State Pension Forecasting ....

[NoRegretsCoyote]

@Sarenco

There are actuarial projections on this which I will dig out when I can.

As far as I can recall for an average earner contributions basically equal payouts under a reasonable set of investment return assumptions.

It's a very good deal for MW workers and not surprisingly a very bad deal for someone like a hospital consultant.

 

[fistophobia]

Can I ask if your not going to start a pension for fear that a personal pension might disqualify from the state pension
What are you going to do with the excess income that is not been invested in a pension ???

The fear is that they means test contributory state pension.
I am convinced this is going to happen. The demographics and dependency rate point to this.
I also think they are going to move on pension assets. The pension levy - double it.
Its an easy one to collect at source.

 

[cremeegg]

The fear is that they means test contributory state pension.
I am convinced this is going to happen. The demographics and dependency rate point to this.
I also think they are going to move on pension assets. The pension levy - double it.
Its an easy one to collect at source.

Just because the pension system will become unaffordable does not mean it will be reformed.

The alternative is to take money from elsewhere to support pension spending.

For example the agricultural economy is unaffordable and has been for many years, but it is funded by taking money from elsewhere.

I suspect a significant VAT hike or some other such thing will be used to pay for pensions. I do not expect that pensions will be cut.

 

[Sarenco]

Except that PRSI brings in about € 10B and Social Welfare spending is about € 20B so where is the insurance in that?

Any private insurance running on that basis would be out of business in a flash

Contributions to the social insurance fund in 2019 were around €11.5billion.

Payments from the SIF in 2019 were around €10billion, of which around €7billion related to the State (Contributory) Pension and Widow(er's) Pension.

In other words, the SIF had an excess of income over expenditure in 2019 (that is unlikely to be the case for 2020 for obvious reasons).

 

[Sarenco]

The fear is that they means test contributory state pension

That essentially means the abolition of the State (Contributory) Pension, leaving us with the State (Non-Contributory) Pension (which is already means tested).

Personally, I think the chances of the Government abolishing the State (Contributory) Pension are close to zero.

 

[NoRegretsCoyote]

I've adapted table 11.1(a) from the review of the social insurance fund at end 2015.

It basically compares lifetime contributions and drawdowns for workers with a full contribution history at a variety of income levels. Average wage is €37k pa and is assumed not just state pension contributory but also invalidity, illness and jobseeker’s Benefits, also survivors' benefits. Standard actuarial assumptions for indexation and investment growth are used.

Pension	Minimum Wage	National average earnings (NAE)	NAEx2	NAEx3
€238.30	4.9	1.6	0.8	0.5

A value of 1 means that lifetime contributions and drawdowns are balanced. A value >1 means someone receives more than they have paid in, and a value of <1 means less. Remember it includes employers' PRSI too.

It shows that low-wage workers do very well out of the social insurance system. This is as you would expect due to its flat-rate nature. Higher-paid workers pay in much more than they take out.

They don't show average full-time wages which are around €48k, but if they did the value would be 1.2 or so. So we can say that the average full-time worker gets about 20% more than what they put in to the social insurance system over a lifetime.

 

[cremeegg]

I've adapted table 11.1(a) from the review of the social insurance fund at end 2015.

It basically compares lifetime contributions and drawdowns for workers with a full contribution history at a variety of income levels. Average wage is €37k pa and is assumed not just state pension contributory but also invalidity, illness and jobseeker’s Benefits, also survivors' benefits. Standard actuarial assumptions for indexation and investment growth are used.

Pension	Minimum Wage	National average earnings (NAE)	NAEx2	NAEx3
€238.30	4.9	1.6	0.8	0.5

A value of 1 means that lifetime contributions and drawdowns are balanced. A value >1 means someone receives more than they have paid in, and a value of <1 means less. Remember it includes employers' PRSI too.

It shows that low-wage workers do very well out of the social insurance system. This is as you would expect due to its flat-rate nature. Higher-paid workers pay in much more than they take out.

They don't show average full-time wages which are around €48k, but if they did the value would be 1.2 or so. So we can say that the average full-time worker gets about 20% more than what they put in to the social insurance system over a lifetime.

That is a very good outcome for the average full time worker, even for those earning up to NAEx2 above, €74k.

A return of 0.8 is excellent given

• the insurance aspect
• the fact that the return is state supported
• and most people just think of it as tax anyway

 

[galway_blow_in]

I've adapted table 11.1(a) from the review of the social insurance fund at end 2015.

It basically compares lifetime contributions and drawdowns for workers with a full contribution history at a variety of income levels. Average wage is €37k pa and is assumed not just state pension contributory but also invalidity, illness and jobseeker’s Benefits, also survivors' benefits. Standard actuarial assumptions for indexation and investment growth are used.

Pension	Minimum Wage	National average earnings (NAE)	NAEx2	NAEx3
€238.30	4.9	1.6	0.8	0.5

A value of 1 means that lifetime contributions and drawdowns are balanced. A value >1 means someone receives more than they have paid in, and a value of <1 means less. Remember it includes employers' PRSI too.

It shows that low-wage workers do very well out of the social insurance system. This is as you would expect due to its flat-rate nature. Higher-paid workers pay in much more than they take out.

They don't show average full-time wages which are around €48k, but if they did the value would be 1.2 or so. So we can say that the average full-time worker gets about 20% more than what they put in to the social insurance system over a lifetime.

i thought circa 48 k was the average wage in the public sector as opposed to the overall workforce ?

 

[NoRegretsCoyote]

i thought circa 48 k was the average wage in the public sector

It is (roughly) the mean full-time wage for whole workforce.

Average wages include people who work part- and full-time.

 

[Protocol]

48k is mean earnings for all full-time workers.

It is not average salaries.

It is not average incomes.

It includes over-time, bonuses, etc.

It is NOT the median.

Here is the data:

Earnings and Labour Costs Annual Data 2019 - CSO - Central Statistics Office

www.cso.ie

It is 48,946 in 2019.

 

[Protocol]

It's a very good deal for MW workers and not surprisingly a very bad deal for someone like a hospital consultant.

Yes, there is redistribution going on within the PRSI system.

AFAIK, in most other countries, there is a contributions ceiling, so the redistribution is limited.

 

[NoRegretsCoyote]

It is NOT the median.

You are right. I've edited my post.

 

[ashambles]

For a fairly well off EU country our pension is cheap (for the state - for the employee it can be very poor value). In terms of our national income it is, and I think for the foreseeable future will be, affordable.

A country like France or Sweden pays out a pension based on salary for all workers - up to some cap.

Unlike some countries our PRSI contribs are uncapped, for example anyone earning over around I think 70k in Ireland pays more social insurance than they would in Sweden. (Also we've a USC which is depending on the point the DoF wants to make is neither tax nor social contribution.)

In other countries PRSI payment are often untaxed, here you pay tax on your PRSI.

The DOF (according to this weeks sunday times) has said abandoning plans to raise the pension age to 68 will cost 50B over 50 years - that's a lot of money but in national debt terms it's not significant. Paying public workers for example over 50 years will cost 1000B+ for comparison.

The regular focus on the barely adequate state pension as the fix to all our potential economic woes is misplaced.

 

[The Horseman]

Just because the pension system will become unaffordable does not mean it will be reformed.

The alternative is to take money from elsewhere to support pension spending.

For example the agricultural economy is unaffordable and has been for many years, but it is funded by taking money from elsewhere.

I suspect a significant VAT hike or some other such thing will be used to pay for pensions. I do not expect that pensions will be cut.

The failure to deal with the pensions issue is the reason we are in the position we are. The issue has to be addressed at some point.

A VAT hike is unlikely to work as it gives people some control in spending so people may purchase less of the good/service to reduce the cost and therefore reducing income to the State.

I personally don't think the state pension will be cut in monetary terms but in real terms/purchasing power terms I think it will. Whether we want to accept the situation or not it needs to be addressed.

The state pension is actually a pyramid scheme. We should be investing (or at a min not raiding the pension fund) when we are in financial need as a state.

 

[cremeegg]

The failure to deal with the pensions issue is the reason we are in the position we are.

The reason we are in this position is because there will in coming decades be a significant change in the ratio of people of working age to people of pension age.

The issue has to be addressed at some point.

Funds will have to come from somewhere certainly.

A VAT hike is unlikely to work as it gives people some control in spending so people may purchase less of the good/service to reduce the cost and therefore reducing income to the State.

VAT applies to all goods and services, even if some goods are zero rated. It is impossible to avoid paying VAT. Though of course the source of funds may be something else. I suggest VAT as a possibility because it is so broad in its application.

The state pension is actually a pyramid scheme. We should be investing (or at a min not raiding the pension fund) when we are in financial need as a state.

It is not a pyramid scheme. The idea that todays worker is putting money aside through the social wlefare system to fund his/her retirement is not applicable.

Todays workers pay for todays pensioners, just as they pay for todays children including the education system.

 

[SPC100]

Can we still borrow at close to 0? Let's take a bit of risk, borrow say 200B; stick it in a diversified portfolio. That should have it mostly sorted within twenty years.

The state can save and invest too....

Slightly tongue in cheek.

 

[The Horseman]

The reason we are in this position is because there will in coming decades be a significant change in the ratio of people of working age to people of pension age.

Funds will have to come from somewhere certainly.

VAT applies to all goods and services, even if some goods are zero rated. It is impossible to avoid paying VAT. Though of course the source of funds may be something else. I suggest VAT as a possibility because it is so broad in its application.

It is not a pyramid scheme. The idea that todays worker is putting money aside through the social wlefare system to fund his/her retirement is not applicable.

Todays workers pay for todays pensioners, just as they pay for todays children including the education system.

I am not sure what you are saying different to what I have said in the first point. We are not dealing with the issue we know is coming.

You can actually avoid VAT by simply not purchasing the good/service (most notably those items purchased with discretionary spending). If the price is raised to much people simply will not purchase. This is why the VAT rate for hospitality was reduced to 9% to reduce the price to the end consumer.

Todays workers do indeed pay for todays pensioners which is exactly the same as a pyramid scheme. Those who contributed in the past are receiving funds from todays workers. This model wont work if the number of workers to pensioners increases and the burden of funding pensions in the future fall on a smaller number of workers and pensioners expect to receive the same pension in todays terms in the future.

 

[cremeegg]

Todays workers do indeed pay for todays pensioners which is exactly the same as a pyramid scheme. Those who contributed in the past are receiving funds from todays workers. This model wont work if the number of workers to pensioners increases and the burden of funding pensions in the future fall on a smaller number of workers and pensioners expect to receive the same pension in todays terms in the future.

Very soon the PRSI contributions of workers will not be sufficent to pay the pensions of retired people.

Rather than cutting pensions what I expect will happen is that funds from other sources will be used to pay pensions.

 

[jpd]

Quite - unfortunately the number of "other sources" is rather limited
1. Increase income taxes
2. Increase PRSI and/or USC (these are just income taxes in my eyes)
3. Increase VAT
4. Increase corporation tax
5. Reduce spending elsewhere - education, health being the big spenders

Options 1-3 are generally paid by individuals (in the case of VAT, eventually) out of income so expect a big moan
Option 4 - would seem to be a no, no but Hey?
Option 5 - difficult to do

Hard choices will have to be made at some time in the next 20-30 years

 

[Protocol]

Quite - unfortunately the number of "other sources" is rather limited
1. Increase income taxes
2. Increase PRSI and/or USC (these are just income taxes in my eyes)
3. Increase VAT
4. Increase corporation tax
5. Reduce spending elsewhere - education, health being the big spenders

Options 1-3 are generally paid by individuals (in the case of VAT, eventually) out of income so expect a big moan
Option 4 - would seem to be a no, no but Hey?
Option 5 - difficult to do

All taxes are paid by individuals.

CT is paid by either:

(1) workers in the company
(2) customers
(3) shareholders