# Society of Actuaries says the State's pension system is unsustainable in its current form



## Sarenco (18 Dec 2015)

https://web.actuaries.ie/sites/default/files/story/2015/12/151216 Press Release State Pension.pdf

The Society of Actuaries has published a detailed report by Milliman that adds to the growing body of research that concludes that the State's pension system is unsustainable in its current form and "doing nothing" is simply not an option.

The report highlights a number of potential options to improve the sustainability of the State's pension system and acknowledges that there is no easy solution.

This really should be a key issue in the forthcoming general election.


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## galway_blow_in (18 Dec 2015)

tell us something we dont know , the majority of current pensioners draw down far more than they ever put in to PRSI down the years yet the public perception is that most people on the state pension are on far less than they made in contributions

this will require a major shift in public opinion in the years to come


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## 44brendan (18 Dec 2015)

Broadly reflects the position raised on other threads re potential pensions shortfall! The options outlined are stark but the main fear is that this is a medium to long term problem and most politicians will feel that because the issue is not immediate they can put it on the long finger. In terms of an aging population Ireland would be in a much better balanced position than most of our European neighbours. However longevity and length of time people are dependent on pension income is really going to put more and more stress on the system as years progress. Realistically in time I see no way that those above 65/66 can rely on the OAP as their sole income source until death. Our out of date work models are partly to blame for this. ie. model is primarily based on the old 18-65 working life. leave school at 18 get a career job and retire at 65.
The model is fine if your employer has a good pension scheme in place and you can retire on a 50% of final salary index linked type pension. However it does not suit the modern working system where most people only commence working in their mid 20's and will most likely have a number of differing employers in their working life. Defined benefit pensions are as rare as hens teeth and because pension schemes are voluntary most of the 20's/30's age group have no interest in voluntarily giving up part of their wages for pensions when the benefit is so far in the future.
I know that it has been posited before but I feel that the only realistic solution to this issue is a standard "opt out" pension fund for every employee who receives a wage/salary beyond a stated amount (say above the living wage). Those who opt out to be made fully aware of the consequences of doing this and advised that there will be no safety net available to them upon retirement.
Pension age entitlement is also likely to rise and this is not a bad thing as 65 is no longer an age where people should retire. I have always believed that there is scope for employers to provide opportunities to continue work beyond 65 on a part time basis to those who are able/want to continue working past normal retirement age. The skills are mostly still there and while many of us would resent having to work full time post 65 the part time option would be worth considering.
This issue is not getting the attention it deserves and as usual the problem will be kicked down the road until it is too late to address properly. It is largely not relevant to TD's/Civil Servants because of the preserved pensions that they have so someone at a high level needs to champion the issue.


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## Gerry Canning (18 Dec 2015)

galway.
Todays pensioners may have paid down less in PRSI than they are drawing today and if State pensions are looked at in isolation then you have a case

Todays pensioners are those who carried our State thus far and most have contributed largely to state way above any actuarial prsi contributions.

I suppose the only ongoing solution is to properly charge out and price prsi properly (politicians won,t do it)

Public opinion I think is well aware that all State type pensions be they Public service etc are presently funded from States cash-flow and know it is dangerous.

There will be a reckoning ,but I think the perception of future trouble is well understood and will be addressed


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## mtk (18 Dec 2015)

Way over hyped imho
if you read report just moving to rpi increases instead of earnings and increasing retirement age in future ( above the 68 already planned ) more or less fixes problem
As actually stated in report The idea you can accurately predict that far in future is erroneous e.g in 50 years will be all European citizens with European pension ??? Will we have an extra 10 million refugees in Europe boosting workforce.....
Etc etc 


A lot of fuss about nothing


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## KlausFlouride (18 Dec 2015)

The 68 year old limit is magical thinking, the % of people who can physically or mentally work until that age will be in single digits. Pensions will be subsidised by the general tax base, guess which group vote and have time to torment their TD's?


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## Gordon Gekko (18 Dec 2015)

KlausFlouride said:


> The 68 year old limit is magical thinking, the % of people who can physically or mentally work until that age will be in single digits



I don't believe that's the case at all. The 68 year old of the future will be in far better shape both mentally and physically and will have plenty to offer in the workplace.


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## moneybox (20 Dec 2015)

Gordon Gekko said:


> The 68 year old of the future will be in far better shape both mentally and physically and will have plenty to offer in the workplace.


 
Have you a link for that?


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## Gordon Gekko (20 Dec 2015)

moneybox said:


> Have you a link for that?



You disagree with the idea that 68 year olds now/in the future are fitter and "younger" than previous generations?


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## Jim2007 (20 Dec 2015)

galway_blow_in said:


> tell us something we dont know , the majority of current pensioners draw down far more than they ever put in to PRSI down the years yet the public perception is that most people on the state pension are on far less than they made in contributions



The financing of the current system is purely pay as you go, nothing to do with contributions but all about the structure of the work force.  On that side Ireland is in a better position than most.


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## galway_blow_in (20 Dec 2015)

Jim2007 said:


> The financing of the current system is purely pay as you go, nothing to do with contributions but all about the structure of the work force.  On that side Ireland is in a better position than most.



i was saying that contrary to public opinion , the majority of those currently in receipt of the state pension , did not make sufficient contributions down the years to warrant current receipts , there has been a huge increase in the state pension since around 1997 and it wasnt touched during the recession since 2008


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## monagt (20 Dec 2015)

galway_blow_in said:


> i was saying that contrary to public opinion , the majority of those currently in receipt of the state pension , did not make sufficient contributions down the years to warrant current receipts



Amazing ..........people miss as Basil Fawlty says "the bleeding obvious"

If one pensioner has not contributed enough over 50 years of contributions then maybe the contributions of those who don't live long enough to collect their pension can make up the deficit = not all who contribute one many years live to collect their pension.

Like all Insurance its a percentage game...........the lucky ones collect if they live long enough.

Also, the ones who depart early after pension age subsidise the few who live longer than the, maybe into their 80's.

Jim2007 mentioned that its about the "structure of the workforce" and I agree (again Basil could be quoted here again), also - we are lucky to have a young workforce so in a better position that other countries.


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## Gordon Gekko (20 Dec 2015)

The average industrial wage is around €35k a year, yes?

That's €1,400 of PRSI per year from the employee and €3,800 from the employer. 

€208,000 gets contributed over a 40 year career.

The pension is €12k a year, so 17 years before one is getting back more than one has put in.


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## Jim2007 (20 Dec 2015)

44brendan said:


> I know that it has been posited before but I feel that the only realistic solution to this issue is a standard "opt out" pension fund for every employee who receives a wage/salary beyond a stated amount (say above the living wage). Those who opt out to be made fully aware of the consequences of doing this and advised that there will be no safety net available to them upon retirement.



I do not believe this is realistic - most people will opt out faced with have to contribute around 10% or more of their income to their pension fund and of course with the time comes the politicians would face enormous pressure to do something - in other words tax or levy those who did not opt out.   At present as a result of self directed pensions the average US baby boomer is expected to hit retirement age with a total net worth of around $22K, not even remotely close to being able to fund a pension for 20 to 30 years.  It will be interesting to see how US politics change as a result.


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## Jim2007 (20 Dec 2015)

galway_blow_in said:


> i was saying that contrary to public opinion , the majority of those currently in receipt of the state pension , did not make sufficient contributions down the years to warrant current receipts , there has been a huge increase in the state pension since around 1997 and it wasnt touched during the recession since 2008



Yes that was an attempt to recognise the fact that the pay as you go model will not work in the long run, but it still does not change the fact that the system is still based on the pay as you go model.


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## Jim2007 (20 Dec 2015)

Gordon Gekko said:


> The average industrial wage is around €35k a year, yes?
> 
> That's €1,400 of PRSI per year from the employee and €3,800 from the employer.
> 
> ...



Except that is not the model being used!  The model is simply total pensions paid out this year should equal total contributions by the workforce this year!  And as the work force ages this is not going to be possible, although Ireland will be hit later than most EU countries because our work force is still comparatively younger.


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## galway_blow_in (20 Dec 2015)

Gordon Gekko said:


> The average industrial wage is around €35k a year, yes?
> 
> That's €1,400 of PRSI per year from the employee and €3,800 from the employer.
> 
> ...



except at least a quarter of those over 66 are on the non contributory pension , its only 11 quid per week less than the contributory and you receive it even you never paid a cent in tax down the years


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## KlausFlouride (21 Dec 2015)

Gordon Gekko said:


> I don't believe that's the case at all. The 68 year old of the future will be in far better shape both mentally and physically and will have plenty to offer in the workplace.



I hope you're right. And physically, quite likely. Mentally, though, don't see any advances on the horizon that will change that dramatically. Also if people are working later on in life, impacts jobs available for people trying to join the workforce.


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## Protocol (21 Dec 2015)

Gordon Gekko said:


> The average industrial wage is around €35k a year, yes?
> 
> That's €1,400 of PRSI per year from the employee and €3,800 from the employer.
> 
> ...



You are suggesting here that PRSI finances just the State Pension.

Note that PRSI must finance many other benefits as well, e.g.

JSB
Illness benefit
Carers benefit
etc.


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## Sarenco (21 Dec 2015)

To put the coming demographic changes into some perspective, the CSO has projected that:

The old population (those aged 65 years and over) will have increased from its 2011 level of 532,000 to between 850,000 and 860,700 by 2026, and to close to 1.4 million by 2046.
The very old population (those aged 80 years of age and over) is set to rise even more dramatically, increasing from 128,000 in 2011 to between 484,000 and 470,000 in 2046.
By 2046 the labour force will increase by 300,000 from 2011 levels and there could be up to 560,000 more older people than young.


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## Gordon Gekko (21 Dec 2015)

Protocol said:


> You are suggesting here that PRSI finances just the State Pension.
> 
> Note that PRSI must finance many other benefits as well, e.g.
> 
> ...



I know, but truth be told middle to high earners rarely draw on these. I'm not being dismissive, but I don't know a single person who has ever availed of any of those benefits.


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## Sarenco (21 Dec 2015)

Gordon Gekko said:


> I know, but truth be told middle to high earners rarely draw on these. I'm not being dismissive, but I don't know a single person who has ever availed of any of those benefits.



What about maternity benefit?


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## Gordon Gekko (21 Dec 2015)

Sarenco said:


> What about maternity benefit?



A good example


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## Marion (21 Dec 2015)

"What about Maternity benefit"


I can name at least 7 of of my friends (married and single) who don't fall into this category - maternity benefit. Neither do I. 

Marion


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## Sophrosyne (21 Dec 2015)

There are different types of dependencies – not all of which are age-related.

The dependency ratio is not just demographic but also economic.

Many 18-65 year-olds are non-contributors because they are in education, incapacitated or unemployed, etc., and depend on State interventions.

Many people over 65 still work or generate taxable income from a variety of sources.

One must also take account of the impact of ever improving technology on economic output and consequentially the ability of fewer people to generate greater output and support higher numbers of non-contributors.

One cannot compare the economic output, or indeed the global reach of people from the 1930s, 1940s or 1950s with those of 2015. Modern technology allows much greater output per person.

Looking at this subject _solely _from the point of view of demographics is a mistake.


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## Sarenco (22 Dec 2015)

[QUOTE="Sophrosyne, post: 1456166, member: 79526"

The dependency ratio is not just demographic but also economic.[/QUOTE]

No doubt but pensions are very definitely age-related.

Whether or not the broader social welfare system is sustainable is a different issue.


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## Dan Murray (22 Dec 2015)

Sophrosyne said:


> There are different types of dependencies – not all of which are age-related.
> 
> The dependency ratio is not just demographic but also economic.......Looking at this subject _solely _from the point of view of demographics is a mistake.



I'd just like to applaud Sophrosyne on his commentary.......the headline figures of numbers employed v. pensioners is overly simplistic.


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## Sarenco (22 Dec 2015)

Dan Murray said:


> .......the headline figures of numbers employed v. pensioners is overly simplistic.



Well, there is obviously a strong correlation between the numbers in the labour force and the level of pension-related PRSI receipts.

The Central projection in Milliman's analysis is that the excess of expenditure on State pensions (contributory and non-contributory) over pension-related PRSI receipts will increase by over 2% of GDP within the next 30 years, rising by a further 1% of GDP in the following 20 years.  Expenditure on health care and long-term care provision is also projected to increase significantly as a % of GDP during this period as the population ages.

These projections are entirely consistent with similar reports produced by the OECD, McKinsey, the Department of Finance and others.  It is surely beyond any reasonable doubt that the value of State pensions will have to be reduced in real terms in the coming decades in order to be sustainable.  

I personally do not think it is fair and equitable that young workers alone should suffer this reduction in future benefits.


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## Dan Murray (22 Dec 2015)

Sarenco said:


> Well, there is obviously a strong correlation between the numbers in the labour force and the level of pension-related PRSI receipts.



Of course that's true - who has said or implied otherwise? The point I understood Sophrosyne is making is the need to contextualise all dependency ratios and economic output more broadly. Hence what he said that concentrating solely on (one aspect) of demographics is incomplete.


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## Sarenco (22 Dec 2015)

Dan Murray said:


> Hence what he said that concentrating solely on (one aspect) of demographics is incomplete.



Fair enough but pension payments (as opposed to other forms of social assistance) are only relevant to one demographic cohort and that cohort is projected to increase significantly, relative to all other cohorts in the coming decades.

I take the point that what matters, ultimately, is whether the economy can sustain a given level of pension provision, which is why the projections are typically framed in terms of % of GDP rather than simply referring to the ratio of over 65s to the balance of the population.


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## Dan Murray (22 Dec 2015)

Sarenco said:


> Fair enough but pension payments (as opposed to other forms of social assistance) are only relevant to one demographic cohort and that cohort is projected to increase significantly, relative to all other cohorts in the coming decades.
> 
> I take the point that what matters, ultimately, is whether the economy can sustain a given level of pension provision, which is why the projections are typically framed in terms of % of GDP rather than simply referring to the ratio of over 65s to the balance of the population.



Exactly Sarenco.

All Sophrosyne and I are saying is that it would be nice to see a broader analysis - ideally with stochastic modelling and not focussing exclusively on one single important dynamic. (Everyone knows the headline demographics!) The reports from Milliman, McKinsey and Society of Actuaries are reasonable to a point - it's just that they are too narrow in their scope. Frankly they lack multi-disciplinary input. I know some of the people involved in the Society of Actuaries initiative (all actuaries with no serious economics pedigree) and the lead author in the McKinsey study has a Phd in.......molecular biology (presumably a very clever lady but still?). One can assume Milliman is very heavily actuarially biased also? So they all examine and find broadly the same thing......unsurprisingly.

As an aside, why did the Society of Actuaries not ever produce a report, in bygone years, in relation to the sustainability of privately funded DB plans when those plans that have not already closed are forming an orderly queue to do so?!


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## Sarenco (22 Dec 2015)

To be fair, Milliman's projections do incorporate specific assumptions regarding labour productivity growth and GDP growth over the modelled period.  Beyond making some basic assumptions, I'm not sure that detailed economic forecasts/guesswork would add much to the picture.


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## Sophrosyne (23 Dec 2015)

Dan Murray said:


> The reports from Milliman, McKinsey and Society of Actuaries are reasonable to a point - it's just that they are too narrow in their scope. Frankly they lack multi-disciplinary input.



Hear, hear!


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## moneybox (2 Jan 2016)

Gordon Gekko said:


> You disagree with the idea that 68 year olds now/in the future are fitter and "younger" than previous generations?



Well we have rising obesity levels with all its associated complications, already half the population are overweight, there is too much drinking going on at home etc, people are eating too much processed and sugary foods.  You only have to look at the average shopping trolly to get an idea of that.  Will we all really be fitter and younger than  previous generations, I doubt it very much.

I know very few present day 68 year olds who are as fit as a fiddle with no health concerns.   I guess we will foresee a time when many of us will be limping into the office with our zimmer frames and walking sticks crippled with arthritis and what not, oh the joy of it all.


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## Sophrosyne (3 Jan 2016)

Dan Murray said:


> it would be nice to see a broader analysis - ideally with stochastic modelling and not focusing exclusively on one single important dynamic.



Indeed!


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## Sarenco (4 Jan 2016)

The 2012 report to the C&AG by KPMG on the social insurance fund includes a number of scenario tests in addition to the base case assumptions used to quantify the responsiveness of the results of the report to changes in the key underlying macroeconomic and demographic assumptions.

In particular, the report analyses the impact on the base assumptions of:-

Longevity changes
Migration changes
Fertility changes
Combination of fertility and migration changes
Range of macroeconomic assumptions
It is worth noting that the results are not particularly sensitive to alterations in the macroeconomic variables because changes to real earnings growth are assumed to commensurately effect productivity.

However, the results are particularly sensitive to the future population profile.  Due to the expected dynamics of life expectancy, fertility, and migration rates, the age-structure of the population is projected to dramatically change in the coming decades. Not only is the population projected to be much larger than it is now, it is also expected to be much older. The pensioner support ratio commences at 5.3 in 2010 but reduces more gradually to 3.1 by 2040 and to 2.5 by 2060.

http://www.welfare.ie/en/downloads/2010actuarialreview.pdf


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## Gerry Canning (4 Jan 2016)

Moneybox.
Your comments on health are interesting ..
Could it be we will all snuff it before pension,thus
1.Save the state a fortune by sorting out  pensions by dieing early.
or
2. Overwhelm our health services on overweight issues, heart , diabetes, etc.

It is hard to know, but I reckon we will muddle on and adjust as time moves on.
I wouldn,t put too much credence on economists/actuarial ramblings just yet.
I would take comfort that we know there are issues to be resolved.


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## Sarenco (4 Jan 2016)

Gerry Canning said:


> I reckon we will muddle on and adjust as time moves on.



That certainly reflects the current approach. 

Of course that means that the necessary adjustments will largely be borne by younger members of society, without any significant impact on older cohorts (those already in retirement or close to retirement).  

Does that seem fair?


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## Gerry Canning (5 Jan 2016)

Sarenco,

Largely it is fair,
The (older) cohort mostly rely on state old age pension ,which is not a kings ransom. This cohort clearly understood the ground rules on future pensions and where would we be if uncertainty replaces certainty? eg the stealing from private pension funds by government sent all the wrong messages and I fear less people will be inclined to make their own private provisions.
I am not comfortable with changing rules mid -stream but do readily acknowledge this issue needs to be addressed now .

If it turns out that we just cannot afford the present Old Age Pension , then it will be adjusted (gently) by not increasing it in line with inflation.
But remember how quickly your (younger members) will age and I hope our government have by then ensured that these (younger members) have somewhat self provided!


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## mtk (11 May 2016)

http://www.independent.ie/business/...to-undermine-state-pension-ictu-34703549.html

a view from ICTU on the matter


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## Gerry Canning (11 May 2016)

mtk,

It is blindingly obvious that if we live longer ,pensions cost more .
I find it (amusing) when those on mega-pensions are only tweeked and constitutional issues preclude proper examination of them , yet there seems a nasty little subtle campaign to prime the normal work force to accept less and work longer?
We all can taste fairness;  and unless the lead is clearly seen from the top, this pension time-bomb will catch us all.
Just moving pension age out longer is a bit unfair to those coming closer to (magical) 65 , now 66, soon to be 68.

Where does this adding on years end ? and it sends a poor signal ,in that it is a soft option.
It may be necessary but lets look.
I would fear that our usual Jellyfish Politicians will form committees to ensure decisions don,t affect election cycles !


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## Sarenco (11 May 2016)

mtk said:


> http://www.independent.ie/business/...to-undermine-state-pension-ictu-34703549.html



Denying the existence of a problem just because you don't like the potential solutions is really lame.

Talk about shooting the messenger.


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## Merowig (11 May 2016)

Gerry Canning said:


> mtk,
> 
> Where does this adding on years end ? and it sends a poor signal ,in that it is a soft option.
> It may be necessary but lets look.



Only if demographics would improve... so that means it will be open ended for quite a while. It happens in other countries as well so Ireland is no exception.


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## Steven Barrett (12 May 2016)

A problem with this country is that we want everything but don't want to pay for it. Look at what has happened with Irish Water and that was a pittance in compared to the cost of the Old Age Pension. Imagine if Kenny stood up and said that pensions are a massive problem and unless it was addressed, there will be huge issues in 15/20 years time. Therefore, he's increasing PRSI by 2% across the board. There'd be uproar. They'd then exempt people earning less than a certain amount (the people who probably benefit the most) and they'd lose seats. Given Kenny is on his last term in government, he couldn't give two hoots about pensions. 

Fund your own pension (and that's not a plug!  )

Steven
www.bluewaterfp.ie


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## JoeRoberts (12 May 2016)

SBarrett said:


> Fund your own pension (and that's not a plug!  )
> 
> Steven
> www.bluewaterfp.ie



I think this is the core of the issue Stephen. People who were responsible and funded their own pension or other retirement savings, will likely be means tested and lose at least part of the state contributory pension. This is coming like a steam train.


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## Gordon Gekko (12 May 2016)

If you're providing for yourself, assume you will not get the State Pension.


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## Protocol (12 May 2016)

PRSI is 4% for employees in Ireland.

For your pension alone, just the pension, it's 9.35% PRSI in Germany.


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## Protocol (12 May 2016)

Gordon Gekko said:


> The average industrial wage is around €35k a year, yes?
> 
> That's €1,400 of PRSI per year from the employee and €3,800 from the employer.



Average earnings are 36k approx.

Average earning in industry are 45k approx.


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## mtk (12 May 2016)

Means testing should not be an option it's the least fair IMHO .

The German state pension is salary related afaik so no comparison.

Probable Future immigrant  ( legal and illegal) in my view inflows make the standard projections unreliable . No need to get excited about this issue .


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## Steven Barrett (12 May 2016)

JoeRoberts said:


> I think this is the core of the issue Stephen. People who were responsible and funded their own pension or other retirement savings, will likely be means tested and lose at least part of the state contributory pension. This is coming like a steam train.





Gordon Gekko said:


> If you're providing for yourself, assume you will not get the State Pension.



That is going to be very difficult to change. The old age pension is valued at c. €300,000. The value of the average pension fund is substantially lower than that. What will be done? Penalise people who have tiny pension funds? They won't be able to pay proportionate benefits, they can't link child benefit to income levels, there's no way they can do it for pensions. And how would they link the varying income of ARF holders? 

If they did decide to do it, how would it be implemented? There will always be people who just fall short of the cut off point. Will they be able to deny someone who's been working for 35 years a €300,000 pension while someone who hasn't done a days work in his life gets one? 

Then there is the political side. Old people protest and vote more than any other age group. If introducing means tests OAP as standard doesn't bring down the government, they will be out on their ear come the following election. We have seen the desperation of Kenny and FG to stay in power in the last few weeks. They will do what it takes to stay in power. 


Steven
www.bluewaterfp.ie


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## Cervelo (12 May 2016)

I would agree with Steven on this, if you have contributed to the OAP all your working life it would be political suicide for a government to apply a means test to your entitlement, I think the only way they could do something like a means test for the OAP is pick a date and anybody born after that would be subject to the means test.


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## Gerry Canning (12 May 2016)

Cervelo said:


> I would agree with Steven on this, if you have contributed to the OAP all your working life it would be political suicide for a government to apply a means test to your entitlement, I think the only way they could do something like a means test for the OAP is pick a date and anybody born after that would be subject to the means test.



Not quite ?
Would it not be reasonable that that cohort who could afford to contribute and get 40% tax relief or played about with director type pensions,  etc  would  after say a pension of 35,000 get means tested before receiving full contributory pension.,  .
I find it very irritating that Mr Noonan has already (stolen )from even small pension pots , so changes can be enacted  but I fear its the little folk who will again be screwed .
For clarity , I do not think that those who saved for a reasonable private pension should be hammered but the cases where people just played the letter of the system maybe should take a hit . ?


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## ppmeath (12 May 2016)

Gordon Gekko said:


> The average industrial wage is around €35k a year, yes?
> 
> *That's €1,400 of PRSI per year from the employee *and €3,800 from the employer.
> 
> ...




Gordon,  I have to disagree with the highlighted parts, you are adding the employee and employer PRSI contribution and then stating that it takes 17 years before the employee gets back, what he put in.

He will put in 56k over 40 years, this covers a range of SW benefits including the contributory State pension.

Even if he claimed nothing for 40 years, the current yearly state pension (contributory) is 12,131.60, so it's 4 1/2 years on the State pension before he gets back what he puts in.

ppmeath


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