as a subtle "warning shot" the government would review public sector lump sum taxation in the future, creating "an incentive to go now" for many public sector workers approaching the early retirement age.

Workers would enjoy future retirement benefits and lump sums protected against prospective changes to tax law, which made early retirement an attractive option for those "on the cusp".

"He's opened the door and given the incentive [for public servants] to go through that door," McKenna added.