# "cuts to state pensions must be considered"



## Brendan Burgess

From the Irish Times 

http://www.irishtimes.com/business/economy/cuts-to-state-pension-must-be-considered-1.2049998



> A cut in the basic rates of the State pension must be considered as an option to ensure its sustainability, officials at the [broken link removed] have argued.
> 
> An expenditure review drawn up by departmental officials has expressed strong concerns about the future of expenditure levels on the State contributory and non-contributory pensions, and related universal benefit schemes for older people.
> 
> It has suggested that, without changes and in the face of demographic pressures, the State could have to provide annual increases in funding of nearly €200 million in these areas up to 2026.



I wonder if they looked at cutting public service pensions?


----------



## monagt

Or Public Sector Pay, or Charge BIK for free parking in Dublin.

They are now chasing Wedding gifts such as Honeymoons, cars, help with a house deposit, etc. The parents can pay for the reception without tax implications.

And we should not forget that most of these pensions were Contributory which means they were paid for in advance.


----------



## Monbretia

Cut it by all means for those with a second pension, someone who has only state pension can barely survive on it as it is.


----------



## Steven Barrett

Brendan Burgess said:


> I wonder if they looked at cutting public service pensions?



Didn't they change the terms of the public service pension a few years back? Isn't it based on average salary instead of final salary? 

I don't agree that the Old Age Pension should be means tested. People have made PRSI contributions all their working lives and for those who were self employed, it is the only benefit they get from their contributions. They should not then be penalised because of the negligence of successive governments in ignoring the well publicised pension problem. Means test the ancillary benefits such as free travel, coal allowance etc but not the main benefit. 

Instead of just cutting benefits, why don't the government put a fund in place to pay for these pension benefits in the future...



...oh, yeah 

Steven
www.bluewaterfp.ie


----------



## jpd

How exactly would the government put a fund in place to pay the these future benefits - there are only two options to raise the funds required either 1) increase revenue ie income or expenditure taxes or 2) reduce other expenditure ie health care, education

1) is rather problematic as most people now feel that taxes have risen more than enough and further increases will be resisted with the same vigour as the water charges so that's really a no goer for any party trying to win an election.

2) it is hard to see how the volume of health care or education cost expenses can be further reduced and there is no stomach for a fight to reduce the unit costs ie salaries & wages in the public sector.

There is a real problem looming and this is just the first step in getting the debate of how to fund future pensions going - it's long overdue


----------



## Deiseblue

SBarrett said:


> Didn't they change the terms of the public service pension a few years back? Isn't it based on average salary instead of final salary?
> 
> I don't agree that the Old Age Pension should be means tested. People have made PRSI contributions all their working lives and for those who were self employed, it is the only benefit they get from their contributions. They should not then be penalised because of the negligence of successive governments in ignoring the well publicised pension problem. Means test the ancillary benefits such as free travel, coal allowance etc but not the main benefit.
> 
> Instead of just cutting benefits, why don't the government put a fund in place to pay for these pension benefits in the future...
> 
> 
> 
> ...oh, yeah
> 
> Steven
> www.bluewaterfp.ie



I believe the " averaging " of pensions only applies to entrants employed on or after the 1st January 2013.


----------



## Sarenco

It is certainly about time that we started an honest discussion in this country about all State pension liabilities (public sector, contributory OAP and non-contributory OAP).  The longer this problem is allowed to fester, the more unpalatable the solutions.

I would agree with the widely held view that public sector pensions are overly generous and career averaging should be introduced immediately for all such pensions (whether in payment or otherwise).   Alternatively, a pro-rata reduction of all such pensions may be more equitable/easier to administer.  There are obviously legal issues here but there is precedent for a constitutional amendment to resolve such issues.

However, I think we also have to accept that OAPs (both contributory and non-contributory) are overly generous - the contributory OAP rate is almost 40 per cent higher than the UK equivalent!

I think it is important, in the interests of equity, that all State pension liabilities are dealt with as a single problem.  This issue will become increasingly pressing over the coming decades and, at a minimum, the policy direction must be determined as a matter of increasing urgency.

I strongly disagree with the suggestion that contributory State pensions should be cut for those with private pensions.  Firstly, the contributory pensions have been funded over a working lifetime by way of PRSI contributions.  Secondly, why would anybody make private pensions contributions if they are going to be effectively penalised?  Ultimately any reduction in the amount of the contributory pension that is linked to the existence of a private pension (or any other private means) will be counter-productive and will simply exacerbate the problem.

The immediate reaction of the Tanaiste today to the IT story does not fill me with confidence that we are about to see any rational analysis or discussion on this looming problem. Pretty depressing.


----------



## Brendan Burgess

Sarenco said:


> The longer this problem is allowed to fester, the more unpalatable the solutions.



I think that this is really the key point. 

The solution now will not be palatable.  But it might be manageable. If we leave it, it will be neither palatable nor manageable. 

We have to start addressing the problem now.


----------



## Sarenco

I couldn't agree more.

It seems to me that the looming pensions crisis is the largest financial issue facing the Irish State. 

Frankly, I think it is really shocking that there has been no substantial attempt to address this issue by successive governments over the last decade (beyond commissioning reports that are gathering dust) or even any attempt to formulate a policy direction in this regard.  On the contrary, the current government continues to raid private pensions (I know the Minister for Finance has promised to stop doing this next year but the Minister welched on a similar promise given last year) and doesn't appear to be prepared to even consider addressing the State's unfunded pension liabilities.

In contrast, in the UK a former conservative leader (Iain Duncan Smith) was appointed pensions minister and has embarked on a series of reforms, including auto-enrolment, liberalising private pension rules to increase their attractiveness and reforming the state pension eligibility criteria.

I would speculate that the long-term legacy of the current government will be their failure to address the pension issue.


----------



## RainyDay

SBarrett said:


> Didn't they change the terms of the public service pension a few years back? Isn't it based on average salary instead of final salary?
> Instead of just cutting benefits, why don't the government put a fund in place to pay for these pension benefits in the future...
> ...oh, yeah



Just in case, some forget about the National Pension Reserve Fund that was building up quite nicely until it had to be emptied to keep our banks afloat: [broken link removed]


Sarenco said:


> It is certainly about time that we started an honest discussion in this country about all State pension liabilities (public sector, contributory OAP and non-contributory OAP).  The longer this problem is allowed to fester, the more unpalatable the solutions.


Absolutely right. And let's not forget the cost in tax foregone of tax relief on private pension contributions too.


Sarenco said:


> I would agree with the widely held view that public sector pensions are overly generous and career averaging should be introduced immediately for all such pensions (whether in payment or otherwise).   Alternatively, a pro-rata reduction of all such pensions may be more equitable/easier to administer.  There are obviously legal issues here but there is precedent for a constitutional amendment to resolve such issues.


I'm not quite sure how you worked out that your view was 'widely held', but that's probably for another day. I'm also quite unclear as to why you think it would be OK for any employer, public or private, to walk away from contractual commitments to employees, past or present. Employees made career decisions and life decisions based on these contractual commitments. In particular, many employees accepted lower salaries that they could achieve elsewhere based on the commitment of particular pension benefits. And I'm not sure what kind of constitutional amendment might be involved - presumably you're talking about some kind of amendment to the rights to private property? If you think any such amendment would be taken lightly by much of the population, you are badly mistaken.



Sarenco said:


> However, I think we also have to accept that OAPs (both contributory and non-contributory) are overly generous - the contributory OAP rate is almost 40 per cent higher than the UK equivalent!


Such contributions are quite meaningless without comparing overall costs of living and overall state supports provided. What value do you put on the NHS, for example, and how much of the 40% gap you mention would be accounted for the gap in health services provided by the State.



Sarenco said:


> I strongly disagree with the suggestion that contributory State pensions should be cut for those with private pensions.  Firstly, the contributory pensions have been funded over a working lifetime by way of PRSI contributions.  Secondly, why would anybody make private pensions contributions if they are going to be effectively penalised?  Ultimately any reduction in the amount of the contributory pension that is linked to the existence of a private pension (or any other private means) will be counter-productive and will simply exacerbate the problem.


Yes, fully agree.



Brendan Burgess said:


> I think that this is really the key point.
> 
> The solution now will not be palatable.  But it might be manageable. If we leave it, it will be neither palatable nor manageable.
> 
> We have to start addressing the problem now.


Yes and no. Yes, the sooner we start addressing it, the better. But we are just getting our heads back above water in terms of the national economy. I'm guessing that if you were advising a young couple who were just getting their heads above water financially, but who's stability over the next few years was quite uncertain, pension contributions would be the last thing on your mind. 



Sarenco said:


> I would speculate that the long-term legacy of the current government will be their failure to address the pension issue.


I'm really not sure why you want to castigate this particular government who have steered the State through the biggest immediate financial crisis in our history for failing to address the long term problem, in addition to the many short term problems addressed?


----------



## thedaddyman

Should the debate not be broadened to include other benefits aside from the state pension? Take free travel for an example, a tightening on the rules around that could be used to reduce the state subvention to the transport providers?


----------



## roker

SBarrett said:


> Instead of just cutting benefits, why don't the government put a fund in place to pay for these pension benefits in the future...


 


jpd said:


> How exactly would the government put a fund in place to pay the these future benefits -


Did they not take a few billion out of the pension fund to help Austerity?
The pensions in Ireland have to be higher because of the rip off culture health expenses etc.
I have a number of pension including UK an Irish state pension all of which I have paid into all of my working life, why should I be penalised ?


----------



## Sarenco

RainyDay said:


> Just in case, some forget about the National Pension Reserve Fund that was building up quite nicely until it had to be emptied to keep our banks afloat: [broken link removed]
> 
> Absolutely right. And let's not forget the cost in tax foregone of tax relief on private pension contributions too.
> 
> I'm not quite sure how you worked out that your view was 'widely held', but that's probably for another day. I'm also quite unclear as to why you think it would be OK for any employer, public or private, to walk away from contractual commitments to employees, past or present. Employees made career decisions and life decisions based on these contractual commitments. In particular, many employees accepted lower salaries that they could achieve elsewhere based on the commitment of particular pension benefits. And I'm not sure what kind of constitutional amendment might be involved - presumably you're talking about some kind of amendment to the rights to private property? If you think any such amendment would be taken lightly by much of the population, you are badly mistaken.
> 
> 
> Such contributions are quite meaningless without comparing overall costs of living and overall state supports provided. What value do you put on the NHS, for example, and how much of the 40% gap you mention would be accounted for the gap in health services provided by the State.
> 
> 
> Yes, fully agree.
> 
> 
> Yes and no. Yes, the sooner we start addressing it, the better. But we are just getting our heads back above water in terms of the national economy. I'm guessing that if you were advising a young couple who were just getting their heads above water financially, but who's stability over the next few years was quite uncertain, pension contributions would be the last thing on your mind.
> 
> 
> I'm really not sure why you want to castigate this particular government who have steered the State through the biggest immediate financial crisis in our history for failing to address the long term problem, in addition to the many short term problems addressed?


 
Hi RainyDay

Some thoughts on the above.

Firstly, I really did not mean to start a private v public sector debate.  On the contrary, I was trying to make the point that all unfunded State pension liabilities/benefits should form part of this discussion.  You are quite correct that it was presumptuous of me to assume that there is a widely held view that public sector pensions are overly generous.  This may well be a view that is only held by a narrow minority.

Secondly, it is not technically correct to say that relief on contributions to private pensions represents tax forgone - it actually represents a deferral of liability.  Tax will be due at the prevailing rate (which we obviously cannot know in advance) on all amounts subsequently drawn down.

Thirdly, I never suggested or implied that it was OK for anybody to walk away from their contractual commitments.  As regards employees accepting lower salaries in exchange for higher pension entitlements, I would simply make the point that repeated studies have shown that, on a like for like basis, public sector workers earn considerably more than their private sector counterparts - and that's without taking pension entitlements into account.  This phenomenon appears to be somewhat peculiar to Ireland.  The constitutional amendment referred to in my earlier email related to the remuneration of the judiciary.

Fourthly, I very much take the point that the cost of living in Ireland, and in particular high healthcare costs, is part of the problem.  I personally would have no difficulty if all unfunded State pension liabilities were reduced by 40%, with a corresponding increase in the resources allocated to the public healthcare system.

Finally, I am particularly critical of the current government policy on pensions because (a) there doesn't appear to be one!; (b) they have exacerbated the problem by raiding existing private pensions and by making private provision substantially less attractive; and (c) because the issue is becoming increasingly urgent.


----------



## monagt

"Secondly, it is not technically correct to say that relief on contributions to private pensions represents tax forgone - it actually represents a deferral of liability. Tax will be due at the prevailing rate (which we obviously cannot know in advance) on all amounts subsequently drawn down."

+1 and now they have robbed the funds with the levy.


----------



## RainyDay

Sarenco said:


> Some thoughts on the above.


Thanks for your measured response.


Sarenco said:


> Firstly, I really did not mean to start a private v public sector debate.  On the contrary, I was trying to make the point that all unfunded State pension liabilities/benefits should form part of this discussion.  You are quite correct that it was presumptuous of me to assume that there is a widely held view that public sector pensions are overly generous.  This may well be a view that is only held by a narrow minority.


It would important that ALL pension benefits, including tax relief is on the table for any review of pensions. I suspect that some people would like to see a review of 'all pension benefits that apply to other people but not me'. Such reviews aren't a great basis for sound public policy, so if we are going to have a review or strategy, we need to have everything on the table.


Sarenco said:


> Secondly, it is not technically correct to say that relief on contributions to private pensions represents tax forgone - it actually represents a deferral of liability.  Tax will be due at the prevailing rate (which we obviously cannot know in advance) on all amounts subsequently drawn down.


This is factually untrue. Tax will NOT be due on all amounts drawn down. The 25% lump sum will avoid tax. The annual tax free allowance will avoid tax on a chunk of the annual income. The lower tax rate will allow for a reduced tax rate on another chunk of the annual income. The investment growth of the tax-free contributions will come into play also. The tax relief is an awful lot more than a deferral, and even if it were just that, the cash flow/timing implications would be a major issue which need to be on the table for any review.


Sarenco said:


> Thirdly, I never suggested or implied that it was OK for anybody to walk away from their contractual commitments.


I was basing this on your comments about "career averaging should be introduced immediately for all such pensions (whether in payment or otherwise). Alternatively, a pro-rata reduction of all such pensions may be more equitable/easier to administer". Your proposals would involve a walking away from existing contractual commitments.



Sarenco said:


> As regards employees accepting lower salaries in exchange for higher pension entitlements, I would simply make the point that repeated studies have shown that, on a like for like basis, public sector workers earn considerably more than their private sector counterparts - and that's without taking pension entitlements into account.


Not really. Most of those studies have shown that average salaries in the public sector are higher than average salaries in the private sector. If I noted that average salaries in Google are higher than average salaries in Greyhound, no-one would be hugely surprised. Most people understand the difference in roles, skill levels, qualifications and experience. But somehow, when the Irish Indo or other DOB-owned media reports another survey that average salaries in public sector are higher than average salaries in the private sector, common sense seems to go out the window.

The ESRI survey that looked at this issue did a fairly crude level of job matching, based on keywords iirc. If you want to do proper job-matching, the kind of job-matching that MNCs do when analysing their own salary levels, that might provide some more interesting results.


Sarenco said:


> The constitutional amendment referred to in my earlier email related to the remuneration of the judiciary.


That amendment referred to future salary levels iirc, and had nothing to do with previously earned pensions.


Sarenco said:


> Finally, I am particularly critical of the current government policy on pensions because (a) there doesn't appear to be one!; (b) they have exacerbated the problem by raiding existing private pensions and by making private provision substantially less attractive; and (c) because the issue is becoming increasingly urgent.





monagt said:


> +1 and now they have robbed the funds with the levy.


I (and probably most other public sector employees) allow themselves a little grin at all the talk of raiding and robbing in relation to the very modest levy on private sector pensions (which affects me too btw), when compared against the real pension levy - the fairly savage immediate, direct and ongoing cut to salary of 5%-8%. The real pension levy hit low-earning staff who earn no public sector pension above the standard contributory pension. So really, stop whinging - it's a tax, like many other taxes. It's not nice, but it's necessary.


----------



## Brendan Burgess

RainyDay said:


> I'm also quite unclear as to why you think it would be OK for any employer, public or private, to walk away from contractual commitments to employees, past or present. Employees made career decisions and life decisions based on these contractual commitments. In particular, many employees accepted lower salaries that they could achieve elsewhere based on the commitment of particular pension benefits.



The problem here is that the country will go slowly bankrupt as we will be unable to meet all our liabilities - public sector pensions, Old Age Pensions, social welfare, health, education, etc. 

It's better that we address this now while we have some degree of control and choice rather than leave it to a government in 2034 to decide which payments or services are to be cut. In fact, it will probably be the IMF making the decisions at that stage. It's important to have this debate now, and start cutting now and letting those who will inevitably have their pensions cut drastically in 20 years that they cannot rely on their contractual entitlements. 

Brendan


----------



## Sophrosyne

Brendan Burgess said:


> The problem here is that the country will go slowly bankrupt as we will be unable to meet all our liabilities - public sector pensions, Old Age Pensions, social welfare, health, education, etc.



In my naivety, I thought that our economic predicament was and is caused mainly by the ongoing consequences of the conversion of vast accumulated private sector (banking) debt into sovereign debt.

Obviously, I must be wrong! Public sector employees and public @private sector OAPs must be to blame and so, suffer the consequences.


----------



## newirishman

Sophrosyne said:


> In my naivety, I thought that our economic predicament was and is caused mainly by the ongoing consequences of the conversion of vast accumulated private sector (banking) debt into sovereign debt.
> 
> Obviously, I must be wrong! Public sector employees and public @private sector OAPs must be to blame and so, suffer the consequences.



On the risk of pushing this thread further OT:
Albeit taking over the banking debts was of course not a great idea, it was indeed not the main cause for our economic predicament. 
Even If you take out the banking related payments, Ireland was (and is) running a significant budget deficit from 2008 onwards - a result of a tax system overly reliant on income from one of the biggest property bubbles in history (caused by letting the construction sector related GDP reach 25%, more than double of what is deemed "healthy"), plus what can only be called "explosion" in welfare and public service expenditure in the years leading up to 2008.

Anyway, back on topic (I hope): there seem to be a lot of things "free" for pensioners: public transport, medical card, various allowances (fuel, Tv license etc). Why not start with proper means testing here, instead of a blanket cut in the state pensions?


----------



## Brendan Burgess

Sophrosyne said:


> In my naivety, I thought that our economic predicament was and is caused mainly by the ongoing consequences of the conversion of vast accumulated private sector (banking) debt into sovereign debt.



Hi Sop

Most people believe this myth.  In round figures, our national debt is around €200 billion and the liability for public sector pensions is around €100 billion. I have updated the estimated net cost of the bailout here   - it will be around €45 billion, so it accounts for around 15% of our national debt.


----------



## RainyDay

Brendan Burgess said:


> The problem here is that the country will go slowly bankrupt as we will be unable to meet all our liabilities - public sector pensions, Old Age Pensions, social welfare, health, education, etc.
> 
> It's better that we address this now while we have some degree of control and choice rather than leave it to a government in 2034 to decide which payments or services are to be cut. In fact, it will probably be the IMF making the decisions at that stage. It's important to have this debate now, and start cutting now and letting those who will inevitably have their pensions cut drastically in 20 years that they cannot rely on their contractual entitlements.


It sounds like you've decided that the one and only solution to this issue is for the State to walk away from the contractual entitlements of public sector staff. It would be interesting to see the analysis behind this. What other options were considered? What will be the impact on making the public service a significantly less attractive place to work? What other contractual commitments to other parties should the State consider walking away from also?




Brendan Burgess said:


> Hi Sop
> 
> Most people believe this myth.  In round figures, our national debt is around €200 billion and the liability for public sector pensions is around €100 billion. I have updated the estimated net cost of the bailout here   - it will be around €45 billion, so it accounts for around 15% of our national debt.



Do these figures take account of the emptying of the €25b National Pension Reserve Fund to cover our short-term debts, and the loss of investment growth in this fund over time?


----------



## Brendan Burgess

RainyDay said:


> Do these figures take account of the emptying of the €25b National Pension Reserve Fund to cover our short-term debts,



Absolutely. They were the total figures put into the Irish banks from all the Exchequer sources.



> and the loss of investment growth in this fund over time?



This is not relevant.  We say that the budget deficit this year is €5 billion.  We don't say that the true cost is €20 billion, because of the lost investment growth we could have got had we invested the €5 billion.

Sinn Féin will say the bailout cost us €100 billion because of the interest on the money borrowed to put into the banks.  A silly argument, but if you want to do that the cost of the overspending/undertaxing generally is then €600 billion, so the bailout has still cost us around 15% of the current combined national debt.


----------



## monagt

> I (and probably most other public sector employees) allow themselves a little grin at all the talk of raiding and robbing in relation to the very modest levy on private sector pensions (which affects me too btw), when compared against the real pension levy - the fairly savage immediate, direct and ongoing cut to salary of 5%-8%. The real pension levy hit low-earning staff who earn no public sector pension above the standard contributory pension.
> So really, stop whinging - it's a tax, like many other taxes. It's not nice, but it's necessary.



My point is private pension funds dropped in value anywhere from 20% to 100% while one sector was protected.
I do not consider A drop of 25% to 75% in a person's pension and then a tax levy on the remainder a whinge, especially when many have no way of making the values up as they near retirement while PS pensions funds are protected with guarantees.


----------



## RainyDay

Brendan Burgess said:


> This is not relevant.  We say that the budget deficit this year is €5 billion.  We don't say that the true cost is €20 billion, because of the lost investment growth we could have got had we invested the €5 billion.


With due respect, who decides what is relevant? Is there some economic convention or analytic convention that sets out what is relevant what is not? If so, was this same convention applied when coming up with the €100b future cost of public sector pensions?

If we apply a fairly modest 4% return rate, the €25b turns into €40b in 2026. At a 6% return rate, it gives us €50b. This is a very significant issue in the overall analysis.

So perhaps a good starting point might be to look to the financial services industry which emptied this fund to fill it back up again, possibly through a transaction tax (Tobin Tax) over the next 12 years.



monagt said:


> My point is private pension funds dropped in value anywhere from 20% to 100% while one sector was protected.
> I do not consider A drop of 25% to 75% in a person's pension and then a tax levy on the remainder a whinge, especially when many have no way of making the values up as they near retirement while PS pensions funds are protected with guarantees.



What particular funds dropped 20% or 100%? And if they did drop, how quickly did they pick up again? The industry figures show postitive 10-year returns, between 4% and 6%.
http://www.finfacts.ie/irishfinancenews/article_1027774.shtml

And what particular 'guarantees' are you referring to, in relation to public sector pensions? Are they really guaranteed, or are they at the whim of current and future governments?


----------



## monagt

> What particular funds dropped 20% or 100%? And if they did drop, how quickly did they pick up again?



One of my DBs for a start and and was would up...........no pick up there and I have friends with varying degrees of pensions shortfalls.



> And what particular 'guarantees' are you referring to, in relation to public sector pensions? Are they really guaranteed, or are they at the whim of current and future governments?



Yes, guaranteed by the taxpayer.........and to quote Eddie Hobbs.....





> Neither party has shown any appetite in tackling public spending excesses like the hundreds of allowances masquerading as core pay. Both have supported the cocooning of 15 per cent of the workforce with an unjustifiable pay premium over the private sector and continue to gift the highest pay rates in Europe.



I don't want this to escalate into a PS v real world debate or off topic so probably agree to differ.


----------



## RainyDay

monagt said:


> One of my DBs for a start and and was would up...........no pick up there and I have friends with varying degrees of pensions shortfalls.


What is a 'DB'? Is there any chance that we could get something more concrete to base the analysis on, given that the published industry return figures are so completely different to your anecdotal experience?



monagt said:


> Yes, guaranteed by the taxpayer.........and to quote Eddie Hobbs.....


Could you point me to the text of this guarantee please?



monagt said:


> I don't want this to escalate into a PS v real world debate or off topic so probably agree to differ.


Yes, we agree that there is little value in the Public Sector vs real world debate again


----------



## monagt

> What is a 'DB'? Is there any chance that we could get something more concrete to base the analysis on, given that the published industry return figures are so completely different to your anecdotal experience?



Defined Benefit..................anecdotal.........._ I wish _


----------



## roker

The National Pension Reserve fund was in a strong position due to shrewd investment by Donal Geaney before he died. If he only knew what they had planned for it.


----------



## RainyDay

monagt said:


> Defined Benefit..................


Of course. Silly me.


monagt said:


> anecdotal.........._ I wish _


I'm not being disrespectful, but it absolutely is anecdotal, until you can provide further details. What is the back story? There could be any number of reasons for problems in DB schemes, including underfunding, or a high-risk investment strategy that didn't pay off, or difficulties in the employer's business or whatever. A 20% loss in one year might well be followed by a 15% gain or maybe even a 25% gain the next year. Sorry, but more information is needed.


----------



## Brendan Burgess

> Brendan Burgess said: ↑
> 
> 
> 
> This is not relevant. We say that the budget deficit this year is €5 billion. We don't say that the true cost is €20 billion, because of the lost investment growth we could have got had we invested the €5 billion.
> 
> 
> 
> With due respect, who decides what is relevant? Is there some economic convention or analytic convention that sets out what is relevant what is not? If so, was this same convention applied when coming up with the €100b future cost of public sector pensions?
Click to expand...


Hi RainyDay

It's not a value judgement, it's maths.  It's hard to explain, but I will try. 

How much is a pint of milk in Tesco's today?  Say €1. I don't think that anyone will argue: "It's not only €1 as  you could have invested the €1 and over the next 20 years it would have grown to €5, so the price of the milk is €5."

The government put €65 billion into the banks from different sources. That was the cost: €65 billion.  I would not argue that they could have invested €50 billion 10 years earlier which would be worth €65 billion when they put it into the banks, so it only cost €50 billion. And likewise one cannot argue, that the €65 billion is really €200 billion when you add the interest over the next 30 years. 



> was this same convention applied when coming up with the €100b future cost of public sector pensions?



That is a good question, and I don't know the answer for sure.  But it's an actuarial valuation. I assume that this means that if the governments over the last 50 years (and, as you say, not just the current government)  had been prudent, and had fully funded future pension liabilities, we would need a pot of €100 billion today from which to pay future pensions. In other words, the actual cash paid out in future will be around €150 billion, but €100 billion invested now will meet those liabilities.  I would be delighted to be wrong on this. That €100 billion is the cash to be paid out, in which case the present value of that future liability would be much less.


----------



## Sarenco

RainyDay said:


> Thanks for your measured response.
> 
> It would important that ALL pension benefits, including tax relief is on the table for any review of pensions. I suspect that some people would like to see a review of 'all pension benefits that apply to other people but not me'. Such reviews aren't a great basis for sound public policy, so if we are going to have a review or strategy, we need to have everything on the table.
> 
> This is factually untrue. Tax will NOT be due on all amounts drawn down. The 25% lump sum will avoid tax. The annual tax free allowance will avoid tax on a chunk of the annual income. The lower tax rate will allow for a reduced tax rate on another chunk of the annual income. The investment growth of the tax-free contributions will come into play also. The tax relief is an awful lot more than a deferral, and even if it were just that, the cash flow/timing implications would be a major issue which need to be on the table for any review.
> 
> I was basing this on your comments about "career averaging should be introduced immediately for all such pensions (whether in payment or otherwise). Alternatively, a pro-rata reduction of all such pensions may be more equitable/easier to administer". Your proposals would involve a walking away from existing contractual commitments.
> 
> 
> Not really. Most of those studies have shown that average salaries in the public sector are higher than average salaries in the private sector. If I noted that average salaries in Google are higher than average salaries in Greyhound, no-one would be hugely surprised. Most people understand the difference in roles, skill levels, qualifications and experience. But somehow, when the Irish Indo or other DOB-owned media reports another survey that average salaries in public sector are higher than average salaries in the private sector, common sense seems to go out the window.
> 
> The ESRI survey that looked at this issue did a fairly crude level of job matching, based on keywords iirc. If you want to do proper job-matching, the kind of job-matching that MNCs do when analysing their own salary levels, that might provide some more interesting results.
> 
> That amendment referred to future salary levels iirc, and had nothing to do with previously earned pensions.
> 
> 
> 
> I (and probably most other public sector employees) allow themselves a little grin at all the talk of raiding and robbing in relation to the very modest levy on private sector pensions (which affects me too btw), when compared against the real pension levy - the fairly savage immediate, direct and ongoing cut to salary of 5%-8%. The real pension levy hit low-earning staff who earn no public sector pension above the standard contributory pension. So really, stop whinging - it's a tax, like many other taxes. It's not nice, but it's necessary.





Hi RainyDay

I would like to follow up with you on some of your points in the above post.

While I certainly have no difficulty having a debate on whether it is appropriate to continue incentivising saving for retirement through the tax system, the topic of this thread is the sustainability, or otherwise, of unfunded State pension liabilities.  While removing, or materially reducing, the remaining tax incentives to save for retirement through private pension vehicles may well escalate tax revenue, at least in the short term, it will not of itself have any impact on the sustainability of unfunded State pension liabilities (and, in my opinion, would act as a further disincentive to work which may actually be negative from a revenue perspective in the medium term).

I have been careful to stress in my earlier posts that, in my opinion, all unfunded pension liabilities and benefits should be reviewed and I do not think my proposals unfairly penalise or exempt any particular cohort of workers or pensioners.

I’m sorry but it is factually correct to say that all drawdowns from a private pension fund will be subject to income tax as it applies at the time of drawdown.  There is no assurance that the current ability to draw down a tax free lump sum will remain or that the current ceiling on the TFLS will not be further reduced in the future.  Similarly, there is no assurance that the current rates of income tax or that the current bands, reliefs and credits will not change in the future.  I am not trying to argue that private pensions are not tax efficient vehicles – they clearly are – I was simply making the point that it is inaccurate to say that tax relief on pension contributions represents tax foregone.

Again, I am not suggesting that the State should unilaterally walk away from anything.  I am suggesting some proposals to help manage what I consider to be an important and growing problem.  I am unclear from your posts whether you are denying that a problem exists at all or whether you simply disagree with my proposals to address the problem.  If the later is the case, I would be interested to hear your alternative proposals.

I fully agree that the fact that the average public sector worker earns 48% more than the average private sector work (according to the latest statistics produced by the CSO) does not give us a complete picture of the position.  However, I do not agree with your characterisation of the ERSI report as crude and I would recommend the paper to anybody that it is interested in this area.  I would also recommend the comparative analysis published by European Commission in October 2013 that sets out the degree to which the public sector pay premium exists in Ireland (accounting for age, gender and educational achievement) and compares this with the position in other member states.  It is interesting to note that there is no observable public sector pay premium in the UK.

I do not think your reference to “DOB-owned media reports” advances your arguments and, to be frank, leaves me with the impression that you are approaching this issue from a deeply ideological perspective.

In any event, my point is not to criticise public sector pay levels as such but rather to refute the suggestion that public sector pensions compensate public sector workers for accepting lower wages than they could otherwise command in the private sector.  All the available evidence clearly demonstrates that this contention cannot be sustained.

The reduction in judicial pay will presumably have a knock-on effect on judicial pensions as the two issues are linked.  In any event, my point was really that the constitutional amendment represented a precedent for resolving legal issues where there is a substantial consensus on how to proceed.

Grinning public servants aside, I cannot agree with your characterisation of the pension levy as “modest”.  It is currently estimated that the State will expropriate almost €2.5 billion of retirement saving by the end 2015 under the guise of this levy – that is not a modest figure by any standards.  The compounding effect of the levy will materially impact the living standards of thousands of citizens in retirement and has had a significant impact on the limited number of remaining DB occupational pension schemes that are already suffering from funding difficulties.  In my opinion, the pension levy was a deeply unfair and discriminatory measure that has adversely impacted the level of trust that Irish citizens can place in their government.

I also disagree that the pension levy was a necessary measure.  It was no more necessary that the VAT reductions given to certain preferred sectors (including the print media) that the expropriated retirement savings were intended to fund.

I don’t think anybody would dispute the fact that public sector workers have been required to take material reductions in remuneration in the wake of the financial crisis.  However, all things are relative and I would point out that the public sector pay premium increased significantly in the years immediately prior to the crisis and private sector wages, on average, fell much further than public sector wages after the crisis.  Again, I don’t want to derail this thread into a discussion on public sector pay and conditions but I think it is unfair to portray the public sector as having been somehow uniquely impacted by the financial crash experienced in this country.


----------



## Sarenco

Brendan Burgess said:


> Hi RainyDay
> 
> It's not a value judgement, it's maths.  It's hard to explain, but I will try.
> 
> How much is a pint of milk in Tesco's today?  Say €1. I don't think that anyone will argue: "It's not only €1 as  you could have invested the €1 and over the next 20 years it would have grown to €5, so the price of the milk is €5."
> 
> The government put €65 billion into the banks from different sources. That was the cost: €65 billion.  I would not argue that they could have invested €50 billion 10 years earlier which would be worth €65 billion when they put it into the banks, so it only cost €50 billion. And likewise one cannot argue, that the €65 billion is really €200 billion when you add the interest over the next 30 years.
> 
> 
> 
> That is a good question, and I don't know the answer for sure.  But it's an actuarial valuation. I assume that this means that if the governments over the last 50 years (and, as you say, not just the current government)  had been prudent, and had fully funded future pension liabilities, we would need a pot of €100 billion today from which to pay future pensions. In other words, the actual cash paid out in future will be around €150 billion, but €100 billion invested now will meet those liabilities.  I would be delighted to be wrong on this. That €100 billion is the cash to be paid out, in which case the present value of that future liability would be much less.


 

http://www.audgen.gov.ie/documents/vfmreports/68_Central_Gov_Pensions.pdf
I am attaching a link to a special report prepared by the Auditor General in 2009 on public sector pension liabilities.  The report includes an estimate of the present day value of such liabilities at €108 billion (net of the then NPRF and other small public sector pension funds) at the end of 2008, rising to €116 billion at the end of 2009.  The report includes details of the various actuarial assumptions employed in arriving at those estimates.

However, what is really terrifying about the report, in my opinion, is that annual gross cashflows are projected to increase by over *500%* (no, that's not a typo) from €2.4 billion in 2009 to €14.7 billion in 2058, in constant 2008 price terms.  The report contains some pretty scary graphs showing the percentage of GNP that would represent.

I believe one of the major accountancy firms carried out a similar exercise around about the same time showing the projected shortfall in the social fund (in respect of contributory OAPs) that was equally sobering.  I'll see if I can dig it out but if anybody can post it in the meantime, I would be most appreciative.


----------



## Sarenco

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

This is a link to the actuarial report prepared by KPMG on the social fund referenced in my earlier post.

One of the key conclusions is that, in the absence of increased PRSI contributions or reductions in expenditure (which is dominated by pension payments), exchequer subventions will have to more than treble by 2030 and will have to increase by a factor of almost eight by 2040.  Exchequer subventions can only come from increased taxation or reduced spending in other areas.  Unless of course we borrow yet more money (if anybody would lend it to us) and pass the whole mess to our children!


----------



## PMU

Sarenco said:


> http://www.audgen.gov.ie/documents/vfmreports/68_Central_Gov_Pensions.pdf
> I am attaching a link to a special report prepared by the Auditor General in 2009 on public sector pension liabilities.  The report includes an estimate of the present day value of such liabilities at €108 billion (net of the then NPRF and other small public sector pension funds) at the end of 2008, rising to €116 billion at the end of 2009.


Under the Haddington Road Agreement this has now been reduced by 16% to €98bn since 2009 http://www.per.gov.ie/public-service-pensions-accrued-liability/.  It should also be pointed out that public service pensioners have since March 2009 had their pensions reduced by the Public Service Pension Reduction.  The levy currently applies to pensions over EUR 12,000 and the deduction rates range from 6% to 20%. http://www.per.gov.ie/faq-documents/


----------



## Sarenco

PMU said:


> Under the Haddington Road Agreement this has now been reduced by 16% to €98bn since 2009 http://www.per.gov.ie/public-service-pensions-accrued-liability/.  It should also be pointed out that public service pensioners have since March 2009 had their pensions reduced by the Public Service Pension Reduction.  The levy currently applies to pensions over EUR 12,000 and the deduction rates range from 6% to 20%. http://www.per.gov.ie/faq-documents/


 
Fair enough but my understanding is that the Department incorporated the pension related deduction (aka the public sector pension levy) in calculating this reduction of accrued public service pension liabilities.  This is unclear from the Department's press release and the underlying actuarial report has not (as far as I know) been published.  However, Minister Howlin continues to refer to this "levy" variously as an emergency and temporary measure.  As such, I would treat any report that (apparently) assumes the continuation of this measure with a pinch of salt.

In any event, €98bn (as opposed to €116bn) is still a massive figure to start from and this doesn't change the fact that this accrued liability is projected to grow dramatically over the coming decades without any corresponding increase in tax payers to fund these payments.


----------



## Brendan Burgess

Sarenco said:


> I believe one of the major accountancy firms carried out a similar exercise around about the same time showing the projected shortfall in the social fund (in respect of contributory OAPs) that was equally sobering. I'll see if I can dig it out but if anybody can post it in the meantime, I would be most appreciative.



So we have €200 billion of national debt.
We have €100 billion of unfunded public sector pension fund liabilities.
*and *
we have N billion of unfunded old age pension liabilities.   These people, which includes far more than the number of public sector workers, can argue that they have paid their insurance and so their pensions should not be cut. 

It would be handy if you could find a figure for N and a link to that report. 

Brendan


----------



## MrEarl

Prior to any further changes in the State Pension, I think we would have the absolute right to insist that we be given the option of receiving a once off lump sum payment (to reflect contributions to date) transferred into an appropriate pension vehicle and thereafter, being removed from the scheme.

Ultimately, we pay into a scheme (without a choice) on the understanding of receiving certain future benefits.  While it is becoming more and more clear that Ireland will not be able to afford to cover the cost of it's commitments in years to come, those paying into the scheme should at the very least, be afforded the opportunity to now "opt out" and have a credit transferred to a personal retirement fund of some description, to recognise contributions made to date. Thereafter, they would have no further future claim against the State, in respect of a pension. 

Legislation may have to be created to force everyone to provide for their individual retirements, but thats not necessarily a bad idea.

This is a time bomb just waiting to go off and as such, I fear one government after another will try to avoid dealing with the issue.... ultimately with those of us who are current tax payers, being truely ripped off in the years to come (when we reach retirement age and face a significant reduction in retirement benefits).


----------



## Brendan Burgess

Hi Mr Earl

Agree with you in principle, but a big problem...

1)   If you are a high paid employee , you pay way above the cost of your pension - 14.75% of your salary. If you are a low earning self-employed person, you pay a lot less than the cost of your pension - 4%.  So employees on high pay would take out their contributions and the fund would go bust earlier.  Maybe this would be a good thing. 

I think that O A Pension payments should, in some way, be linked to contributions.  I have been thinking about this since this thread, but haven't found a way to do it yet. 

*The self-employed get fantastic value from PRSI*


----------



## Jim2007

MrEarl said:


> Prior to any further changes in the State Pension, I think we would have the absolute right to insist that we be given the option of receiving a once off lump sum payment (to reflect contributions to date) transferred into an appropriate pension vehicle and thereafter, being removed from the scheme.



It is not possible to do this with a PAYGO system no matter how justified you believe you claim to be.  It is just not going to happen.


----------



## Brendan Burgess

I hadn't heard of a PAYGO before, but it means that increases in expenditure must be balanced by cuts somewhere else.  That is certainly not the law in Ireland, and not the practice either. 

I don't know if there is a word for our system whereby we don't provide for future liabilities out of current expenditure.  For example, current tax payers are paying the pensions which were accrued over many years.


----------



## Sarenco

Brendan

I wish you would stop suggesting that employees pay a higher rate of PRSI than the self-employed.  They don't.

Contributory pension payments accounted for 36 per cent of expenditure from the social fund in 2010 - the balance of payments related to other benefits.  I agree that the level of employer's PRSI contributions is too high relative to the contributions paid by employees and the self-employed but that is a different issue.

To MrEarl's point, I'm afraid the social fund is really only a notional account - there is no pot of money available for distribution.  Also, as Brendan points out, PRSI contributions are highly redistributive: contributors at the higher end of the remuneration spectrum will contribute more to the system than they will ever receive in benefits whereas lower earners will receive far better value for their contributions.  I don't have a problem with this principle and disagree that the value of any benefits received should be linked to the value of any contributions made.

The major problem is not simply that unfunded State pension liabilities are projected to increase dramatically over the coming decades but also that an ageing population will result in higher expenditure on healthcare and fewer workers to pay the taxes to fund these costs.


----------



## noproblem

While it's easy looking back and getting averages from what happened over a certain no of years, etc.  I don't see anyone predicting what "will" happen in the future. We may have huge oil deposits, gas deposits, gold deposits, never mind all the other unpredictables. Life could be brilliant in a short time, then again it may not, there may not be a civilization at all, in which case a pension or piggy bank is a bit of a laugh anyway.  Why the hell should I be worried about what happens in 25 or 30 years time if I'm getting a pension now? There's only so much each generation can do, or should be expected to do and to be quite honest, we're not a bad old nation at putting one another down. If there were degrees in begrudgery, we'd be top of the pile. We've come a long way in the last 40 or so years, we're doing ok, we'll be alright over the next few years, but it won't be ourselves who will decide what happens on our stupid planet over the next 50 years + and that's for sure. A pat on the back, a bit of praise, a look at where we've come from a short few decades ago wouldn't do a few of us any harm at all. No running water,  basic electricity , a bath or a shower didn't really exist, a carpet was "what? no central heating, almost no social welfare and some of you know the rest as well. Come on people, we can bloody well look forward with happy faces. There'll be enough to go around, but of course some won't be happy with just that. God help them.


----------



## The Ghoul

Brendan Burgess said:


> So we have €200 billion of national debt.
> We have €100 billion of unfunded public sector pension fund liabilities.
> *and *
> we have N billion of unfunded old age pension liabilities.   These people, which includes far more than the number of public sector workers, can argue that they have paid their insurance and so their pensions should not be cut.
> 
> It would be handy if you could find a figure for N and a link to that report.
> 
> Brendan


The figure that has been reported is 324 billion
http://www.finfacts.ie/irishfinancenews/article_102491.shtml



> The Irish Times reports that the GAP between the State’s future pension and social welfare liabilities and revenues to fund them stands at €324 billion, according to an unpublished report commissioned by the Government, which has been seen by The Irish Times. That figure is almost twice the size of the national debt as it currently stands.
> 
> ...Not included are non-contributory benefits, such as children’s allowance and most unemployment benefits, as well as social transfers paid from sources other than the Department of Social Protection, such as health and education benefits.


----------



## Sarenco

The Ghoul said:


> The figure that has been reported is 324 billion
> http://www.finfacts.ie/irishfinancenews/article_102491.shtml



Not quite - the €324bn figure refers to the aggregate funding shortfall up to 2066, in 2012 prices, without policy changes.  That is not quite the same thing as an estimate of the net present value of the unfunded liabilities (which I suspect would be difficult, if not impossible, to estimate) although it probably represents a reasonable proxy.  Also, bear in mind that benefits other than pensions are payable from the fund (as subvented by the exchequer).

In any event, the figure adequately demonstrates the need for policy changes - I'm afraid an optimistic attitude alone will not resolve this problem.


----------



## Jim2007

Brendan Burgess said:


> I hadn't heard of a PAYGO before, but it means that increases in expenditure must be balanced by cuts somewhere else.  That is certainly not the law in Ireland, and not the practice either.



Well the Irish system is a PAYGO minus the balancing....


----------



## Sarenco

http://www.independent.ie/irish-new...become-the-governments-new-norm-30880158.html

Fairly hard hitting article in today's Sindo on the pensions issue.

Some of the language used in the article is somewhat emotive (I wouldn't recommend it to RainyDay!) but it does cover a number of the issues discussed in this thread in terms of changing dependency ratios, etc.

The suggestion in the article that certain public sector workers should fund their own pensions in the same way as the private sector is of course another potential solution to this problem.  This is actually what happens in the US.  For example, the California public sector retirement system (CALPERS) is one of the largest occupational pension funds in the world.


----------



## Protocol

Typical article with mistakes about PS pensions.

I quote:

"Most public servants didn't pay the controversial pension levy; they didn't have a fund to apply it to. "

CORRECT, as PS pensions are unfunded, typically.

But, instead of the Pension Fund Levy, PS workers pay the *PRD* pension levy, up to 10.5% of wages.

Second, the article suggests that PS don't / didn't pay pension conts until the PRD levy was introduced:

"Meanwhile, public servants are already discussing better pay and the end of their own pension charges."

This is a common mistake made in these anti-PS articles.

It ignores the fact that PS have always been paying 6.5% of wages for their pensions.

Add that to the 10.5% PRD makes a 17% of wages headline contribution rate.


----------



## Sarenco

Protocol said:


> Typical article with mistakes about PS pensions.
> 
> I quote:
> 
> "Most public servants didn't pay the controversial pension levy; they didn't have a fund to apply it to. "
> 
> CORRECT, as PS pensions are unfunded, typically.
> 
> But, instead of the Pension Fund Levy, PS workers pay the *PRD* pension levy, up to 10.5% of wages.
> 
> Second, the article suggests that PS don't / didn't pay pension conts until the PRD levy was introduced:
> 
> "Meanwhile, public servants are already discussing better pay and the end of their own pension charges."
> 
> This is a common mistake made in these anti-PS articles.
> 
> It ignores the fact that PS have always been paying 6.5% of wages for their pensions.
> 
> Add that to the 10.5% PRD makes a 17% of wages headline contribution rate.




I think it's a pity that we can't have a discussion about the sustainability of unfunded State pension liabilities without descending into a public v private sector debate.  Oh well...

The reason I linked to the article was really to bring into the debate the suggestion that certain public sector workers could be switched to a funded occupational pension scheme, akin to those in the private sector, as one way of enhancing the sustainability of the overall system.  I do take the point, however, that the article does read like an anti-public sector rant.

As regards the PRD "levy", I would make the point that it has only been in place for a relative short time and was introduced as an emergency measure that Minister Howlin recently described as a temporary.  In other words, it is misleading to suggest that the PRD will have any material impact on the funding of public sector pensions.

It is also misleading to suggest that public sector workers pay up to 10.5 per cent of their wages under PRDs.  The 10.5 per cent rate only applies to income over €60,000 and the first €15,000 of income is exempt from the PRD.  In other words, no public sector worker will have anything like 10.5 per cent of their income deducted as a PRD.


----------



## PMU

In the interests of clarity, the PRD – Pension Related Deduction, aka the 'pension levy', was introduced in 2009 and had the effect of levying a deduction of between 5% and 10.5% on public sector pensions, above EUR 15,000 (although it was more complex than this). The PSPB – Public
Service Pension Reduction – came into effect in 2011 and basically reduced gross annual public sector pensions, above EUR 12,000, by between 6% and 20%.  The Haddington Road Agreement has had the effect of reducing the estimated present day value of public sector pension liabilities by 16% since 2009.


----------



## Sarenco

PMU said:


> In the interests of clarity, the PRD – Pension Related Deduction, aka the 'pension levy', was introduced in 2009 and had the effect of levying a deduction of between 5% and 10.5% on public sector pensions, above EUR 15,000 (although it was more complex than this). The PSPB – Public
> Service Pension Reduction – came into effect in 2011 and basically reduced gross annual public sector pensions, above EUR 12,000, by between 6% and 20%.  The Haddington Road Agreement has had the effect of reducing the estimated present day value of public sector pension liabilities by 16% since 2009.



That's not quite right PMU - the PRD is a deduction from public sector remuneration, not public sector pensions.  The deduction is tiered - only remuneration above €60k is subject to a 10.5 per cent deduction and the first €15k is exempt.  The PSPRs are similarly tiered - the first €12k is not subject to any reduction.

The actuarial reduction of the present day value of public sector pension liabilities (to a still massive €98bn) apparently assumes the continuation of both PRDs and PSPRs - both of which were introduced as emergency/temporary measures.


----------



## PMU

Sarenco said:


> That's not quite right PMU - the PRD is a deduction from public sector remuneration, not public sector pensions.  The deduction is tiered - only remuneration above €60k is subject to a 10.5 per cent deduction and the first €15k is exempt.  The PSPRs are similarly tiered - the first €12k is not subject to any reduction.


 You are correct, the PRD is a levy on remuneration and not pensions.  And it is tiered - I did say it was complex.


Sarenco said:


> The actuarial reduction of the present day value of public sector pension liabilities (to a still massive €98bn) apparently assumes the continuation of both PRDs and PSPRs - both of which were introduced as emergency/temporary measures.


 Let's be clear what this EUR 98bn actually is. It's the present value, discounted at 3.3%, of the pension benefits earned by public servants serving at the time of the C&AG report, i.e. in 2008, and the amounts payable to existing public service pensioners. That is to say, it is the overall pension liability of the State in 2008 when spread over the next 50 years and appropriately discounted. It's a contingent liability and not money that is required in one lump sum.

.


----------



## Sarenco

Fair enough PMU but my point was really that it is not correct to say that the effect of the PRD is to levy a deduction on remuneration over €15k of between 5 per cent and 10.5 per cent.  If you ignore the effect of the tiered structure of PRDs you significantly overstate the level of the deduction. For example, a salary of, say, €30k would only be subject to a PRD of 4 per cent.

I certainly accept that the combined impact of the PRDs and PSPRs, if these became permanent, would have a material impact on the sustainability of unfunded public sector pensions.  Unfortunately, as currently structured they will not, IMO, be sufficient in the context of our changing demographic profile.

To your additional point, the key problem is not so much the large contingent liability represented by pension liabilities to existing public sector workers but the fact that these liabilities are largely unfunded (ie they are funded on a pay as you go basis).  The C&AG projected that the annual gross cash flows required to discharge these liabilities would have to increase by 500 per cent, in constant 2008 price terms, by 2058.  This cash flow can only come from additional taxes, cuts to other State services or increased borrowings.  Spending cuts will be difficult as our ageing population will require a higher spend on health services.  Extra taxes will be difficult to extract from a smaller workforce.  So that leaves extra borrowings and passing the problem to future generations, assuming of course that anybody would lend us the money.


----------



## Purple

PMU said:


> You are correct, the PRD is a levy on remuneration and not pensions.  And it is tiered - I did say it was complex.
> Let's be clear what this EUR 98bn actually is. It's the present value, discounted at 3.3%, of the pension benefits earned by public servants serving at the time of the C&AG report, i.e. in 2008, and the amounts payable to existing public service pensioners. That is to say, it is the overall pension liability of the State in 2008 when spread over the next 50 years and appropriately discounted. It's a contingent liability and not money that is required in one lump sum.
> 
> .


The real question is what percentage of our national budget is currently spent on state pensions and what percentage, in today's money, will we have to spend in 10 years, 20 years, 30 years etc. What does the graph look like.

Another way of looking at it is to ask by how much we would have to increase taxes to pay for the yearly cost (in today's money) over that time period.


----------



## Protocol

Purple,

exp on SP of various types:
http://www.welfare.ie/en/downloads/Social-Stats-AR-2013-SectionB.pdf

2004 = 3.5bn
2009 = 5.8bn
2013 = 6.5bn nearly


----------



## Protocol

*State Pensions expenditure*

Table B1: Expenditure on Pensions by Payment Type, 2012 and 2013

Payment Type 2012 2013(1) Change 2013 over 2012
€000 €000 %

*Social Assistance*
State Pension (Non-Contributory) 963,211 952,457 -1.1%

*Social Insurance*
State Pension (Contributory) 3,802,795 3,983,264 4.7%
State Pension (Transition) 146,629 137,270 -6.4%
Widow's, Widower's or Surviving Civil Partner's Pension (Contributory) 1,343,198 1,349,840 0.5%
Death Benefit 7,827 7,775 -0.7%
Bereavement Grant 19,755 20,286 2.7%

Total 6,283,415 6,450,892 2.7%


----------



## Protocol

Some DSP reports on Pensions here:

http://www.welfare.ie/en/Pages/Pension-Policy.aspx


----------



## PMU

Purple said:


> The real question is what percentage of our national budget is currently spent on state pensions and what percentage, in today's money, will we have to spend in 10 years, 20 years, 30 years etc. What does the graph look like.
> 
> Another way of looking at it is to ask by how much we would have to increase taxes to pay for the yearly cost (in today's money) over that time period.


  Concerning public service pensions the C&AG estimated that in 2008 public service pensions absorbed 0.5% of GNP and this would increase to 1.8% of GNP to meet the net cost of public sector pensions by 2058.   So if you assume that taxation as  a % of GNP will remain constant, it implies a movement in tax expenditures towards public sector pensions and away from other areas.


----------



## Sarenco

Purple said:


> The real question is what percentage of our national budget is currently spent on state pensions and what percentage, in today's money, will we have to spend in 10 years, 20 years, 30 years etc. What does the graph look like.
> 
> Another way of looking at it is to ask by how much we would have to increase taxes to pay for the yearly cost (in today's money) over that time period.



Hi Purple

I don't think it's really possible to answer that question (at least in those terms) as it is extremely difficult to project the State's revenue and spending from year to year.

However, to put the extent of the problem in some context, the C&AG projected in 2009 that net public service pension payments in 2008 absorbed 0.5% of GNP and as a result of the projected increase in the number of pensioners it will be necessary to devote 1.8% of GNP to meet the net cost of pension payments by 2058.  The projected increase in payments is pretty much a constant straight line over the projected fifty year period.  To put that in monetary terms, annual gross cash outflows were projected to increase by over 500% from €2.4 billion in 2009 to €14.7 billion in 2058, in constant 2008 price terms.  Total State revenue in 2008 was approximately €60 billion and we have obviously been running a deficit since then.

Also, it is important to understand that spending is projected to increase - and the tax take is projected to decrease - as the population ages.  By way of example, the over 65s are projected to increase from 11% of the total population in 2010 to 24% in 2060.  The pensioner support ratio is projected to decline from 5.3 workers for every individual over 65 in 2010 to 3.9 workers in 2020 and 2.1 workers by 2060.

To be fair, a few things have happened since the C&AG's report - both good and bad from a sustainability perspective.  The NPRF has effectively been exhausted/discontinued, PRDs have been re-structured and fairly modest public service pension reductions (PSPRs) have been introduced (although PRDs and PSPRs were introduced as emergency measures and we don't know whether they will be retained).  On the whole therefore, it seems reasonable to me to treat the trends projected in the C&AG report as broadly unchanged.

As regards the contributory old age pension, the trend is equally sobering.  One of the key conclusions from the KPMG actuarial report in 2010 is that, in the absence of increased PRSI contributions or reductions in expenditure from the social fund (which will come to be dominated by contributory pension payments over time), exchequer subventions will have to more than treble by 2030 and will have to increase by a factor of almost eight by 2040.  Non-pension benefits are projected to decrease from 43% of the total fund expenditure in 2011 to 15% in 2066.

In the absence of any action to tackle the shortfall, the excess of expenditure over income in the (notional) social fund will increase significantly over the medium to long term.  In summary, the 2011 deficit of €1.5 billion will double to €3.0 billion by 2019 and will have increased to €25.7 billion by 2066.  Expressed as a percentage of GNP, the shortfall is projected to increase from 1.1% of GNP in 2011 to 2.0% in 2019 and further increase to 6.4% in 2052.

Putting it all together, if we do nothing to address this issue, it is projected that it will be necessary to devote approximately 7% of GNP to meeting the net cost of all unfunded State pension liabilities by 2060 (as against roughly 1% of GNP in 2009).  Bear in mind that at the same time there will inevitably be a parallel increase in State spending associated with an ageing population (healthcare, long term residential care, etc).  Finally, the numbers participating in the labour force who might be in a position to fund these costs can be expected to fall.

In my opinion, it is very difficult to escape the conclusion that future tax increases alone will be insufficient to address this problem.


----------



## Sarenco

PMU said:


> Concerning public service pensions the C&AG estimated that in 2008 public service pensions absorbed 0.5% of GNP and this would increase to 1.8% of GNP to meet the net cost of public sector pensions by 2058.   So if you assume that taxation as  a % of GNP will remain constant, it implies a movement in tax expenditures towards public sector pensions and away from other areas.


 
To expand somewhat on PMU's post above, the 2013 tax burden in Ireland, expressed as a % of GNP, was 33.5%.

If you assume that taxation as a % of GNP will remain constant, and we do nothing to address the pension issue, it implies that the % of the total tax take expended on unfunded State pension liabilities (including the projected shortfall in the social fund related to the contributory old age pension) will increase from roughly 3.5% today to roughly 23.5% by 2060.

To put this into context, the OECD estimates that public healthcare spending in 2012 accounted for approximately 7.7% of Ireland's GNP.


----------



## Purple

Sarenco said:


> To expand somewhat on PMU's post above, the 2013 tax burden in Ireland, expressed as a % of GNP, was 33.5%.
> 
> If you assume that taxation as a % of GNP will remain constant, and we do nothing to address the pension issue, it implies that the % of the total tax take expended on unfunded State pension liabilities (including the projected shortfall in the social fund related to the contributory old age pension) will increase from roughly 3.5% today to roughly 23.5% by 2060.
> 
> To put this into context, the OECD estimates that public healthcare spending in 2012 accounted for approximately 7.7% of Ireland's GNP.


Thanks Sarenco, that's exactly what I was looking for.


----------



## Firefly

That's completely unsustainable! A quarter of GDP on pensions before we even try to run the country, which we can't even do currently without borrowing 15,000 euro a minute!

I'm guessing that the OAP won't increase with inflation as time goes by, so only those with defined benefit pensions will be OK at the expense of the others, creating the talked-about "pensions apartheid" situation.


----------



## 44brendan

> defined benefit pensions


These are becoming a very rare breed of pension indeed and are heading towards extension in virtually all non-public service occupations. Most employers are applying a defined contribution to new employees over the past few years. Based on current returns you would need to build up a very high pension pot to meet a 50% of final salary return. The OAP is currently being relied upon as the minimum supplement required to meet a minimum standard of living for most and if that is not inflation linked or even reduced we will see an eldery population suffering severe financial difficulties within the next 10 or even 5 years. Many will be penalised further by having mortgages that carry on beyond normal retirement age.
In my view the only realistic solution is to extend retirement dates beyond 65! Changes in longevity/health mean that many of us are well capable of working up to at least 70. Also we now have a workforce that are only commencing full time employment in their mid 20's. I started my career at 18 and while I would like to work on past 65, I would like the option of doing this on a part time rather than full time basis. Many of us will have skills that will be useful to our employers and would be prepared to work on past normal retirement date on a part time basis.


----------



## Firefly

44brendan said:


> In my view the only realistic solution is to extend retirement dates beyond 65! Changes in longevity/health mean that many of us are well capable of working up to at least 70.



That's fine if you have a nice, secure job when you're 65+ , good luck getting something decent if you don't!


----------



## 44brendan

Fair comment Firefly. However on that issue, I believe that there is currently a significant restriction on those of us not in the first flush of youth but in position of good quality CV's in obtaining employment. That is the perception of "ageism". I regard it as a perception because most employers regard those over 50 as being past their best. However, most of us have grafted hard to build up our experience and hopefully are keeping senility at bay. I would see both myself and many of my friends/colleagues of a similar age group being highly employable even past 65. Also if we can draw our pension at that stage we will not need a similar salary level and will only need to supplement pension income.
Look at the age profile of workers in the US. Many of those in retail/hotel/restaurants are well over 65 and need to work to supplement their pensions. I will have no problem taking a job in McDonalds if that is all on offer when the time comes!


----------



## Firefly

44brendan said:


> Fair comment Firefly. However on that issue, I believe that there is currently a significant restriction on those of us not in the first flush of youth but in position of good quality CV's in obtaining employment. That is the perception of "ageism". I regard it as a perception because most employers regard those over 50 as being past their best. However, most of us have grafted hard to build up our experience and hopefully are keeping senility at bay. I would see both myself and many of my friends/colleagues of a similar age group being highly employable even past 65. Also if we can draw our pension at that stage we will not need a similar salary level and will only need to supplement pension income.
> Look at the age profile of workers in the US. Many of those in retail/hotel/restaurants are well over 65 and need to work to supplement their pensions. I will have no problem taking a job in McDonalds if that is all on offer when the time comes!



Interestingly, and obviously against the law, I helped out once with interviewing a potential candidate and the hiring manager remarked to me (before the interview) that the candidate was a bit too old. He was 46..

Firefly.


----------



## Sarenco

Firefly said:


> That's completely unsustainable! A quarter of GDP on pensions before we even try to run the country, which we can't even do currently without borrowing 15,000 euro a minute!
> 
> I'm guessing that the OAP won't increase with inflation as time goes by, so only those with defined benefit pensions will be OK at the expense of the others, creating the talked-about "pensions apartheid" situation.


 
Just to be clear - I am not suggesting that we will ever need to spend a quarter of GDP on State pensions!  The issue is certainly serious but there is no need to exaggerate the position.

What I am suggesting is that the percentage of the total tax take (currently 33.5% of GNP) that will need to be spent on pensions will increase dramatically at a time when there will inevitably be increased spending and lower labour market participation associated with an ageing population.

If you assume that taxation as a % of GNP (which is lower than GDP in Ireland) remains constant (and that's a big assumption) and you assume that nothing is done to address the current trajectory (another big assumption), then I would calculate that the percentage figures above represent a reasonable estimate of the % increase of the total tax take that will need to be expended on unfunded State pensions.  However, it is important to understand that any of these projections are highly sensitive to the assumptions used in the analysis.

In any event, if we can agree that the current position is unsustainable, I think we should move on to discuss possible solutions rather than getting bogged down in defending or attacking existing entitlements.


----------



## Purple

Increasing the retirement age is already happening.
Working part time beyond 65 or 68 is a good option and, indeed, desirable for many people. A soft exit from the labour market is socially as well as economically beneficial.
Where I work we offer part time hours to retiring employees. While their work rate has almost certainly declined with age their experience is still of great value.
It is also good for moral within an organisation to see that retirement doesn't have to have such abruptness and that the employer shows loyalty to their people.
While I would love to have more time off I enjoy work and would like to think I would "keep my hand in" as I get older. I started work at 17 and I'm no spring chicken but I still have over 25 years before I have these decision to make. I am quite sure it will be a very changed landscape by then.


----------



## monagt

> Many of those in retail/hotel/restaurants are well over 65 and need to work to supplement their pensions. I will have no problem taking a job in McDonalds if that is all on offer when the time comes!



Thats all very well but 25% of people between 65 and 71 will have a major health problem and 71 to ?? it will be 1 in 3 (I can't remember the 71 upper limit).
Extreme Ageism is a fact of life in Ireland  and is based on more than the physical well being or willingness of the candidate to work (will the mature candidate fit in with rest of the staff, take orders from a person the same age as his/her grandson, etc.)

Will the interviewing manager actually hire his/her grandfather/mother or great grandfather/mother? (Most would not even hire their parents)
Can he manage and control the mature employee the way he manages his own peer group? (His own confidence comes into situation as well)

Over 45 you are in trouble.........Over 60 in Ireland, forget it.


----------



## Purple

44brendan said:


> Look at the age profile of workers in the US. Many of those in retail/hotel/restaurants are well over 65 and need to work to supplement their pensions.


 Many people continue to work past retirement age in the USA because the medical insurance plan provided by their employer will cover necessary medication which their could not otherwise afford.


----------



## Sarenco

As Purple points out the State pension age was increased last year to 66 and will rise to 67 by 2021 and to 68 by 2028.

However, the net savings to the State from these measures will be significantly reduced by an anticipated increase in the number of recipients of other benefits such as jobseeker's and illness benefit as well as invalidity pensions (the self-employed obviously need not apply!).

Also I think we have to accept that, notwithstanding average increases in longevity, our physical and cognitive abilities do tend to diminish as we age.  For example, I certainly wouldn't fancy working on a building site at 68.

In any event, the increases in the State pension age were already baked into the KPMG actuarial report referenced in my earlier post so the changes don't impact on the projected shortfall in the social fund.


----------



## Sophrosyne

noproblem said:


> While it's easy looking back and getting averages from what happened over a certain no of years, etc.  I don't see anyone predicting what "will" happen in the future. We may have huge oil deposits, gas deposits, gold deposits, never mind all the other unpredictables. Life could be brilliant in a short time, then again it may not, there may not be a civilization at all, in which case a pension or piggy bank is a bit of a laugh anyway.  Why the hell should I be worried about what happens in 25 or 30 years time if I'm getting a pension now? There's only so much each generation can do, or should be expected to do and to be quite honest, we're not a bad old nation at putting one another down. If there were degrees in begrudgery, we'd be top of the pile. We've come a long way in the last 40 or so years, we're doing ok, we'll be alright over the next few years, but it won't be ourselves who will decide what happens on our stupid planet over the next 50 years + and that's for sure. A pat on the back, a bit of praise, a look at where we've come from a short few decades ago wouldn't do a few of us any harm at all. No running water,  basic electricity , a bath or a shower didn't really exist, a carpet was "what? no central heating, almost no social welfare and some of you know the rest as well. Come on people, we can bloody well look forward with happy faces. There'll be enough to go around, but of course some won't be happy with just that. God help them.



Agreed!

This is rather like statisticians in 1950’s Ireland, with only the past to draw upon, trying to forecast the economic situation up to year 2000!


----------



## Sarenco

Sophrosyne said:


> Agreed!
> 
> This is rather like statisticians in 1950’s Ireland, with only the past to draw upon, trying to forecast the economic situation up to year 2000!


 
Not really - the discussion is based on actuarial models relating to our current demographic profile with various assumptions derived from experience to date and certain rational projections in relation to average lifespans, etc.  Economic forecasting, in contrast, is basically crystal ball gazing.


----------



## roker

If the retirement age keeps on rising, the fit old people will have to work while the sick with age related problems will be on health care allowance, effectively same as retiring early.


----------



## Sophrosyne

Sarenco said:


> Not really - the discussion is based on actuarial models relating to our current demographic profile with various assumptions derived from experience to date and certain rational projections in relation to average lifespans, etc.



I agree. That is all it is - a *demographic* projection, based on assumptions.


----------



## noproblem

I  remember not too long ago certain important people within this forum and involved in finance and the banking industry advising people to accept interest rates of 4%/5% + on their house loans. I'm sure this advice was given based on actuarial models and all that gobbledegook talk that's spoken at round oak tables in conference rooms. A good job for a lot of less learned people that they didn't listen to this. If you want to make God smile, just tell him you're going on holiday in a few months time. He'll have a chuckle, I wonder why?


----------



## Sarenco

Sophrosyne said:


> I agree. That is all it is - a *demographic* projection, based on assumptions.



That is basically correct and the assumptions are detailed in the relevant actuarial reports.  Are you arguing that certain of the assumptions are not reasonable?  If so, could you be more specific?

To be clear, I believe the prognosis for the future of the unfunded State pension system is serious but it is manageable.  However, denying that a problem exists or simply wishing it away is not a realistic strategy.

Bear in mind that when Charlie McCreevy set up the NPRF in 2001, the idea was that future State pension liabilities would be funded by contributing 1 per cent of GNP per annum to the fund.  The NPRF is now gone and no alternative strategy has been devised to deal with a problem that hasn't gone away.


----------



## Sarenco

noproblem said:


> I  remember not too long ago certain important people within this forum and involved in finance and the banking industry advising people to accept interest rates of 4%/5% + on their house loans. I'm sure this advice was given based on actuarial models and all that gobbledegook talk that's spoken at round oak tables in conference rooms. A good job for a lot of less learned people that they didn't listen to this. If you want to make God smile, just tell him you're going on holiday in a few months time. He'll have a chuckle, I wonder why?



I'm sorry noproblem but I have absolutely no idea what point you're making.  Could you clarify?


----------



## noproblem

I'm just making the point that trying to predict the future is simply impossible. Yet, our most powerful institutions base a lot on what they call " projections ".


----------



## Sophrosyne

Sarenco said:


> That is basically correct and the assumptions are detailed in the relevant actuarial reports. Are you arguing that certain of the assumptions are not reasonable? If so, could you be more specific?



I am not arguing anything. I am simply pointing out that they are assumptions – which may or may not be correct.

Demography is not necessarily linear and is actually very difficult to predict, particularly over a 50-year period.


----------



## Sarenco

noproblem said:


> I'm just making the point that trying to predict the future is simply impossible. Yet, our most powerful institutions base a lot on what they call " projections ".



This will come as a shock to the actuarial profession and the life assurance industry they support!

It is obviously true that nobody can accurately or consistently predict the direction of interest rates or the future value of financial assets such as real estate or publicly traded securities.  However, it is possible to predict, to a reasonable degree of accuracy, how long, on average, individuals can be expected to live, based on factors such as their gender, etc.  it is also possible to predict with a degree of accuracy what the demographic profile of the country will look like in the medium term based on current birth and mortality rates as well as migration patterns.

I do take the point though that the further into the future you try and look the greater the possibility that your assumptions will turn out to be inaccurate.  For example, we might cure cancer in the next decade.  Oh wait, that will make the pension situation even worse!


----------



## Sarenco

Sophrosyne said:


> I am not arguing anything. I am simply pointing out that they are assumptions – which may or may not be correct.
> 
> Demography is not necessarily linear and is actually very difficult to predict, particularly over a 50-year period.



Sorry Sophrosyne, yes I take the point that the further into the future you look the more sensitive projections become to the assumptions used, particularly as regards demographic trends.

However, I would suggest that the general trend is clear - our population is ageing rapidly and this trend is highly likely to continue over the coming decades.  This will put a considerable strain on our current pension system in the medium to long term, which will be easier to manage if we start to address these problems sooner rather than later.


----------



## Sophrosyne

Sarenco said:


> Sorry Sophrosyne, yes I take the point that the further into the future you look the more sensitive projections become to the assumptions used, particularly as regards demographic trends.



OK, but the amount of the projected contingent liability is embracing a 50-year period.


----------



## Sarenco

True, but the broad trajectory would be consistent whatever timeframe you chose.  The fact that you may become increasingly less confident about your assumptions as you pass through the projected timeframe doesn't necessarily change your confidence level about the broad trend.

To put it another way, it seems reasonable to disagree about, or at least query, the extent or degree to which the demographic profile of the population is likely to change over the projected timeframe but I don't think it would be reasonable for anybody to argue that it is likely that the broad projected trend is wrong.

It's a bit like climate change - to raise doubts about some of the more dramatically projected consequences is entirely reasonable but to deny climate change as a fact entirely would be pretty controversial given the preponderance of evidence available.


----------



## Sophrosyne

Sarenco said:


> It's a bit like climate change



*It is nothing of the sort!
*


Sarenco said:


> True, but the broad trajectory would be consistent whatever timeframe you chose.



???


----------



## Sarenco

Sophrosyne said:


> *It is nothing of the sort!*
> 
> ???



Ok, but the point I was trying to make is that you don't have to be a climate change denier to disagree with any particular projections regarding the effects of climate change.  Probably a tortured metaphor.

Our demographic profile has been actuarially projected to age in line with a pretty consistent upwards trend-line over the next 5, 10, 15, 20-50 years - that's what I mean by the broad trajectory being consistent whatever time period you chose.

Are you suggesting that that the demographic profile is unlikely to change over the coming decades or are you suggesting that the direction or degree of that change is not capable of being projected or, if it is, that the projections are exaggerated?  My perception is that you seem to be saying that we have no idea at all what's going to happen so let's do nothing  - but I don't want put words in your mouth.


----------



## Dr.Debt

It's all very well to say that we will solve the problem by retiring later, however those jobs are needed by the people coming after us. If we don't retire as planned and on schedule, the young people behind us in the cycle will have less job prospects leading to higher unemployment and even more problems. Presumably then, future governments will be faced with funding either increased pension liabilities OR increased dole payments


----------



## Purple

Dr.Debt said:


> It's all very well to say that we will solve the problem by retiring later, however those jobs are needed by the people coming after us. If we don't retire as planned and on schedule, the young people behind us in the cycle will have less job prospects leading to higher unemployment and even more problems. Presumably then, future governments will be faced with funding either increased pension liabilities OR increased dole payments


I always find that notion strange, as if there was a fixed number of jobs no matter how many people there were, as if people in and of themselves could not have any economic worth.


----------



## Dr.Debt

Well you can of course assume that all new entrants to the job market will create new and "extra" jobs. Personally I don't think that's very realsistic.


----------



## Firefly

Sarenco said:


> Just to be clear - I am not suggesting that we will ever need to spend a quarter of GDP on State pensions!  The issue is certainly serious but there is no need to exaggerate the position.



My mistake, wasn't trying to exaggerate the position at all, just misunderstood your findings.


----------



## Purple

Dr.Debt said:


> Well you can of course assume that all new entrants to the job market will create new and "extra" jobs. Personally I don't think that's very realsistic.


I'm not suggesting that all of them create extra jobs but more people create more demand as so more jobs follow.


----------



## Sarenco

Firefly said:


> My mistake, wasn't trying to exaggerate the position at all, just misunderstood your findings.


 
No problem at all but a quarter of GDP would probably account for the entire tax take (as opposed to my projection of circa 23% of the tax take)!


----------



## Firefly

Sarenco said:


> No problem at all but a quarter of GDP would probably account for the entire tax take (as opposed to my projection of circa 23% of the tax take)!



23% of the tax take going to pay pensions alone. wow


----------



## Purple

Sarenco said:


> No problem at all but a quarter of GDP would probably account for the entire tax take (as opposed to my projection of circa 23% of the tax take)!


That's a simple and stark way of presenting it.


----------



## Firefly

Sarenco said:


> In any event, if we can agree that the current position is unsustainable, I think we should move on to discuss possible solutions rather than getting bogged down in defending or attacking existing entitlements.



Regarding solutions to the problem, I think moving defined benefit pensions to defined contribution pensions is an obvious one. By all means honour time already served. Current costs would increase (as payments would be required) but a line in the sand would be drawn regarding future liabilities. This will be especially important if/when bond rates in the future. Given that the current situation is clearly a house of cards, I am surprised more employees are not looking for this to be honest. 

On the OAP side,  I suspect that increases will be less than inflation over time, resulting in real reductions.


----------



## Purple

Firefly said:


> On the OAP side, I suspect that increases will be less than inflation over time, resulting in real reductions.


Does anyone have a graph showing OAP rates against inflation over the last 10 or 15 years?
I suspect the increases have been well ahead of cost of living increases.


----------



## Sarenco

Purple said:


> Does anyone have a graph showing OAP rates against inflation over the last 10 or 15 years?
> I suspect the increases have been well ahead of cost of living increases.


 
http://economic-incentives.blogspot.ie/2010/11/pension-rates.html

Here's a link to an article by Seamus Coffey on point.

As you suspected, increases to the rate of the old-age contributory pension apparently started to outstrip increases in the cost of living (CPI) from 1997.


----------



## Firefly

Sarenco said:


> http://economic-incentives.blogspot.ie/2010/11/pension-rates.html
> 
> Here's a link to an article by Seamus Coffey on point.
> 
> As you suspected, increases to the rate of the old-age contributory pension apparently started to outstrip increases in the cost of living (CPI) from 1997.


Whilst OAP payments have over-shot inflation since then I believe that OAP payments before this were quite meagre. I don't have any proof of this, mind you, but remember hearing my gran giving out about it!!!


----------



## Firefly

Firefly said:


> Regarding solutions to the problem, I think moving defined benefit pensions to defined contribution pensions is an obvious one. By all means honour time already served. Current costs would increase (as payments would be required) but a line in the sand would be drawn regarding future liabilities. This will be especially important if/when bond rates in the future. Given that the current situation is clearly a house of cards, I am surprised more employees are not looking for this to be honest.



The DAA are actually moving in this direction

_"The parties have accepted that the scheme is unsustainable for active members in its
current form and should be frozen. That is to say, contributions should cease, further
accruals of service should stop and future pension arrangements should be provided
through separate defined contribution pension schemes."_

The defined contribution rates are also very attractive. I'd be happy with that rather than the worry over getting nada in years to come! 

[broken link removed] 

Firefly.


----------



## Sarenco

Firefly said:


> Whilst OAP payments have over-shot inflation since then I believe that OAP payments before this were quite meagre. I don't have any proof of this, mind you, but remember hearing my gran giving out about it!!!


 
That's a fair point - just because increases to the contributory OAP have outstripped inflation since 1997 doesn't necessarily mean that it is overly generous today.  As you say, the payments may have been too meagre in 1997 to support a reasonable standard of living.  Having said that, the Irish contributory OAP is now almost 40% higher than the rate in the UK (I appreciate that the costs to the individual associated with other state services (particularly healthcare) are different in the UK).


----------



## Sarenco

Firefly said:


> The DAA are actually moving in this direction
> 
> _"The parties have accepted that the scheme is unsustainable for active members in its
> current form and should be frozen. That is to say, contributions should cease, further
> accruals of service should stop and future pension arrangements should be provided
> through separate defined contribution pension schemes."_
> 
> The defined contribution rates are also very attractive. I'd be happy with that rather than the worry over getting nada in years to come!
> 
> [broken link removed]
> 
> Firefly.


 
Yes, but that particular scheme was actually an under-funded, occupational DB scheme as opposed to the unfunded (ie "pay as you go") DB scheme that applies to the majority of public sector workers.

I do, however, agree with your earlier point that it is not beyond the wit of man to devise an equitable transitional arrangement if it is agreed to move public sector workers to a funded DC scheme if that can be agreed as part of an overall package of measures to address the problem.


----------



## Dermot

I have just a few basic comments to make
It is often suggested that they have a better healthcare system in the UK than here when making comparisons about income but we spend a similar amount per head of population in public funding and more in the private system.

Will the vast amount of young people who have been forced to emigrate over the last 5 years and who may not ever return not create a further imbalance in our average population age.  Has this been really projected for.

I cannot see any Government dealing with this pension time bomb until it happens. That is not the way we do things in this country. Very rarely do Governments see anything further out than 3 years out.

How would convince an electorate that an extra tax or cut is needed now to prevent this time bomb exploding in 10 years time.

It needs to be dealt wit now but how?.


----------



## Purple

Dermot said:


> It is often suggested that they have a better healthcare system in the UK than here when making comparisons about income but we spend a similar amount per head of population in public funding and more in the private system.


I agree. A recent OECD report suggests that the UK and Ireland have similar outcomes in health. It's the same report that shows we have the worst value for money healthcare system in the developed world. http://www.oecd.org/eco/growth/46508904.pdf


----------



## Sarenco

What is particularly worrying about our current spending on public healthcare, in the context of this discussion, is that Ireland spends approximately 10 per cent of our national income on public healthcare, which is roughly 25 per cent more than the EU-15 average, while having a population with by far and away the youngest age profile.


----------



## Dermot

Sarenco said:


> What is particularly worrying about our current spending on public healthcare, in the context of this discussion, is that Ireland spends approximately 10 per cent of our national income on public healthcare, which is roughly 25 per cent more than the EU-15 average, while having a population with by far and away the youngest age profile.



I agree and despite all the promises and redundancy payouts we have more administrators than we had 3 years ago.  We have a lot to get right but I do not see the will and determination to put them right.


----------



## Sarenco

http://www.independent.ie/irish-new...universal-pension-saving-scheme-30890623.html

FWIW, the Indo are reporting that Minister Burton is to bring a memo to cabinet tomorrow seeking approval to develop a road map to introduce some form of auto-enrolment to private pensions.


----------



## Deiseblue

The Indo today reports that not only has that scheme been approved but on the same page they speculate that the Government is to cut or abolish the Public Sector pension levy prior to the General election !


----------



## Purple

Deiseblue said:


> The Indo today reports that not only has that scheme been approved but on the same page they speculate that the Government is to cut or abolish the Public Sector pension levy prior to the General election !


It’s depressing to see this government engaging in the same damaging populism as previous governments!
The abolition of the Public Sector Pension Levy will mean that proportion of the cost of providing Public Sector pensions will fall of the rest of the tax payers. In real terms it means an even bigger subsidy by the rest of the citizens and tax payers through income tax, VAT etc. These taxes are paid by everyone from the richest to the poorest. It is economically damaging and morally unjustifiable that money from the very poorest should be transferred to a relatively well paid and very protected section of the population.
A bit of social justice perhaps?


----------



## Firefly

Deiseblue said:


> The Indo today reports that not only has that scheme been approved but on the same page they speculate that the Government is to cut or abolish the Public Sector pension levy prior to the General election !



That'll be Labour making sure they get re-elected


----------



## Sarenco

What appears to be envisaged in the Tánaiste's proposal is a form of auto-enrolment of private sector employees to some form of private pension scheme, with the option for employees to opt-out of the scheme.  This does not seem to me to be much of an advance on the current position where employers are required to facilitate employees to make contributions to a standard PRSA where an occupational pension scheme is not available.  Establishing and maintaining auto-enrolment to private pensions will be hugely expensive from an IT/administrative perspective and, IMO, will place a burden on small employers that is entirely disproportionate to the supposed benefits of the arrangement for their employees.

In any event, the proposal will have absolutely no impact whatsoever on the real elephant in the room - the unsustainability of the State's current pension promises, both to public sector workers and to private sector workers who qualify for a contributory old age pension.  This is not a question of equity or fairness between different sectors of the economy - at its core the issue is affordability.

If today's press reports are correct (and I would take all press reports on this issue with a pinch of salt) and it is "likely" that public sector pension related deductions (PRDs) and/or public sector pension reductions (PSPRs) are to be reduced or abolished before the next general election then this will further exacerbate the sustainability problem.

As an aside, I wish the press would stop describing PRDs as a "pension levy" - you cannot levy an unfunded pension.  I suspect this abuse of language was deliberately employed to give the impression that PRDs were somehow equivalent or comparable to the (private) pension levy.  However, proportionately PRDs will only raise a tiny fraction of the amount that the government will ultimately expropriate from private retirement savings under the guise of the pension levy.


----------



## Purple

Another excellent post Sarenco.
Do you think this is a precursor to the contributory OAP being means tested and therefore, as everyone will have their own pension, effectively abolished so that all future funding can be channelled into un-funded Public Sector pensions?

Your point about the PRDs being dwarfed by the real Pension Levy is very pertinent.


----------



## 44brendan

Good post by Sarenco. it is patently clear that there is no affordability to continue funding PS pensions from current income. This was always a "mad scheme" and should have been properly addressed many years ago. The Government did go some way towards addressing the issue by applying the "pension levy" in recent years. However, I suspect that the associated funds raised were put in the general income pot and not set aside to cover the future pensions of the associated employees.
It is very reasonable to accept that all employees should be contributing towards their future pensions and the proposed elimination of this "temporary arrangement" for the PS will undo the considerable effort it took to put it in place! It is totally naive for any PS employee to assert that they have no obligation to contribute towards the very good DB pension that they will receive. I am sure that most will accept the principle that the historic arrangement was unsustainable and that they are paying a relatively low contribution towards a very good future pension!


----------



## Gerry Canning

44brendan said:


> Good post by Sarenco. it is patently clear that there is no affordability to continue funding PS pensions from current income. This was always a "mad scheme" and should have been properly addressed many years ago. The Government did go some way towards addressing the issue by applying the "pension levy" in recent years. However, I suspect that the associated funds raised were put in the general income pot and not set aside to cover the future pensions of the associated employees.
> It is very reasonable to accept that all employees should be contributing towards their future pensions and the proposed elimination of this "temporary arrangement" for the PS will undo the considerable effort it took to put it in place! It is totally naive for any PS employee to assert that they have no obligation to contribute towards the very good DB pension that they will receive. I am sure that most will accept the principle that the historic arrangement was unsustainable and that they are paying a relatively low contribution towards a very good future pension!


.........
44Brendan.
Just because it is a new year will you please stop talking sense!

What odds do you give me on any Term Elected Government being a Long Term Thinker?.


----------



## Firefly

44brendan said:


> It is totally naive for any PS employee to assert that they have no obligation to contribute towards the very good DB pension that they will receive



To be fair, public sector employees do contribute to their pensions. However, I wonder would the contributions even cover the tax-free lumpsums recevied, never mind the pension itself.


----------



## Protocol

Purple said:


> Another excellent post Sarenco.
> Do you think this is a precursor to the contributory OAP being means tested and therefore, as everyone will have their own pension, effectively abolished so that all future funding can be channelled into un-funded Public Sector pensions?



Note that if the contributory OAP is abolished, then the PRSI contributions would also be reduced.

Nobody has suggested abolishing the OAP.

Reforming it, yes. Abolishing it, no.


----------



## Protocol

44brendan said:


> It is very reasonable to accept that all employees should be contributing towards their future pensions and the proposed elimination of this "temporary arrangement" for the PS will undo the considerable effort it took to put it in place! It is totally naive for any PS employee to assert that they have no obligation to contribute towards the very good DB pension that they will receive. I am sure that most will accept the principle that the historic arrangement was unsustainable and that they are paying a relatively low contribution towards a very good future pension!



Note that most PS have always paid pension conts of 6.5% of wages.

The media would suggest or imply that PS don't pay pension conts, but of course they are incorrect.

Now, you can argue that the 6.5% cont rate is too low, and I probably agree with you.

On top of the 6.5%, since 2009 or 2010, PS pay the PRD of 10% on wages from 20k-60k, with 10.5% over 60k.

So that's a 16.5% cont rate for most workers.


----------



## 44brendan

I stand corrected Protocol! I would also agree that in line with many private sector employments there should of course be a fair contribution by the State towards PS pensions.
The issue of whether these funds are adequate and also whether they should be put aside to cater for future pensions (in line with most pension funds) is another discussion. I have no idea what the norm is amongst most governments in funding future PS pensions. It would be interesting to find comparisons.
It would be unfair to infer that the PS were not contributing adequately unless a comparison with the average EU country was available and we  were fully aware of where the irish PS stood!


----------



## Sarenco

Protocol said:


> So that's a 16.5% cont rate for most workers.



This is not correct.  The average public sector salary (per the CSO) is €47,788 and is currently subject to a PRD of €3,028 (6.3 per cent).  Accordingly, it is not accurate to say that a PRD of 10 per cent is applied to the remuneration of most public sector workers.  Also, this has to be seen in the context of the fact that the average public sector salary is 48 per cent higher than the average private sector salary (per the CSO).

As regards the 6.5 per cent contribution, it is worth noting that all post-1995 public sector workers pay an integrated contribution that includes full rate PRSI (generally 4 per cent) and may qualify for the old age contributory pension.  In addition to their pension benefits, public sector workers are also entitled to receive 1.5 times their final salary on retirement or on death in service and their surviving spouse is entitled to receive half their pension.  In other words, the 6.5 per cent contribution is really very modest in the context of the generous benefits accrued.


----------



## Purple

So the 6.5% is in fact 2.5%.


----------



## Sarenco

Purple said:


> So the 6.5% is in fact 2.5%.



Public sector workers hired after 1995, that earn at least €352 per week, pay PRSI at a rate of 4 per cent on their gross remuneration.  Stripping out this PRSI element from the integrated 6.5 per cent contribution leaves you with 2.5 per cent.  However, when you include the cost to the State of the tax free retirement lump sum and the surviving spouse's pension, even this modest contribution looks largely illusory.


----------



## Purple

Sarenco said:


> Public sector workers hired after 1995, that earn at least €352 per week, pay PRSI at a rate of 4 per cent on their gross remuneration.  Stripping out this PRSI element from the integrated 6.5 per cent contribution leaves you with 2.5 per cent.  However, when you include the cost to the State of the tax free retirement lump sum and the surviving spouse's pension, even this modest contribution looks largely illusory.


I agree that even 6.5% is Lilliputian in scale but your post shows that the contribution is nowhere near 6.5%.
Does anyone know what the cost would be of funding the average PS pension and what that translates into contribution wise?


----------



## Sarenco

Purple said:


> I agree that even 6.5% is Lilliputian in scale but your post shows that the contribution is nowhere near 6.5%.
> Does anyone know what the cost would be of funding the average PS pension and what that translates into contribution wise?



http://www.independent.ie/irish-news/garda-pension-worth-11m-26518918.html

I don't have those figures but the analysis reported here may be of some interest.


----------



## Fin Crusader

Maybe you should go work for the public service, maybe as a Garda


----------



## Purple

Fin Crusader said:


> Maybe you should go work for the public service, maybe as a Garda


It's very hard to get into the Gardaí. Despite the huge cuts for new entrants (in order to protect the T&C's of existing members) the job is still seen as being very attractive. The gold plated pension is a big part of that.
The fact that the state is still broke and can't afford to employ more police is a big problem but we all know that.


----------



## Sarenco

I am attaching a link to the annual report for the NRPF for 2007 - the final full year of the fund before its assets were re-directed to addressing the banking crisis.

For anybody that is interested in the issue under discussion here, I would recommend taking a look at page 6 of the report.  This contains a summary of the issue in a single page with some illuminating graphs showing the trajectory of the State's pension sustainability problem.  What I found particularly interesting in the report was that the NRPF was projected to peak at 50 per cent of GNP around 2040 and this was projected to reduce the cost to the State by 3.6 per cent annually by mid-century (representing 1/4 of the projected cost).

Unfortunately the NPRF is now gone but the problem it was designed to (partially) address is still very much with us.


----------



## VoiceofReason

Purple said:


> So the 6.5% is in fact 2.5%.



Public sector workers hired after 1995, that earn at least €352 per week, pay PRSI at a rate of 4 per cent on their gross remuneration. Stripping out this PRSI element from the integrated 6.5 per cent contribution leaves you with 2.5 per cent. However, when you include the cost to the State of the tax free retirement lump sum and the surviving spouse's pension, even this modest contribution looks largely illusory.


Can you explain your logic here? My understanding is the 4% is in addition to the 6.5% which is in addition to the Pension levy and therefore your post gives a very inaccurate view of the contributions actually paid.


----------



## Sarenco

Technically relevant post-1995 public sector employees contribute a total of 3.5 per cent of their *net *remuneration towards their pension.  Net remuneration is defined as current remuneration and pensionable emoluments less twice the maximum social welfare contributory pension payable to a single person with no dependants.  In other words, their total remuneration is reduced by twice the amount of the social welfare contributory pension before the 3.5 per cent contribution is calculated.

In addition, public sector workers contribute 1.5 per cent of their remuneration towards their (tax free) retirement lump sum and 1.5 per cent of their net remuneration towards the spouse's and childrens' pension scheme.

See here for further details:

http://www.askaboutmoney.com/threads/contribution-rate-on-public-service-integrated-pension.22478/

Pension related deductions (PRDs) are separate from the integrated pension contributions.

Again it should be emphasised that public sector pension contributions are notional in the sense that they are not ring-fenced in a separate fund - all pensions are still funded on a pay as you go basis.


----------



## orka

VoiceofReason said:


> Can you explain your logic here? My understanding is the 4% is in addition to the 6.5% which is in addition to the Pension levy and therefore your post gives a very inaccurate view of the contributions actually paid.


When the pre/post-1995 split occurred, post-1995 civil servants were indeed required, on paper, to pay full PRSI and start making contributions towards their pension - which their pre-1995 colleagues did not pay.  However, post-1995 pay scales were upped to effectively negate this cost.  So while it appears that post-1995 pay something their pre-1995 colleagues don't, this is largely illusory as post-1995 salaries are, to this day, more than 5% higher (the factor is 20/19 which is about a 5.3% uplift) and separate payscales are maintained.


----------



## Slim

orka said:


> When the pre/post-1995 split occurred, post-1995 civil servants were indeed required, on paper, to pay full PRSI and start making contributions towards their pension - which their pre-1995 colleagues did not pay.  However, post-1995 pay scales were upped to effectively negate this cost. .


 
There may be confusion here. Certain civil servants were paid salaries net of pension contribution(5%), so it was not a deduction but the salary scale was reduced accordingly. When this was changed, new civil servants were appointed at higher gross scales, hence the illusion of higher pay. Net effect, no change.

Post 1995 Public Servants paid a contribution that was co-ordinated with the contrib. OAP rate. Since the 1970,s all new public servants paid 5% superannuation plus(in most cases) 1.5% Spouses & Childrens, total 6.5%. Salaries did not change for new appointees.

Based on a salary of €49,000, the pre(Class D) & post(Class A) 1995 public servants pay as follows:

Class D: Pension Contrib (6.5%) = €3,185 Plus PRSI of €1,151.50 Plus Pension Related Deduction (PRD) of €3,528....Total Pension contribution of €5,978 or 12.2% of gross pay.
Class A: Pension Contrib (1.5% of gross plus 3.5% of gross less twice cont. OAP rate of €230.30) = €7,661 Plus PRSI of €1,960 Plus PRD of €3,528 or 15.63% of gross pay.

Clearly, Class A pay more in PRSI and presumably have a little additional entitlement, optical & dental, occupational illness etc.

Overall, pension contributions of 12.2% and 15.63% are not too shabby. Benefits are, on max. service, equivalent to 50% of final salary plus a lump sum of 15 times final salary. Pretty good, but, on death, the pension ceases, except for 50% paid on to spouses & children etc.

My understanding would be that private sector contributions to defined benefit schemes were around 6%, but benefits are 66% pension(no lump sum) and a cont. OAP at 66, having paid class A stamp.

The idea that public servants are enjoying some kind of free ride is misguided. In addition to the pension levy(PRD), pensions of already retired public servants have been reduced and pay rates have also been reduced twice since 2010.

It's still a good pay and pension but it is not free or even 'gold plated'.


----------



## ashambles

Believe that Slim is correct and there are a few pension deductions, though I'd personally not count my PRSI as being a pension contrib.

I would say that after the PRD quite a few public servants would be better off with a private pension.

However would Slim or anyone else know the exact status of employers PRSI for government staff, I believe it's paid in semi states, universities and so on but overall it's hard to tell. We occasionally see figures like 15B for overall pay, we never see a mention of 1.5B of that going into the PRSI fund.

My own pension contrib is 20%, then there's PRSI of 14.75, so a 34.75% pension contribution if you want to include PRSI.


----------



## Gerry Canning

ashambles said:


> Believe that Slim is correct and there are a few pension deductions, though I'd personally not count my PRSI as being a pension contrib.
> 
> I would say that after the PRD quite a few public servants would be better off with a private pension.
> 
> However would Slim or anyone else know the exact status of employers PRSI for government staff, I believe it's paid in semi states, universities and so on but overall it's hard to tell. We occasionally see figures like 15B for overall pay, we never see a mention of 1.5B of that going into the PRSI fund.
> 
> My own pension contrib is 20%, then there's PRSI of 14.75, so a 34.75% pension contribution if you want to include PRSI.


ashambles;
I do not think {afterPRD quite afew public servants would be better off with a private pension}

eg @ 65 to buy a pension of 10,000 per annum a private pension fund needs to have amassed 240,000 .
I think the overall argument is not private or public , it is , do we do have Government with the strength to force a pension funding system that will take the sting out of future costs.
The crowd that are in with their majority could have taken leadership and pushed this through.
Given the probability of  the next bunch being (liquorice allsorts) I fear correct decision making will have little hope.


----------



## orka

Slim said:


> There may be confusion here. Certain civil servants were paid salaries net of pension contribution(5%), so it was not a deduction but the salary scale was reduced accordingly. When this was changed, new civil servants were appointed at higher gross scales, hence the illusion of higher pay. Net effect, no change.


Really?  I've never seen that spin put on it before.  The cspensions.gov FAQ has the following Q/A for pre-1995 civil servants:
"*Do I pay contributions for these benefits?* There is no personal contribution towards their own personal pension for officers who pay modified PRSI. " Nothing about a netting down of salary scales.  In contrast, the corresponding FAQ for post-1995 refers to a grossing-up of salary scales...


----------



## Gerry Canning

orka said:


> Really?  I've never seen that spin put on it before.  The cspensions.gov FAQ has the following Q/A for pre-1995 civil servants:
> "*Do I pay contributions for these benefits?* There is no personal contribution towards their own personal pension for officers who pay modified PRSI. " Nothing about a netting down of salary scales.  In contrast, the corresponding FAQ for post-1995 refers to a grossing-up of salary scales...


Orka,
From getting educated on this thread it looks like this was an attempt to have Civil Servants cover some of their pensions by increasing wages to compensate for said (new) contributions.
Probably in time these contributions would, as in the Private sphere have  become an accepted norm and wages could be watched/increased/trimmed as the economy moved.
Had Private work kept salary increasing and we had no recession we probably would have no issue.
At present looks like a bit of a giveaway , but who foretold the recession?


----------



## Firefly

Slim said:


> There may be confusion here. Certain civil servants were paid salaries net of pension contribution(5%), so it was not a deduction but the salary scale was reduced accordingly. When this was changed, new civil servants were appointed at higher gross scales, hence the illusion of higher pay. Net effect, no change.



Except that the pension itself is based on final salary, which has now been increased..


----------



## Gerry Canning

Firefly said:


> Except that the pension itself is based on final salary, which has now been increased..


Firefly ; Was there not legislation that pensions are to be averaged over years worked?


----------



## Firefly

Gerry Canning said:


> Firefly ; Was there not legislation that pensions are to be averaged over years worked?



Only for new employees (post 2010 I think).


----------



## Gerry Canning

Firefly said:


> Only for new employees (post 2010 I think).


So (old) employees will get enhanced pensions and get the OAP contributory as well? #
Is this so?


----------



## Firefly

Gerry Canning said:


> So (old) employees will get enhanced pensions and get the OAP contributory as well? #
> Is this so?


I'm not sure. I guess my point above was meant to address the "net effect, no change" comment - pensions are calculated on salary, which was increased.


----------



## ashambles

Gerry Canning said:


> I do not think {afterPRD quite afew public servants would be better off with a private pension}
> 
> eg @ 65 to buy a pension of 10,000 per annum a private pension fund needs to have amassed 240,000 .


I'm fairly sure that you'll find people at the edges who'd be better off with private pensions.

If you're on 30k looking at a 15k pension you're paying something like 7.5% for what seems like just 3k per annum more than the OAP. It is not impossible a 30k private sector worker would do better by putting 7.5% away for 40 years into a standard fund. If the private sector worker's employer was matching contributions to 5% then the private sector worker probably do better most of the time.

For high paid public servants such as someone earning 200k they might be tempted to feel they could do better with the 31k they're forced to contribute being placed into a normal fund. Or at least be allowed to fund their pension to whatever level they'd like.

Some are probably have to contribute beyond the tax relief cap - which no one in the private sector would do. If a 200k earning 35 year old can only contribute 23,000 to a pension fund before the tax relief cap is hit, what happens the remaining 8k of contributions? Does the government take the 8k, then charge 4k in taxes for doing so?

A lot of high earners in say NAMA and the NTMA don't intend to work there beyond a few years, they don't care about getting maybe 1/10 of even a very good government pension in a few decades, many of them would ditch that pension and keep the deductions given the choice.


----------



## Slim

Firefly said:


> I'm not sure. I guess my point above was meant to address the "net effect, no change" comment - pensions are calculated on salary, which was increased.


 
This anomaly does not apply to the majority of public servants, i.e local authorities, HSE. Pre and post 1995 employees should end up with same pension but the post 1995 employees pay increased PRSI.

PRSI is not a 'pension contribution' for pre 1995 public servants but forms part of pension entitlement for post 1995 PS.


----------



## orka

Slim said:


> My understanding would be that private sector contributions to defined benefit schemes were around 6%, but benefits are 66% pension(no lump sum) and a cont. OAP at 66, having paid class A stamp.


Most DB schemes were integrated with the OAP so it was 66% including the OAP.  The relevant issue here though is that most DB schemes are now recognised as unsustainable and have moved to DC schemes - with, hopefully, past service locked in to DB (I'm dubious about how many will actually be able to stand over their promises).  The public sector is only moving to a career average for new entrants which leaves a massive liability still accruing for non-new-entrants for many years.  The private sector has recognised the sums don't add up; the public sector should too - or does benchmarking only go one way?  Private employers can't afford the continuation of DB accrual and neither can the state.


----------



## Deiseblue

I agree that some DB schemes & indeed DC schemes include the OAP in their figures when calculating final pensions - the AIB scheme comes to mind in this context ( note anybody employed prior to 1996 will in addition to the occupational pension receive the OAP ).

However employers such as Bank of Ireland , Smurfit & as recently shown Waterford Glass do not , if you serve the maximum time required you receive your full pension ( obviously the Glass falls into a different category ! ) & can also claim the OAP.

I have never seen a percentage  breakdown of occupational schemes that include or do not include the OAP in calculating final pensions .

It should be pointed out that whether you are a member of a DB , DC or hybrid scheme you may well be entitled to claim the OAP in addition to your occupational pension depending obviously on the rules of your scheme.


----------



## Sarenco

Slim said:


> Post 1995 Public Servants paid a contribution that was co-ordinated with the contrib. OAP rate. Since the 1970,s all new public servants paid 5% superannuation plus(in most cases) 1.5% Spouses & Childrens, total 6.5%. Salaries did not change for new appointees.
> 
> Based on a salary of €49,000, the pre(Class D) & post(Class A) 1995 public servants pay as follows:
> 
> Class D: Pension Contrib (6.5%) = €3,185 Plus PRSI of €1,151.50 Plus Pension Related Deduction (PRD) of €3,528....Total Pension contribution of €5,978 or 12.2% of gross pay.
> Class A: Pension Contrib (1.5% of gross plus 3.5% of gross less twice cont. OAP rate of €230.30) = €7,661 Plus PRSI of €1,960 Plus PRD of €3,528 or 15.63% of gross pay.
> 
> Clearly, Class A pay more in PRSI and presumably have a little additional entitlement, optical & dental, occupational illness etc.



The above calculations look correct to me but I think you have omitted the fact that post-1995 public servants also qualify for the social welfare contributory pension.

It also ignores the fact that PRDs have only been in place for a limited number of years and we do not know whether they will continue into the future (ie they will almost certainly not be applicable throughout the relevant service period).

In any event, I dare say that most post-1995 private sector workers earning a gross salary of €49,000 per annum would be more than happy to sacrifice 11.63 per cent of their gross income, plus 4 per cent PRSI, in order to guarantee the sort of replacement income in retirement (together with the valuable benefits accruing to their spouse) that is available to public servants.

The problem of course is that the State's pension promises to workers (public and private sector) are unfunded and will become increasingly challenging to fulfil as we move through the next 40 years in the absence of major policy changes.


----------



## Deiseblue

PS employees recruited post 1995 paying Class A PRSI contributions will receive the OAP but will have their occupational pension reduced to reflect this - it is integrated.


----------



## Sarenco

Deiseblue said:


> PS employees recruited post 1995 paying Class A PRSI contributions will receive the OAP but will have their occupational pension reduced to reflect this - it is integrated.



True, but my comment related to Slim's comment regarding the limited nature of the PRSi-related benefits accruing to post-1995 recruits.  I'm not trying to advance an argument that post-1995 public servants get a better deal than their pre-1995 colleagues.


----------



## Sophrosyne

To be honest Sarenco, despite your numerous posts, I have no idea what you are putting forward in relation to solving implicit pension debt.


----------



## Sarenco

Sophrosyne said:


> To be honest Sarenco, despite your numerous posts, I have no idea what you are putting forward in relation to solving implicit pension debt.



Well, I did advance some potential solutions earlier in the thread (introduce career averaging for all public sector pensions and materially reduce all social welfare pensions and/or benefits now rather than leaving more dramatic cuts for the future) but I take the point that the majority of my more recent posts are trying either (a) to emphasise the extent of the core issue; or (b) to bring the discussion away from sectional pleading.

I really hoped that we could have a discussion on the merits of possible solutions to what I regard as an issue of considerable importance but I may have to concede defeat as the discussion keeps getting bogged down in the detail of a public v private sector argument.

Would you like to suggest any alternative possible solutions to the core issue of unsustainable State pension promises?


----------



## Sarenco

http://www.rte.ie/news/2015/0210/679191-pensions/

Interesting to note that the Government today extended the deadline for public servants to retire based on their salaries prior to pay cuts imposed under the Haddington Road Agreement.  Defusing our growing pension time bomb is obviously not an urgent policy objective for the present Government.

Meanwhile, the pension entitlements of recently recruited public servants will be determined on the basis of average career earnings (rather than their final salary) but they are still subject to the same pension related deductions as their more established colleagues.  I can only assume that the profoundly unequal treatment of different age cohorts within the public service is not doing wonders for the morale of its younger members.


----------

