# Why is there no concern about the state's unfunded pension liabilities?



## Brendan Burgess (19 Jul 2015)

Cormac Lucey has a good article in today's Sunday Times 

*The State's Gargantuan Pension Gap*

The actuarial deficit on the social insurance fund which provides old age pensions is €324 billion.
The equivalent shortfall for the public sector pensions is around €100 billion.

In other words, as a state, we have a liability of over €400 billion, twice the national debt, which we have made no provision for whatsoever.

"it is politically difficult to fix it as the only possible remedies are politically toxic

increase pension contributions 

reduce pension payments 

delay pension age
The cynical explanation for ignoring the issue is that, while the problem will balloon in size tomorrow, it is not especially acute today"


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## Brendan Burgess (19 Jul 2015)

I think that the only way to deal with this is to scrap prsi and replace it with a pension contribution of 20% on all employees.  

The non-contributory pension should be greatly reduced so that those who have contributed to a pension scheme will benefit from their contributions. 

At the end of each year, everyone should get a statement detailing how much is in their pension fund. 

Self-employed people who declare very low earnings and who pay very little pension contribution would get a very small pension.

Self-employed people and employees who have contributed a lot over the years, would get a much higher pension. 

Brendan


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## Gordon Gekko (19 Jul 2015)

Brendan

Is that not there already in the form of private pensions?


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## RichInSpirit (19 Jul 2015)

Hi Brendan. Is the deficit because the money was spent on something else or because it was invested in stuff that has fallen in value since?
Maybe the state will be able to pay future pension entitlements from cash flow? Depending on how good the economy is going in the future.
Is it a bit of a fallacy tying up vast amounts of money for the future when there may be a more pressing need for the money in the here and now?


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## Brendan Burgess (19 Jul 2015)

Gordon Gekko said:


> Is that not there already in the form of private pensions?



Hi Gordon

No. The state has an obligation to pay the contributory OAP to people whether they have a private pension or not.

They also have an obligation to pay the public service pension to retired state employees.

Brendan


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## Brendan Burgess (19 Jul 2015)

RichInSpirit said:


> Maybe the state will be able to pay future pension entitlements from cash flow?



The full article covers this issue well.  In 2010, there were 5.3 workers for every person over 65. By 2020, that will fall to 3.9.  So  it will simply not be possible to fund retirement pensions out of cash flow.




> Is it a bit of a fallacy tying up vast amounts of money for the future when there may be a more pressing need for the money in the here and now?



The pressing need here and now, is tax cuts, very generous social welfare, child benefit, public sector pay increases.   We simply can't afford to pay these. It's not obvious now, but it will be painfully obvious in 10 or 20 years, when it will be extremely painful to do anything about it.

As well as the €400 billion in unfunded pensions, we will have to service €200 billion in national debt.


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## Gordon Gekko (19 Jul 2015)

Brendan Burgess said:


> Hi Gordon
> 
> No. The state has an obligation to pay the contributory OAP to people whether they have a private pension or not.
> 
> ...



Sorry, I meant that some people (like myself) are maxing out our AVCs and wouldn't want the State anywhere near our pensions.

Getting €12k a year doesn't form a significant part of my planning - In fact I don't expect to get the State Pension on the basis that it will be means tested in my view.

The NTMA should be investing State funds in equities to meet our future liabilities. We should in effect be saving.


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## Brendan Burgess (19 Jul 2015)

Ok, 

I see your point. 

So there should be a compulsory 20% contribution to pension funds.  If people can show adequate private pension coverage, they can pay 10% instead. 

Brendan


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## Steven Barrett (19 Jul 2015)

Brendan Burgess said:


> I think that the only way to deal with this is to scrap prsi and replace it with a pension contribution of 20% on all employees.
> 
> Brendan



You're suggesting going from a 4% tax to a 20% tax (that is how it will be perceived)? 

A politicians job is to get re-elected. If they bring in your suggestions, especially if in one go, they will be out on their ear. The short term view of politics has prevented any government from solving a long term problem. There has been hundreds of thousands spent on numerous reports on how to tackle the pension time bomb. Nothing has been done. I would be surprised if anything happened until it becomes an immediate problem and it will be too late at that stage. 


Steven
www.bluewaterfp.ie


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## Gordon Gekko (19 Jul 2015)

My concern is that there'll be a sting in the tail for those who are being prudent and saving for their retirement. Some kind of raid on their funds...even worse than the grotesque pension levy. I'm making sacrifices now with a view to being comfortable when I retire. You can bet that the same people who are flittering away their cash right now will be cribbing about people like me with big pension pots when we're all pensioners.


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## Brendan Burgess (19 Jul 2015)

SBarrett said:


> You're suggesting going from a 4% tax to a 20% tax (that is how it will be perceived)?



Hi Stephen

PAYE employees pay 14.75% (4% and 10.75% from their employers) now, so it's only 5.25% extra.

Self employed would have to pay a lot extra. At the moment, they are paying very little and getting the full state contributory pension. That is wrong. 

You are calling it a tax. I am calling it a pension fund.  At the end of each year, the person would see this money in their fund. 



SBarrett said:


> If they bring in your suggestions, especially if in one go, they will be out on their ear. ... I would be surprised if anything happened until it becomes an immediate problem and it will be too late at that stage.



I suppose that is Cormac's point and my point. It needs to be done now before it's too late. 

My suggestion is very unpalatable and has lots of problems.  If you are earning €100,000 a year for many years, you will have a very large pot, but it's unlikely that you will be able to get a pension based on that pot as the pot will have to be raided for those who have no pots. 

But Gordon's concern is also well founded.  In 2030, there will not be enough to pay the state's obligations for contributory OAPs, so they will have to be means tested. Gordon is putting away money now, so he probably won't get the OAP which he is paying for through PRSI. 

Brendan


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## Jim2007 (19 Jul 2015)

Here is a document which provides a summary of the pension systems in operation throughout the EU.

I can only speak from our experiences here in Switzerland, as we introduced corrections about 20 years ago to address this issue.  And yes it was and still is very painful for many people.  The objective of the change was to deliver a total pension of about 65% of a worker's final salary, but even after these changes we are still projecting a shortfall of up to 35%!  

Today we operate the typical European 3 pillar system, and a quick summary would be:

- No none contributory pension
- A fully annual contributory state pension would cover about 2 months of living expenses (First Pillar), so there is no chance to live of it.
- Mandatory employer funded pensions (Second Pillar), with minimum contributions of 7% on both sides, so total of 14%.
- Personal savings, with tax relief up to about 6% of income under €106K

In the case of the 2nd pillar pension the following hold:
- Employees can buy in missing years provided they pay both the employee & employer contribution.  Tax relief is available.
- The pension fund must provide a guaranteed rate of return as defined by law, shortfalls must be made good by the fund managers
- Most employers pay much higher contributions that the prescribed 7%, for older employees it is often as high as 20% for a total of 27% pa
- The pension fund investment strategy is defined by law and funds are strictly controlled with audit often carried out on a monthly or quarterly basis

In the case of the 3rd pillar savings the following hold:
- The investment strategy is regulated by law
- There are about 3 or 4 standard savings accounts available
- There is a guaranteed minimum return which must be provided

In the case of someone who has no or insufficient pension, they are considered a social case - their needs are assessed and funds are provided accordingly - there are not standard rates etc... if is very much on a case by case basis.

While it will have a positive impact in the future, the current situation has resulted in many less well off Swiss citizens having to move abroad when they reach retirement, which was most definitely not in their plan!


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## galway_blow_in (19 Jul 2015)

successive goverments have prioritised the elderly in this country above every other demographic , whats more , the elderly have several salary drawing lobby groups who earn a living potraying most elderly people as poverty stricken , this is a golden age for people over sixty and eventually those who are paying for it will wake up and realise that upon retirement , the same unconditional entitlements  will be but a pipe dream


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## muinteoir (19 Jul 2015)

Ah that's just great.....just in time for me to be retiring. Just like the house buying fiasco I'm about to get screwed again. Am seriously thinking of moving abroad to work so that I can earn some decent money and put it aside for my old age. The problem with that plan of course is that the work is not secure and from what I hear the schools are run by bullies and sociopaths. This is seriously depressing. You'd need a crystal ball to figure out what to do.


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## Brendan Burgess (19 Jul 2015)

Jim

That is really interesting.

Our system is in such trouble that it will take a long time to fix, even if we address it seriously now.

Your 35% shortfall is very interesting.

I like the idea of saying to people up front: "Look if you don't save for a pension, you are going to be in dire straits in retirement". 

The Swiss system is so interesting that I have copied it to a separate thread: 

* The pension system in Switzerland*

Brendan


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## Protocol (19 Jul 2015)

Some action has been taken, the State Pension age has been increased from 65 to 68, in three stages.

The transition pension at age 65 has been abolished.

Pension rates for people with less than full contribution records have been cut.

The PS pension is less generous, for new entrants.


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## Protocol (19 Jul 2015)

The 4% PRSI rate is very low compared to other countries.

The German state pension has 20% conts, split 50/50 betwen ee and er.

So workers pay 10% approx, just for a State Pension.

They also pay three other social insurances.


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## Zane99 (19 Jul 2015)

I best start a pension so. This is crazy. What does our State Pensions compare with the rest of the EU?


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## Protocol (19 Jul 2015)

Ours is 230.30 pw.

All other European state pensions are a % of former wages, so not easy to compare.


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## RichInSpirit (19 Jul 2015)

They could remove the tax advantages for people putting heaps of money into private pensions to avoid tax.
That way they'd bring in more tax revenue.


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## Gordon Gekko (19 Jul 2015)

RichInSpirit said:


> They could remove the tax advantages for people putting heaps of money into private pensions to avoid tax.
> That way they'd bring in more tax revenue.



They already have. Government policy is to support the delivery of a maximum pension of €60k per annum. Previously, the regime was far more lenient.

And it's not tax avoidance. It's tax deferral. I put money into my pension fund at the moment. I only get relief from income tax. PRSI and USC still arise on the contributions. And when I draw down the pension, I pay income tax and USC plus PRSI if I'm less than 66.

It's hardly the Ansbacher scheme, is it?


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## Sarenco (19 Jul 2015)

Brendan Burgess said:


> PAYE employees pay 14.75% (4% and 10.75% from their employers) now, so it's only 5.25% extra.
> 
> Self employed would have to pay a lot extra. At the moment, they are paying very little and getting the full state contributory pension. That is wrong.



Brendan 

That is simply untrue.  

Employees and the self-employed pay precisely the same level of PRSI.  Employers pay additional PRSI in respect of their employees and this covers a lot of benefits that are not available to the self-employed (redundancy, unemployment benefit, etc).

You can certainly argue that the ratio of employer contributions to employee/self-employed contributions is inappropriately high and I would have no difficulty with a change to this ratio but it is not true that employees pay a higher rate of PRSI than the self-employed.

Bear in mind that a lot of self-employed people have employees and the employer PRSI contributions hit their bottom line.


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## RichInSpirit (20 Jul 2015)

Gordon Gekko said:


> It's hardly the Ansbacher scheme, is it?



I know, and it's hard to criticise people planing for their future taking advantage of tax breaks for pensions if they exist.
There is a bit of a public pension versus private pension divide in society. Or socialist versus capitalist divide. I'm not saying either is right or wrong.


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## Brendan Burgess (20 Jul 2015)

Sarenco said:


> Employers pay additional PRSI in respect of their employees and this covers a lot of benefits that are not available to the self-employed (redundancy, unemployment benefit, etc).



Hi Sarenco

The Social Insurance Fund covers other areas as well as pensions
You can find the accounts for 2013 here 






As far as I understand it, the self-employed get the full Contributory Old Age Pension for their 4% contribution.  I don't think that they qualify for any of the other benefits, but I am not sure. 

So pensions account for 62% of the expenditure.  This proportion has been smaller in the past when unemployment was higher. But I would expect the proportion to rise in the future as the number of pensioners increases and unemployment falls. 

I think that we should have two separate charges - Social Insurance and Pensions.

Charge employers for the Social Insurance - say 5% of salary. This would cover the benefits for which employees only qualify.

As both employees and the self-employed qualify for the same Contributory Old Age Pension, charge them the same rate and call it "Pension Contribution". This would probably be 15% of income. 




Brendan


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## Brendan Burgess (20 Jul 2015)

The original article by Cormac Lucey is now online:

http://cormaclucey.blogspot.com/2015/07/the-states-gargantuan-pension-gap.html

_The failure to face up to a massive problem that is staring us in the face is reminiscent of the failure to face to the credit bubble that inflated here between 1997 and 2007. The same combination of cowardice, cynicism, personal and institutional self-interest impeded the Irish state (and public too) from facing up to it in real-time. 


 Since then the matadors of hindsight – Regling, Honohan, columnists, academics, Oireachtas inquiries – have been busy retrospectively slaying the Celtic Tiger and those most closely associated with it. But, when they might have been of some use, where were these peoples’ real-time warnings? And who is warning today about Ireland’s unfolding pension disaster? _


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## Firefly (20 Jul 2015)

Protocol said:


> Some action has been taken, the State Pension age has been increased from 65 to 68, in three stages.



Hi Protocol,

I think this action could have unintended consequences regarding the provision of private pensions by individuals. 2 groups of people come to mind:

(1) Those who have precarious employment stability would normally put money away in their late 50s / early 60s in case they lost their jobs before the OAP kicks in. They will now have to put more away to do them until they reach 68.
(2) Anyone forced to retire at 65 (it's in a lot of employee contracts!) will now also have to put money away until the OAP kicks in at 68.

This 65-68 gap, coupled with the recent theft of private pensions by the government, IMO, will mean more & more people will provide for their retirement in other ways - property if they can afford it, cash, prize bonds etc rather than put money into "standard" pensions and therefore more & more will end up surviving on only the OAP. 

Firefly.


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## Gerry Canning (20 Jul 2015)

Maybe the main reason for non-worry about future liabilities lies in the word FUTURE!

1. Election cycles are too short for any Party to tackle pension shortfalls.ie tell citizens to pay in more today.
2. Todays workers just can,t envisage 30 + years down the road.
3. Public Service workers are particularly exposed to a shortfall (golden civil-servants pensions won,t be so golden if there ain,t funding in place!) Suggest get some Additional Voluntary Contributions (AVC,s)
in now.
4. Paye/self-employed need to be TOLD get some pension savings now , because our jellyfish politicians will not lead on this. 
5. More people will end up (surviving ) on a smaller and smaller OAP.

Cheerful isn,t it ?


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## Boyd (20 Jul 2015)

Don't entirely agree with point 2 above Ger, I'm 33 and am lashing in the max of 20% into my pension!

I am galled at the notion thought that govt may at decide at some future point to fund other people's pension from my pot (as suggested by Gordon Gecko above somewhere), just because I was prudent and started early. 

Its talk like this that makes me think should I just scale back the AVC and save the extra cash external to a pension, where at least I'd have control over it, despite losing the tax benefits........


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## galway_blow_in (20 Jul 2015)

Zane99 said:


> I best start a pension so. This is crazy. What does our State Pensions compare with the rest of the EU?



extremely generous considering how little needs to be contributed


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## Purple (20 Jul 2015)

RichInSpirit said:


> I know, and it's hard to criticise people planing for their future taking advantage of tax breaks for pensions if they exist.
> There is a bit of a public pension versus private pension divide in society. Or socialist versus capitalist divide. I'm not saying either is right or wrong.


As pointed out above they are not tax breaks. The tax is deferred. If you have the good fortune to end up with a decent income when you retire then you will actually have paid tax twice on the same income since the tax is only deferred at the lower marginal tax rate. 
If taxation is based on income levels then pensions should be as well, just like they are in most of the rest of Europe, but our socialist model doesn't just punish people when they work, it continues to punish them after they retire.


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## Brendan Burgess (20 Jul 2015)

Folks

This is a very important topic. 

A similar thread 6 months ago went completely off topic. 

Please do not do the same with this one. 

This thread is about how we deal with the pensions crisis and nothing else. If you want to let off steam about other issues, please do so in a separate thread. 

Brendan


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## Purple (20 Jul 2015)

Most of the guys and gals that are runnin' things now are close to the finishing line themselves, just about ready to cross that line that makes them untouchable!
I, like many others, do not expect to enjoy anything like the pension perks that are currently enjoyed by retirees. I expect that circumstances will necessitate a situation where everyone has to fund their own pension and that they won't get it until they are in their 70's.


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## Gerry Canning (20 Jul 2015)

Purple,

I agree with you , the (golden circle) boyos have ring fenced their perks. most others have @ best an adequate pension.

You accept that your pension must by pure economics await your 70,s.
Maybe that's a fact of life expectancy.If so its a positive enough sign.
Problem then arises , if people work to 70,s how can the young get jobs?

Maybe not just bring in  later state pensions, but what about a sensible hard reduction in pension before future pensions are reduced by even more by necessity.


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## orka (20 Jul 2015)

Looking at high level numbers, to provide a pension of €12,000 (the approximate level of the state pension), you would need a fund of around €300K.  If someone works for 50 years (age 18 to age 68), every year they are accruing a benefit of €6,000.  [And similarly, someone heading for a non-contributory pension accrues a benefit of €6,000 every year from 18 to 68].  If someone works only 30 years, they will accrue a benefit of €10,000 every year.

These are mind-boggling benefits accruing each year (large unbeknownst and unappreciated).  In this context, anyone paying less than €6,000 per annum in tax, USC and PRSI is a net beneficiary from the state every single year of their working life…

Lower-paid self-employed people have a minimum PRSI contribution of €500 so for €500 * 30 years (€15,000), they can accrue a benefit of €300,000.

But at least the self-employed are contributing something – the non-contributory is virtually the same amount so you get the €300,000 benefit for nothing.

The pensions liability is a huge problem that is largely ignored – and I honestly can’t see this problem being solved fairly or equitably.  The state can’t let people starve so there will always have to be a minimum level of income for those who make inadequate provision for themselves.  That leaves those who have made provision for themselves to suffer the reductions that will just have to be imposed.

There is no guaranteed contributory pension amount – the CP could be reduced to €4K tomorrow and still meet the contract implicit in the PRSI contract – give us the money we ask for while you’re working and we’ll give you the CP when you retire.  I think it’ll have to be something like that – a much-lowered CP and then a means tested top-up for those without alternate provision.  It will be unfair and unpalatable to implement but if the alternative is the NCP at below subsistence level, then it will be the only option.

On the contributions, yes they do need to be increased a lot with benefits linked to total contributions (I’m not a big fan of linking to final salary as this can be gamed).  I also think there should be a salary cap – being realistic no government is ever going to give a 50K pension to a former high earner while the NCP gets ever smaller – so I would prefer a cap on contributions rather than pretending fair benefits will come out the far side.


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## Sarenco (20 Jul 2015)

I think orka has fairly highlighted the uncomfortable truth in this whole debate - our unfunded State pension benefits (contributory and non-contributory OAPs and public sector pensions) are excessively generous and, in the medium term, will rapidly become unaffordable.

We can certainly make changes on the revenue side but, ultimately, we will have to face the harsh fact that unfunded State pension benefits will have to be scaled back as our population ages.

The only question to my mind is whether this adjustment will be spread across the generations by starting this adjustment now or whether the full adjustment will be deferred and allowed to fall on future taxpayers and retirees.

Assuming there are no meaningful steps to bring about the necessary adjustments in the near term, the next question is how an individual might proceed to protect their own family's financial position.  No easy answers here but the fact that our Government has already expropriated private retirement savings gives us some clue as to how things may play out.


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## Gordon Gekko (20 Jul 2015)

Perhaps shifting your pension fund overseas is the answer?

Having €2m (in today's terms) in your fund while those who have done nothing to provide for themselves struggle is likely to only end one way...with your fund being raided.

Maybe best to plan to exit Ireland.


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## Steven Barrett (21 Jul 2015)

Brendan Burgess said:


> PAYE employees pay 14.75% (4% and 10.75% from their employers) now, so it's only 5.25% extra.



You never mentioned the 10.75% coming from the employer  I still can't see it happening. The self employed get less tax credits and get hit with a much higher USC that their employed equivalent if they earn over €100k.  If you were in the higher bracket, 70% of income would be taken by the government. and it's not as if we've great roads, police service, education, health service etc. The government would fall if they tried to take 70% of people's income. 

What they need to do is bite the bullet and get the Pensions Reserve Fund up and running again. But pension benefits in 20/ 30 years won't win votes next year. Tax cuts and increased spending will. 

Steven
www.bluewaterfp.ie.


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## ashambles (21 Jul 2015)

SBarrett said:


> What they need to do is bite the bullet and get the Pensions Reserve Fund up and running again. But pension benefits in 20/ 30 years won't win votes next year. Tax cuts and increased spending will.
> 
> Steven
> www.bluewaterfp.ie.


I do not support a pension reserve fund until a government commits to paying some non discretionary level of pension for OAPs.

As it was no one was particularly concerned when the last fund was utilized to help reduce the deficits caused by bank support and government overspending. The private sector expected nothing from the fund and the public sector expected their lump sums and pensions would be paid regardless.

A fund that's supposed to cover guaranteed pensions for one group and unguaranteed pensions for another larger group is so flawed it will always be used as a source of emergency funds.


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## Gerry Canning (21 Jul 2015)

The question was {why no concern?}.

It is too far away for any generation under 30 to worry  forward 40 + years. Unless forced to contribute enough.
It is too far away for any generation under 40 to worry forward 30 + years.  Unless forced to contribute enough. 
It is getting a bit late for generation @50 to then worry forward 20 + years.

Only @ under20 years to retirement do most people start entertaining Pension thoughts.

Government who should future proof pensions,work in 5 year cycles , and in this term they have sadly frightened people who pay into pension.


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## 44brendan (21 Jul 2015)

SBarrett said:


> What they need to do is bite the bullet and get the Pensions Reserve Fund up and running again. But pension benefits in 20/ 30 years won't win votes next year. Tax cuts and increased spending will.


Same rationale as applies to any long term strategy needed to surmount impending difficulties in maintaining elderly care for the future. The NH fair deal scheme is a similar example of a pending future funding time-bomb.
Steven is quite correct in his commentary that reserves are badly needed to fund this rise in outlay. Why are Government exempt from putting aside funds now to cover future PS pensions? Whatever about providing standard OAP's in the future in appears to be a big mistake to continue paying PS pensions from current spending! Average life-span in Ireland is now 81 and rising. Mandatory minimum contributions from those employed must be introduced without delay if we are to avoid a situation where a realistic pension bill cannot be met from the public purse!


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## Firefly (21 Jul 2015)

Can anyone confirm for me, that if the OAP age rises to 68, then if you are 65 and lose your job, are you entitled to the dole until the 68, and if so, is the dole more/less than the OAP?


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## RichInSpirit (21 Jul 2015)

Just another question or two about pensions. Say more tax is collected and put aside for future pension needs as suggested here, what is it invested in? 
Baring in mind that investments can fall in value as well as rise. And who does the investing?


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## Gordon Gekko (21 Jul 2015)

The NTMA one would presume.

A dedicated fund is the only answer. A fund that is invested in high quality global equities and other appropriate assets. If necessary, recruit (say) Norwegians to set up the correct structure and to administer it.


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## Sarenco (21 Jul 2015)

I'm not convinced that there is any merit in trying to re-establish a sovereign fund to meet future State pension commitments while we are carrying a (frankly massive) national debt.

For starters, where's the additional money going to come from?  The tax wedge on higher incomes is already high by international standards and there is considerable resistance to broadening the tax base.  In my opinion, rising income taxes at higher income levels would be counter-productive at this stage as higher earners would simply leave the jurisdiction.  

Cut services?  Could our healthcare, education or social protection systems cope with further cuts?  

I have studied the actuarial projections in some detail and I keep coming back to the same conclusion - ultimately the State will not be able to discharge its current pension promises.  No tweaking of the funding arrangements will change this fact - there simply won't be enough taxpayers around, relative to the number of pensioners, to meet these commitments.

In my opinion, we will have to accept sooner or later that the the State will not be in a position to meet its current pension commitments.  The only question remaining for me is whether we accept and deal with this reality today or leave it to fester and become unmanageable tomorrow.

I think it is interesting to look at the position in the UK by way of contrast.  The basic pension in the UK is roughly 40% lower than our own and the Chancellor recently announced that the SFT (which also impacts public sector workers) is to be reduced to £1m (as against €2m here).  

Do we really think we can justify higher pension payments than the UK?


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## Brendan Burgess (22 Jul 2015)

Sarenco said:


> I have studied the actuarial projections in some detail and I keep coming back to the same conclusion - ultimately the State will not be able to discharge its current pension promises.





Sarenco said:


> In my opinion, we will have to accept sooner or later that the the State will not be in a position to meet its current pension commitments.



Hi Sarenco 

First of all, we have to start addressing this immediately.  We can differ on the solution, but I presume everyone agrees that the earlier we start, the less painful it will be. 

We have to address the funding and the benefits. 

*Benefits *
Switch it to a defined contribution scheme from a defined benefit scheme.  Work out what everyone has contributed, and when that is gone, then they no longer qualify. 

Many will be well off and won't need a state pension. 

Incorporate a person's home in the means test. If  a person has a family home, then any payment of non-contributory pension becomes a charge on the family home. 

Cut the non-contributory pension immediately.  There should be a significant difference between those who have paid for their pension and those who have not. 

*Funding *
Everyone must pay [10%] of their income towards a pension fund.  If you are getting €180 Jobseekers Allowance, €18 would go automatically into a pension fund for you.  If you are earning €9.50 per hour, 95 cents would go into a pension fund for you. 

Every year, people would get a statement showing how much they have in their pension fund.  This fund would be run down as they get paid a contributory pension on retirement. When it runs out, they would get the much lower non-contributory pension.  So it matters how much they have in the fund. 

Ideally, but it would take a long time to implement, the pension on retirement would increase in line with the size of the fund. 

*Interaction with private pensions *
If everyone has to put in 10% of their salary into a state pension fund, then there would be little left for private pensions. 

So maybe set up minimum funding targets. Let's say that they need €300k in the fund at age 65, and €100,000 at age 40, and €50,000 at age 30. People have to contribute 10% to the state pension while their fund is below the target.  If a 30 year old, has contributed €50,000, then their state pension contribution would be reduced to [5%].

Or make it simpler - everyone has to contribute 10% to the state pension fund until they are 40.  At 40, they can reduce the contribution if they have exceeded the target. The idea would be to encourage people to overfund as much as possible in the early years.


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## Brendan Burgess (22 Jul 2015)

Sarenco said:


> I'm not convinced that there is any merit in trying to re-establish a sovereign fund to meet future State pension commitments while we are carrying a (frankly massive) national debt.



I would try to get away from the concept of "state pension commitments" and make people individually responsible for saving for their own pension.  It would not be a defined benefit scheme, but a defined contribution scheme.  

I thought that the National Pension Reserve Fund was wrong while we had a national debt outstanding. It violated the principle of investing borrowed money. 

However, while it might not be financially the best strategy, I can see why it probably would have other advantages.  If we produced an annual "state of the nation's pension fund" report which showed that our liabilities were €300 billion and there was only €10 billion in the fund, then people might well understand the gravity of the problem and accept that they would have to increase their funding a lot more. 

If we pay down our national debt, there will be huge pressure to keep borrowing to live beyond our means.  As long as we have national debt, it will keep pressure on to reduce spending. 

And, of course, the pension fund, could be invested in the government debt. It would not be ideal, but while we have €200 billion in national debt, it probably would be the best overall national strategy.


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## 44brendan (22 Jul 2015)

Brendan Burgess said:


> Cut the non-contributory pension immediately. There should be a significant difference between those who have paid for their pension and those who have not.


Would you fancy the chances of the politician who put this idea forward I'm afraid you won't see any TD prepared to put his/her job on the line by backing this proposal!


Brendan Burgess said:


> Everyone must pay [10%] of their income towards a pension fund. If you are getting €180 Jobseekers Allowance, €18 would go automatically into a pension fund for you. If you are earning €9.50 per hour, 95 cents would go into a pension fund for you.


Yes there is a sound basis for this type of proposal. If it is going to replace the existing OAP then the 10% contribution could be somewhat diluted by the associated offset in Government cost. I.e. theoretically we are still on a contributory OAP as PRSI is meant to be funding the existing pension. Practically this is now somewhat forgotten as contributory and non-contributory pensions are virtually indistinguishable. My point is that many of us are contributing already for 40 plus years towards the OAP and it is still seen as a non-funded benefit open to change at the whim of successive Governments. A 10% wage/salary contribution is likely to be somewhat high for those on low wages and you also have the benefit of employer contributions for most on higher wages. The basis of such a scheme is sound and in all likelihood fully necessary at some stage in the near future. However, I think that there would need to be an in-depth study undertaken of the feasibility of introducing an equitable scheme that does not severely diminish the existing net wage of those in the lower pay brackets.

Whether the current system of a common payment to all is fair or unfair is now probably a moot point as it will be creaking at the seams in less than 10 years anyway. This issue will be buried for at least 12 months as we will be inundated with pre-election spin from all parties who intend spending several billion of our taxes in buying their way into Government! part of the price of living in a democracy


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## Deiseblue (22 Jul 2015)

Joan Burton established a new " Universal Retirement Savings Group " early this year to " develop a roadmap and timeline " for the introduction of a new universal supplementary retirement savings scheme .

Will this be a mandatory workplace pension scheme ? - the Irish Times thinks so & the small firms association ( an affiliate of IBEC ) fear so.

The group are to report back to the Government in Q4 of this year but I think we can safely say that the Government's cogitation period on any recommendations will safely take us past the date of the next General Election !- particularly as the current Government is obviously currently more concerned with the raising of the minimum wage , a part restoration of Public Sector pay , reducing the USC & perhaps part restoring the Christmas bonus  - they certainly don't want bad news spoiling the party.

It should also be noted that similar remedial initiatives in 1996 & 2005 fell foul of political expediencies.

Such a scheme conjures up the perfect storm in that it will increase labour costs , reduce worker's net pay & impact on the vote of whatever parties introduce such a scheme.

As the Irish Brokers Association have pointed out there is no alternative to a mandatory scheme given the doomsday scenario outlined so clearly by Cormac Lucey & myriad other economists & economic commentators.
If such a scheme looks like coming to fruition I really am not looking forward to what is likely to be an unedifying media & social battleground between public & private sector , defined benefit & defined contribution scheme members , contributory & non contributory state scheme members , Trade Unions IBEC et al.

Has Joan or perhaps her incumbent got the bottle to carry this off - should be interesting !


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## Purple (22 Jul 2015)

What are your views Deiseblue?
Should everyone have to fund their own pension?


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## Duke of Marmalade (22 Jul 2015)

The OP seems to be focussed on the "unfunded" nature of the liability.  There may well be a problem with the liability but it is an illusion to think that funding would address it.

The vast majority of state pension schemes throughout the world are "unfunded" in the sense that there is no specific pot set aside.  But that does not mean the pot isn't there.  The pot for the State is the economy and its ability to transfer revenues within the economy.  If this were a communist state the state would legally own most of the economy.  Would that mean that it's pension liabilities were far better funded than a privatised economy?  Not at all.  (I am leaving aside the issue of which system is the more economically efficient.)  In terms of funding for future pension liabilities the difference between public ownership and private ownership of the economy is merely an accounting one.  Either the economy can withstand the solidarity transfers required to meet pensions or it cannot.

The job of government is to maximise economic output over the long run.  The distribution of the fruits of the economy between the citizenry is a separate matter.  The demographic projections suggest that the solidarity transfers implied by current state pension arrangements may not be socially sustainable.  Grabbing more and more public ownership of the economy through a funding arrangement does not solve the problem.  The problem (if it transpires) will have to be managed by reducing the expectations of people in retirement.

Let's see the illusion of state funding of pensions through another lens.  Imagine we had "built up" this pension fund.  Unless we expect the demographic dynamic to go into reverse the fund has to be maintained and indeed on current trends continuously grown.  We never have the chance to spend it without ditching future pensioners

Charlie's pension reserve fund was projected to be spent between 2025 and 2050. It was perceived that there was a demographic "hump" especially in public service pensions.  But the "time bomb" discussed by Cormac Lucey et al is more than a hump,  the population is expected to continue aging.

I am sceptical of these long range "time bombs" (like climate change).  After all a far greater proportion of the population is over 65 to-day than it was 50 years ago.  Were the folk in the 1960s worried about a pensions time bomb exploding in the early 21st century? If they were they have been proven to be alarmist.

Economic growth has been the lubricant which has soothed these demographic frictions.  It may continue to do so.  Funding as a mere book keeping exercise has no role to play in that process.


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## TRS30 (22 Jul 2015)

I would happily forgo the state pension is I didn't have to pay PRSI or pay a reduced PRSI. 

I currently fund a private pension and would increase this on the back of no or lower PRSI. I am quite confident that when I retire (25+ years) that I will not be getting any state pension however will have been contributing towards one my whole working life.


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## Sarenco (22 Jul 2015)

Brendan Burgess said:


> I would try to get away from the concept of "state pension commitments" and make people individually responsible for saving for their own pension.  It would not be a defined benefit scheme, but a defined contribution scheme.
> 
> I thought that the National Pension Reserve Fund was wrong while we had a national debt outstanding. It violated the principle of investing borrowed money.
> 
> ...



Hi Brendan

What you are proposing sounds very like the pension system introduced by General Pinochet's Finance Minister in Chile and still in operation today - the linked research paper gives further details.

https://www.hsdl.org/?view&did=707798

The Chilean system is interesting but it's far from ************************* and entails very significant administration costs.  Ultimately, if you aggregate all the individual retirement accounts the net result is economically not much different to a sovereign pension reserve fund, with considerably higher costs.


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## Sarenco (22 Jul 2015)

Duke of Marmalade said:


> The OP seems to be focussed on the "unfunded" nature of the liability.  There may well be a problem with the liability but it is an illusion to think that funding would address it.
> 
> The vast majority of state pension schemes throughout the world are "unfunded" in the sense that there is no specific pot set aside.  But that does not mean the pot isn't there.  The pot for the State is the economy and its ability to transfer revenues within the economy.  If this were a communist state the state would legally own most of the economy.  Would that mean that it's pension liabilities were far better funded than a privatised economy?  Not at all.  (I am leaving aside the issue of which system is the more economically efficient.)  In terms of funding for future pension liabilities the difference between public ownership and private ownership of the economy is merely an accounting one.  Either the economy can withstand the solidarity transfers required to meet pensions or it cannot.
> 
> ...



Hi Duke

I agree with you that the funding model employed is really of secondary importance but I disagree with your analysis/scepticism of the demographic projections.  

The absolute number of seniors it not particularly important - it's the ratio of dependants to non-dependants that is critical.  In Ireland, this dependancy ratio is projected to gradually (but dramatically) rise over the next 40 years or so before it gradually starts to diminish.  In other words, it is very much a projected demographic "hump" that needs to be managed.

I take the point that long-term demographic trends are notoriously difficult to project with any degree of precision but there is no real disagreement that the dependancy ratio in Ireland will change radically over the next 40 years.  

In my opinion, we need to adjust our commitments/expectations accordingly.


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## Duke of Marmalade (22 Jul 2015)

_Sarenco_

We are not a million miles apart.

I was unaware that it was a demographic "hump" problem.  I am presuming that longevity is expected to continue to increase so (leaving kids out of it) the only thing that would reduce the dependency ratio is an increase in the working lifetime.  Is this what the projections say?


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## epicaricacy (22 Jul 2015)

Brendan Burgess said:


> Incorporate a person's home in the means test. If  a person has a family home, then any payment of non-contributory pension becomes a charge on the family home.
> 
> Cut the non-contributory pension immediately.  There should be a significant difference between those who have paid for their pension and those who have not.'


.

If things get really bad, as projected - why not incorporate a person's family home for the 'contributory pension' as well as the 'non contributory pension' in the means test re. future charge? It would make pensions self funding for all home owners (majority of the population). The only people that will suffer are the progeny of people who don't have a private pension.[


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## Brendan Burgess (22 Jul 2015)

Hi Duke

I am trying to get my head around your argument, which I don't really understand. 

Let's assume we had no state pensions whatsoever.  No involvement of the state either - except that there was a law that everyone must contribute 10% of their income to a private pension fund up to €1m so that they would have an adequate pension in retirement. 

Would that not mean that most people would have to save more than they are saving at present?  Instead of going on holidays or buying new cars or eating out, they would have to build up a fund to be financially independent on retirement. 

"There may well be a problem with the liability but it is an illusion to think that funding would address it." 

Wouldn't compulsory private funding address the problem or compulsory state funding? 

It wouldn't solve it because of the extent of the problem - the benefits would have to be cut as well. 

And, of course, some people would be left destitute, so the state would have to step in. 

Or look at it another way. If the funding doesn't matter, what would happen if  there were no private pensions whatsoever. Surely that would create huge problems?


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## Sarenco (22 Jul 2015)

Duke of Marmalade said:


> _Sarenco_
> 
> We are not a million miles apart.
> 
> I was unaware that it was a demographic "hump" problem.  I am presuming that longevity is expected to continue to increase so (leaving kids out of it) the only thing that would reduce the dependency ratio is an increase in the working lifetime.  Is this what the projections say?


 
Hi Duke

Yes, the actuarial projections show the ratio of people of working age to seniors (65+) (the pensioner support ratio) will fall pretty dramatically to mid-century and then much more gradually to 2060 (projecting beyond this point is not very meaningful) .  Perhaps describing the shape of this projection as a "hump" is not quite right - the graph looks more "L" shaped.


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## Purple (22 Jul 2015)

I think Dukes point is that the big question is can the state as a whole afford the social transfer.

If it can then where it comes from and whether it’s funded from current expenditure or future liabilities are funded through current taxation is not really relevant.

If it can’t then it can’t and how exactly it fails to do so is not really relevant either.

The only way to increase wealth is to increase productivity and efficiency. Can we as an economy increase our productivity and efficiency at a sufficient rate to cover the increasing cost of pensions? That, for me, is the issue.


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## Duke of Marmalade (22 Jul 2015)

_Boss_ I think _Purple_ explained my point far better than me.  Nevertheless, I will try and address your questions.  First thing is to distinguish between the individual and the collective (the country, the state, the economy, call it what you will).  Individuals can behave in ways which if followed by the collective would be a total disaster.  For example, the individual could chose to live very frugally during her working lifetime and invest all her savings in foreign assets.  A very comfortable retirement would result.  If the collective did this the economy would collapse _(other economies would benefit from the outward investment.  Ignore the foreign dimension in the following, it is a distraction.)_

To help me understand the macro picture, I like to consider really extreme versions of the problem.  So imagine that by 2060 *everybody* was a pensioner.  It doesn't matter how much they funded and saved there would be no economy to pay their pensions.  They would possess a whole heap of machinery and other assets which would be worthless.

At the level of State planning it comes down to following the right mix of current and capital expenditure for the long term growth in the economy.  That is the key - max the long term growth.  I presume that is what we are always striving for.  Would the "funding" for future pension liabilities change the mix and get better long term growth?  If so it simply means we have got the mix wrong to begin with.

In summary, governments should always be striving for the best mix of current and capital spend for the long term interests of the economy.  An awareness that there is a pensions time bomb might make the success of the strategy all the more imperative.  There is something wrong with the strategy in the first place if recognising this time bomb causes a shift to be made from current spend to capital spend.  Repeating myself, such a decision could well make sense at the individual level but is fallacious at the collective level.

So my thought scenario goes as follows.  Government completely ignore the pensions time bomb but achieve their economic objective of maxing long term growth. In 2060 we have as good an economy as we could possibly have.  The other given in my thought scenario is the demographics.  Let's say by 2060 we do indeed have a superfluity of pensioners.  The ability of these pensioners to take a large share of the economy has limits no matter how much either they individually had "funded" their pension or the State had funded it.

Take individual funding first - yes it gives them some legal claim to their share of the economy - but if that were socially too onerous on the working population one would see things like pension or wealth taxes to redistribute to the workers.   Taking State funding, what exactly do we mean? Do we mean that the State has earmarked a certain chunk of the economy for the pensioners?  Again if this presents an unbearable call on the workers political pressure would force a redistribution.

Unless you are claiming that what you are suggesting will enhance long term growth, I see the concept of funding as largely illusory in the context of the pensions time bomb.


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## Brendan Burgess (22 Jul 2015)

I will have to reflect on that. I have had problems getting my head around the "savings ratio" and such economic concepts. 

Does it really apply to an open economy like Ireland?  If I choose to buy foreign shares today instead of going on a foreign holiday or buying a car, I would have thought that would work out better for the economy in the long-term.  When I retire I will repatriate my assets from overseas and spend them in the local economy - probably paying a foreign nurse to care for me. 

If, instead of putting money into overseas shares for my pension, I eat out more and decorate my house every year, the economy will be better off today, but only temporarily. 

If I invest in infrastructure in Ireland, instead of eating out, I suspect that we will be better off in the long-term.  

I think I know where you are coming from, but intuitively it feels wrong. It sounds like the anti-austerity argument. Borrow lots of money now to stimulate economic growth.  Are you saying we should spend, spend, spend instead of saving, saving, saving. 

I suspect that a balance must be struck.


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## Duke of Marmalade (22 Jul 2015)

_Boss_ this is starting to give me a sore brain

It is a very complex picture and undoubtedly many of your points are valid especially at the individual level.

I am simply pointing out the super-macro reality that if the economy/demographics are projected to be catastrophic the concept of "funding" is not going to help unless it leads to extra economic growth and I don't think you are arguing that it will.  My argument is that I don't see how funding _per se_ will add to economic growth.  Again, no major economy does fund for future pensions in that book keeping sense, though I agree that Ireland's openness makes it fairly unique.

No, I am most certainly not a looney left Keynesian  Yes, it is all about balance - would formal funding improve  the balance?  I am not convinced.  Would individualisation of the problem help?  It is more flexible, I suppose, but of itself cannot melt the economic/demographic iceberg.


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## Sarenco (22 Jul 2015)

http://www.oecd.org/els/public-pensions/2429310.pdf

I am attaching an OECD paper on the Chilean pension system that I mentioned previously that might be of some interest.

The Chilean system is something of a test case for transitioning to the sort of funding model suggested by Brendan and, as such, has been the subject of considerable academic interest over the last three decades.

The OECD paper contains an interesting discussion on the impact on a (relatively) open economy of transitioning away from a PAYGO funding model.


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## Sarenco (22 Jul 2015)

http://www.economist.com/node/160293
http://www.economist.com/node/5149330

I am also attaching links to a couple of articles from the Economist on the funded pension model in Chile.


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## Jim2007 (22 Jul 2015)

Duke of Marmalade said:


> Unless you are claiming that what you are suggesting will enhance long term growth, I see the concept of funding as largely illusory in the context of the pensions time bomb.



This is simply not the case, of course it is possible to fund an individual's pension!  Most of my generation here in Switzerland are subject to the pension reforms introduced here over the past 30 years and the result is that I will rely on the state for less than 20% of my total pension, when I start to draw pension.  When I moved here at the age of 27, I was required by law to start contributing to the first (state) and second (employer) pillars of the pension system.  The first pillar contribution is about 5% on 106K for both employer and employee and the minimum second pillar contribution is about 7.5% for both the employer and employee.  So at a minimum the contributions are around 25% of salary for young people and can raise to as high as 30% for people in their 50s.

Our biggest issue is the funding of pension for previous generations who are not already retired.  But over time that issue will decrease and the majority of people will be primarily on funded pensions.


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## Duke of Marmalade (22 Jul 2015)

Jim2007 said:


> This is simply not the case, of course it is possible to fund an individual's pension!  Most of my generation here in Switzerland are subject to the pension reforms introduced here over the past 30 years and the result is that I will rely on the state for less than 20% of my total pension, when I start to draw pension.  When I moved here at the age of 27, I was required by law to start contributing to the first (state) and second (employer) pillars of the pension system.  The first pillar contribution is about 5% on 106K for both employer and employee and the minimum second pillar contribution is about 7.5% for both the employer and employee.  So at a minimum the contributions are around 25% of salary for young people and can raise to as high as 30% for people in their 50s.
> 
> Our biggest issue is the funding of pension for previous generations who are not already retired.  But over time that issue will decrease and the majority of people will be primarily on funded pensions.



I have stated that individual pension funding is a different dynamic from collective funding.  The time bomb is not really that people won't be adequately funded it is that pensioners will have too high a demand on the economy.  Funding does not help that unless it leads to higher economic growth and I remain to be convinced that it does.  In fact funding could exacerbate the problem by convincing pensioners that they have a claim on the social economy which it can't afford.  If the majority of folk in Switzerland believe that they are adequately funded then that amounts to a collective illusion - you can't get blood out of a stone.  If the social economy cannot afford the transfer to you in your dotage it will find a way to deny you your "entitlement" no matter how much you think you are funded.


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## Sarenco (22 Jul 2015)

I will leave it to Duke to advance the macro economic arguments!

I think it is also important to bear in mind that there is also a social solidarity aspect to any public pension system (however funded).  The experience in Chile was that early joiners (in the early 80s) found that they were able to retire early because their individual retirement accounts performed so well whereas later joiners are now waking up to the fact that their individual accounts will not give them a decent income in retirement. 

On one level that's the way capitalism is supposed to work but I would need some convincing that this is appropriate from a public policy perspective - regardless of the (in)efficiency of the funding system.


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## Brendan Burgess (22 Jul 2015)

Duke of Marmalade said:


> The time bomb is not really that people won't be adequately funded it is that pensioners will have too high a demand on the economy.



OK, after a few pints, I can see the point that you are making. 

But it's not enough to go from the individual to the collective level. You must go from the national level to the global level. 

If we as a nation consume less of our output now and invest it abroad, then won't we be richer when we are older? 

Your point would be valid if we were a closed economy.  

Brendan


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## Duke of Marmalade (22 Jul 2015)

_Boss_ those are blo*dy good pints

Yes, as a small open economy we have more options.  But the more this interesting debate proceeds the more lucid my thinking becomes.  I actually think that public funding is bad  The time bomb is that the social economy will have too big a strain from dependancy.  Assuming that funding does not actually increase the cake it merely increases the "entitlement" mindset of the pensioners and therefore makes the necessary adjustment all the more painful.


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## Brendan Burgess (23 Jul 2015)

Duke of Marmalade said:


> Were the folk in the 1960s worried about a pensions time bomb exploding in the early 21st century? If they were they have been proven to be alarmist.



Have they not being playing pass the parcel with the time-bomb? 

Just because it does not go off on the current government's watch, doesn't mean it's not a problem. 

The existing time-bomb will not go off for 10 or 20 years. We may well have a big Oireachtas Enquiry in 2035 asking people what warnings they had received and why they took no action. 



Duke of Marmalade said:


> I am sceptical of these long range "time bombs" (like climate change).



Scepticism is fine.  But the pensions and the climate change problems are both similar. It is costly to do anything about them now so there is very little public support for dealing with them now. But the longer we leave them, the worse they get. And we may leave it too late.


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## Brendan Burgess (23 Jul 2015)

Duke of Marmalade said:


> I actually think that public funding is actually bad
> 
> ...Assuming that funding does not actually increase the cake it merely increases the "entitlement" mindset of the pensioners and therefore makes the necessary adjustment all the more painful.



Duke that is a very interesting point.

Again, I would argue, that if the state invested the funds overseas, the public funding would be good. 

Surely we would be a lot better off today if we had government reserves of €200 billion rather than national debt of €200 billion?  If the €200 billion had been borrowed to build roads and schools and hospitals, maybe not.  But if it was borrowed to pay social welfare, public service salaries and allow very low taxes, then it's not a good idea. 

But maybe we should campaign to abolish public pensions completely and force people to fund them privately. If someone does not fund their pension, let them starve in their old age?

Brendan


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## mf1 (23 Jul 2015)

"If someone does not fund their pension, let them starve in their old age?"

One way of freeing up housing stock!

mf


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## Fella (23 Jul 2015)

If you don't pay anything into a pension I don't see why you should be entitled to anything, If someone does not fund their pension then  "let them starve "is probably a bit harsh as they are expecting something , but it needs to change , at some point people need to be told save for it as there is going to be not enough money by 20** so make your own plans from now. 
I mean if you work your whole life and haven't planned for retirement you deserve to feel the pinch when your older, I'm 34 and am making plans for my future all the time , in this country it's tiring watching people get everything for nothing and think they are entitled to it , social welfare , medical cards , rent allowance , non contributory pensions - you can do nothing your whole life in Ireland and still live a comfortable life , if your middle class you work your life and get the same pension as someone who has never worked a day its a joke system, I would like to see much more hardship on the unemployed and non contributors.


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## orka (23 Jul 2015)

Duke of Marmalade said:


> I am sceptical of these long range "time bombs" (like climate change).  After all a far greater proportion of the population is over 65 to-day than it was 50 years ago.  Were the folk in the 1960s worried about a pensions time bomb exploding in the early 21st century? If they were they have been proven to be alarmist.


A big difference back in the 1960s is that Irish people had far bigger families - probably averaged over 4 per family.  That was the pension plan - create lots of future taxpayers to pay for their (collective) parents in old age.  We don't have that anymore - in common with the rest of Europe, Irish fertility rates are below replacement level.

This is quite a thought-provoking discussion.  I started off thinking that it's a huge problem and something should be done.  Now I still think it's a huge problem but from a selfish, personal point of view, I don't think it's in my interest for something to be done.  As a high earner, I can pretty much guarantee that any solution will involve me paying in a lot more than I would ever get back.  I am better off putting the cost of any solution into my own savings and looking after myself - in the full expectation that the contributory pension will be a lot lower/means-tested when I retire in 20/25 years time.

If good things come to pass and this is not an issue when I retire, happy days.  But I don't think hope is a great strategy so I would rather trust myself than politicians to look after me in retirement.

I think a large part of the answer to the original question (why is there not much concern) is that those who will be most affected by this in retirement are those who have no/little provision other than the state pension and they (almost by definition I would say) are unaware of the problem.  It's kind of a self-ending issue - once you start thinking about this and you realise there's a big problem, you take the only steps you personally can take - which is to start making provision for yourself.  Once you make provision for yourself, the problem lessens for you personally so there's less need to campaign for change - because to do so will remove control of your finances from you - and possibly pool your resources for the greater good (also known as taking from the prudent and giving to the less prudent).


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## Purple (23 Jul 2015)

Fella said:


> I would like to see much more hardship on the unemployed and non contributors.


 The trouble with that, from a purely selfish point of view, is it creates an under-class which leads to more crime and social disorder. We could end up like the USA where 5% of the worlds population has 25% of the worlds prison population. We'd end up spending the same amount of money, just on different things.


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## orka (23 Jul 2015)

Just found this website showing Ireland's population pyramids from 1950 through to projected 2100 (from United Nations, Department of Economic and Social Affairs, Population Division.)

http://populationpyramid.net/ireland/2050/

You can visually see the bulge growing at the top of the pyramid - from a smallish triangle of over 65s supported by a much larger block of under 65s now (2015) - to relatively much larger blocks of over 65s as the years progress.


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## Duke of Marmalade (23 Jul 2015)

*Sitting of the Inquiry into the Pensions Crisis 2035
Ostrich Module*

Q.  Was this crisis not forecast a long time ago and why was nothing done about?

A.  The possibility of the crisis was forecast but the expectation was that long term growth would continue along the lines of the previous 200 years.  Few commentators projected that growth would dry up completely as it has.

Q.  Should contingency plans not have been put in place?

A.  Like issuing free cigarettes to over 65s to increase mortality

Q.  I remind you against contempt of this Inquiry  Specifically why did you not invest for this possibility?

A.  What do you think the tunnel from Dublin to Holyhead (to name but a few) was?

Q.  But should this not have been put in a separate fund for pensioners?

A.  And what good would that bit of book keeping do?

Q.  Would it not be better that we acquired foreign assets?

A.  There would be no tunnel then and a share in the tunnel from Spain to Africa would be a poor substitute.  In any case there is a limit to how long we can rely on foreign assets to solve our problem, it is at best a temporary fix to get us over a hump.

Q.  The government has announced a 30% reduction in all its pensions both public service and social welfare.  Why has it also introduced a 30% levy on private pension provison?

A.  The issue is that working men and women are struggling to make ends meet whilst many of our elderly citizens are living in relative leisure and luxury.  Social solidarity required that all pensioners needed to contribute to this situation.

Q.  There is a mob waving brollies and walking sticks outside this very Inquiry.  Are you saying that nothing could have been done to prevent this debacle?

A.  I suppose we should have eased in the pain more gradually.  But could we have done anything more to prevent this adjustment?  the answer is no.


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## Purple (23 Jul 2015)

orka said:


> Just found this website showing Ireland's population pyramids from 1950 through to projected 2100 (from United Nations, Department of Economic and Social Affairs, Population Division.)
> 
> http://populationpyramid.net/ireland/2050/
> 
> You can visually see the bulge growing at the top of the pyramid - from a smallish triangle of over 65s supported by a much larger block of under 65s now (2015) - to relatively much larger blocks of over 65s as the years progress.


Excellent graphic.


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## Brendan Burgess (23 Jul 2015)

*Sitting of the Inquiry into the Pensions Crisis 2035 continued *

Call the next Witness: Taoiseach Mr Simon Harris 

Sinéad Cowen (Fianna Fáil - Laois Offaly)  Mr Harris you were the Minister of State at the Department of Finance at the time. Did you not read the papers forecasting this time-bomb?

Mr Harris: Yes, but we were busy clearing up the mess made by your father when he sold our sovereignty to the IMF and the former ECB. The economic reports from the ECB never highlighted this as an issue.  Anyway, in those days we had a Department of Social Protection led by Joan Burton of the defunct Labour Party. It was her area. Not mine. 

Cowen: That Department produced a KPMG report in 2010 saying that the default was in excess of €350 billion euro - the equivalent of 18 trillion punts in today's money. 

Harris: But I was only 28 at the time - pensions were the last thing on my mind.  It will probably all be sorted by the time I retire at 85.


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## Bronte (23 Jul 2015)

Of course politicians with their gold plated pensions don't have to worry about this issue for themselves, and nor do their civil servant advisors.


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## rob oyle (23 Jul 2015)

Brendan Burgess said:


> *Sitting of the Inquiry into the Pensions Crisis 2035 continued *
> 
> Call the next Witness: Taoiseach Mr Simon Harris
> 
> ...



What vision you have!

Unfortunately this may not be far from the truth... Eoghan Murphy as Minister for Finance (formerly Minister for Health, Minister for Education and whatever you're having yourself...)


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## Firefly (23 Jul 2015)

This will be a much different issue than the banking crisis. It will be like global warming....it's not worth the effort of any single person today to try and fix this as it's going to happen anyway. The effects will only be felt over time, bit by bit, like death by a thousand cuts, and when the brown stuff hits the fan, it will be too late.

Therefore, I would be in favour of the following:

1. Forcing workers to put a % of their pay into a pension. I'd leave it to the boffins to calculate this percentage. I would also like to see that it would be possible to use _any _pension fund regulated in the EU rather than the small, cosy cartel of pension providers here

2. Put a line in the constitution that private pensions cannot be levied by the government - this would give people the confidence to save for a pension

3. Limit Old Age Pension increases to something like 90% of the cost of living increase, over a long number of years (i.e. inflate away the problem) and _only _when the economy is in a surplus

4. Switch all public sector pensions to defined contribution immediately (by all means honouring defined benefits accrued up to now) - this would draw a line under this massive liability, where it could be financed by separate bond funding down the road. There would also be a better chance for PS workers of getting their pensions too!

Any other suggestions?

Firefly.


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## Firefly (23 Jul 2015)

orka said:


> I started off thinking that it's a huge problem and something should be done.  Now I still think it's a huge problem but from a selfish, personal point of view, I don't think it's in my interest for something to be done.  *As a high earner, I can pretty much guarantee that any solution will involve me paying in a lot more than I would ever get back.*  I am better off putting the cost of any solution into my own savings and looking after myself - in the full expectation that the contributory pension will be a lot lower/means-tested when I retire in 20/25 years time.



Orka, you & I are in the same boat and we are both rowing in the same direction! As much as I'd like to increase my pension provision here, I just see it being taken from me when I need it most. Granted the tax benefits are good putting funds into a pension, but I think I am going to take my chances with my own investments


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## Firefly (23 Jul 2015)

Hi Duke!

I understand your argument for the government to concentrate their efforts on acheiving maximum growth in the economy over the longterm as the best way of meeting future obligations. In a perfect world I would agree, however, all you have to look at is what happened during the CT to understand what happened when there was funds in the coffers! It goes out faster than it comes in. All the vested interests lined up with their pockets opened. Remember those trips to NY by the great & good in FAS? In additon, external forces such as international recessions can scupper the best efforts by any individual government. Given that our economy has never really been constant, but either in a state of incline or decline, leaving the provision of pensions entirely on the status of the economy at any particular time would be dangerous in my opinion. Best to take a small bit out of the economy over a long period of time. 

Firefly.


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## Duke of Marmalade (23 Jul 2015)

Next Witness:  Gerry Adams Tanaiste

Chairman:  Mr. Adams, you are 85 years of age and have been in charge of your party for quite some time now

Adams:  A cairde, mise ni ocras ar...

C:  Inquiry adjourns for 20 mins to source an interpreter

20 mins later....

C:  Don't you think your decision to exit the euro with the subsequent 10 fold devaluation of the punt contributed to this crisis?

Adams:  Not at all.  It was that ridiculous white elephant of a tunnel which the blue shirts built to their beloved brits.

C:  Tomorrow you are entitled to your Old Age Pension.  Will the 30% reduction affect you personally.

Adams: Ah naw, sure that much went to the party anyway.


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## Firefly (23 Jul 2015)

Just to add (I really should have bunched all my posts together), I think that:

(1) the OAP will be means tested in years ahead, and I wouldn't be surprised if the home was taken into account in this calculation either
(2) if you have income from other sources, such as another pension, your OAP might be reduced

I think the association people have with the OAP currently is that it is a _right_. Going forward, perhaps, it may be seen as a help to the less well-off, like the dole is now.

Firefly


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## Jim2007 (23 Jul 2015)

Firefly said:


> I would also like to see that it would be possible to use _any _pension fund regulated in the EU rather than the small, cosy cartel of pension providers here.



Irish pension funds need to be better regulated to start with and why not mandate the minimum acceptable returns as we do here in Switzerland.  Here a pension fund is required to provide investors with a minimum return as defined by the government from time to time before fees can be drawn and failure to reach the required return means that the management company must top up the fund to meet the required rate of return.  And even with these rules we have no shortage of pension funds on offer.


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## Duke of Marmalade (23 Jul 2015)

Jim2007 said:


> Irish pension funds need to be better regulated to start with and why not mandate the minimum acceptable returns as we do here in Switzerland.  Here a pension fund is required to provide investors with a minimum return as defined by the government from time to time before fees can be drawn and failure to reach the required return means that the management company must top up the fund to meet the required rate of return.  And even with these rules we have no shortage of pension funds on offer.


Wow! That is incredible.  What sort of minimum returns are required these days?


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## Firefly (23 Jul 2015)

Jim2007 said:


> Irish pension funds need to be better regulated to start with and why not mandate the minimum acceptable returns as we do here in Switzerland.  Here a pension fund is required to provide investors with a minimum return as defined by the government from time to time before fees can be drawn and failure to reach the required return means that the management company must top up the fund to meet the required rate of return.  And even with these rules we have no shortage of pension funds on offer.



Hi Jim,

Would this not just promote more risky investments in order to try to meet the required returns? 

Firefly.


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## Jim2007 (23 Jul 2015)

Firefly said:


> Would this not just promote more risky investments in order to try to meet the required returns?



No because the asset classes, allocations and even the instruments are also regulated, discressionary investing is limited to around 5% of the fund.  Most funds are also required to report on a quarterly basis (The Swiss rarely loose their own money )


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## elacsaplau (24 Jul 2015)

Hi Jim

Maybe we should open a new thread because we are moving quite far from Brendan's original question?

Can you elaborate on these investments please? I'm a believer in the no free lunch dictum so I'd like to understand what one is sacrificing in return for guarantees. In general, investment is a trade off between risk and reward - so if guarantees are provided to both capital and growth, there must be significant consequences somewhere. Perhaps there are multiple funds available so, for simplicity, can you use the example of an individual with a long term investment horizon please? The type of info that would be helpful would include:
- what is the typical asset allocation between the different asset classes?
- what is the geographical spread of these investments?
- what is the minimum benchmark return?
- over what period are the benchmarks calculated?
- what are the typical charges if the required return is achieved?


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## Shawady (29 Jul 2015)

Protocol said:


> The transition pension at age 65 has been abolished.


 
Protocol,
What is the transition pension you are talking about?


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