"cuts to state pensions must be considered"

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.
 

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.
 
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.


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

Yes, guaranteed by the taxpayer.........and to quote Eddie Hobbs.....
Could you point me to the text of this guarantee please?

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
 
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
 
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.
 
Defined Benefit..................
Of course. Silly me.
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.
 

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.
 



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.
 
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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.
 
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!
 
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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.
 

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
 
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).
 
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
 

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.
 
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.
 
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.