RENUA on Pensions

As per RENUA's recently published manifesto:

"RENUA Ireland is deeply concerned about the €400bn projected shortfall in pension provision. Even if Ireland achieved a net inward migration of the approximately 1 million people necessary to maintain the ratio required to pay old age pensions in thirty years’ time, there is likely to still be a dramatic fall in living standards relative to today.

Based on current economic data, they will not be honoured and cannot be honoured.

Change is required and RENUA Ireland is proposing a Universal National Pension scheme. Introducing this scheme includes moving new entrants in the Public Sector from a defined benefit scheme to a defined contribution scheme.

The raiding of the National Pension Reserve Fund during the crisis has made this issue particularly acute. Ireland cannot afford to delay in planning for its future and having a mature conversation about what people can legitimately expect when they are in their elder years.

The funds industry will play a vital role in facilitating access to a Universal National Pension scheme and operating it on behalf of citizens. RENUA Ireland favours auto-enrolment and making pension provision mandatory."

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"The forecasted gap in the provision of public sector pensions is in excess of €400bn at current market prices – more than 2.5 times our GNP. Continued failure to introduce radical change has the capacity to destroy the economic viability of the state.

RENUA Ireland will:

• Develop a universal, mandatory pension scheme on a defined contribution basis in the public sector;

• Introduce auto enrolment in pensions for all citizens (public and private including contractors working for the public sector;

• Transition public sector workers from a defined benefit pension scheme to a defined contribution scheme;

• Cap accruable public sector pensions at €60,000 per annum, so as to match the limit at which a super levy is imposed on private sector pensions."

Has the hallmark of sense ; wonder how many votes they will get?

They have mine for this and other proposals (property tax, three strikes rule for crimes).

They seem to be talking a lot of sense. I am not sure yet if they have a candidate running in my area but if they have they will be getting my No. 1. I would have more faith in them right now rather than the other main parties who are just trying to buy their way back in.

The PS system isn't a DB scheme - I know that comes up here as a point regularly. Why would bringing in a DC scheme only apply to new entrants? Any savings for the taxpayer would take years to materialise and decades to complete.

The vast majority of PS and CS are members of a DB scheme. Only recent new entrants are included in a DC scheme.
I think what Renua are suggesting is that the DB element is changed for all members (including current members) similar to what has happened in many private sector schemes. So they would still have a DB benefit based on service to date but that all future service would be on a DC basis. In addition they are also suggesting a cap of €60k p.a. (which roughly equates to the €2m cap in the private sector).

Just a repeat of labour's promises last time . If they get in they will say we couldn't keep to the promises of the manifesto because the larger party " call the shots "

Whatever about the detail, I think it's encouraging that the first party out of the blocks with a manifesto recognises the seriousness of this issue and is at least trying to formulate a policy to address the problem. Hopefully, other parties will follow suit and we can then debate the competing proposals.

A few initial thoughts on the specifics of RENUA's pension policy:-

• It doesn't actually mention social welfare pensions (contributory or means-tested) and it's not clear to me whether the proposed universal scheme would replace or supplement these payments.
• The idea of a universal scheme for both private and public sector employees would appear to largely mirror the pension system in Chile (originally introduced during the Pinochet regime). While the Chilean experiment has been largely successful, there have been a number of significant issues particularly around costs and coverage.
• Would the self-employed (or employers) be required to contribute to this scheme? How will individuals with no earned income be catered for? Widows and orphans?
• I'm not sure the proposed cap on accrued public sector pension entitlements could be introduced without a constitutional referendum. This cap would have a very significant impact on the pension entitlements of a number of senior politicians, civil servants, hospital consultants, etc.
• Does the proposed €60k cap include social welfare pensions (where applicable)? What about pension entitlements from other sources (e.g. a UK state pension)?
• There is no detail on how public sector workers would transition to the proposed universal scheme. This is a critical issue from a costing perspective.
• Similarly, there is no detail as to what happens to existing occupational and private pension arrangements or how these entitlements would interact with the proposed universal scheme.
• There is no indication as to what level of contributions will be mandatory under the proposals. Would exemptions be made for low earners? If so, what benefits will they receive on retirement? What about part-time or occasional employment?

They seem a little misinformed regarding the penalties that already apply to big public sector pensions. The restriction that applies to private defined contribution schemes also applies to big defined benefit schemes. There's a cap of €2m and everything above that is subject to penalty chargeable excess tax. For a defined contribution scheme, everything above €2m is hit with 40% upfront. For a defined benefit scheme, a multiple of 30 is applied to entitlements accrued since the cap dropped to €2m. So a public servant who retires with a pension of €120k gets whacked with a penalty of €640k upfront (30 x €120k x 40%).

Gordon Gekko said:

For a defined benefit scheme, a multiple of 30 is applied to entitlements accrued since the cap dropped to €2m. So a public servant who retires with a pension of €120k gets whacked with a penalty of €640k upfront (30 x €120k x 40%).

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The application of the SFT to public sector pension entitlements is bit more nuanced than that but it's certainly true that a penalty charge can apply to large public sector pensions under current arrangements and this is ignored in the RENUA proposal.

http://www.per.gov.ie/wp-content/uploads/SFT-Budget-2014-Letter-Issued.pdf

Sarenco said:

The application of the SFT to public sector pension entitlements is bit more nuanced than that but it's certainly true that a penalty charge can apply to large public sector pensions under current arrangements and this is ignored in the RENUA proposal.

http://www.per.gov.ie/wp-content/uploads/SFT-Budget-2014-Letter-Issued.pdf

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I know that. My post was designed to simplify the issue rather than turn it into a tax technical piece. I've dealt with a number of high earners in the public sector who have encountered this problem, and over the years (particularly when it first became an issue) I've engaged with Revenue and the Department of Finance on it.

The point is the Renua don't appear to understand the subject, which damages their credibility.

Gordon Gekko said:

My post was designed to simplify the issue rather than turn it into a tax technical piece.

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Fair enough (I'm not doubting your knowledge or expertise) but I guess RENUA could make precisely the same defence of their manifesto proposals.

To be honest, I think the entire manifesto is so light on detail, across a whole range of policy issues, that it lacks real credibility but I applaud their efforts to at least try to formulate policies to address significant issues, rather than simply trying to bribe voters with their own money. I've no doubt an experienced politician would filet their proposals but if their manifesto prompts the established parties to at least try to develop meaningful alternative policies, well, I think that would be a decent contribution.

Sarenco said:

Fair enough (I'm not doubting your knowledge or expertise) but I guess RENUA could make precisely the same defence of their manifesto proposals

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Not a fair comparison at all. I have deliberately dumbed down a point to make it understandable. Renua's position is patently wrong.

Well it wasn't clear to me from your initial post that you were deliberately dumbing down anything. I suspect RENUA would similarly make the point that their manifesto necessarily simplifies the issue and is not intended to be a technical tax piece.

I don't see how you can say the RENUA proposals are patently wrong (whether or not you agree with them) but I agree that ignoring the application of the SFT to public sector pensions gives a misleading impression of the current position. I don't know whether this omission was deliberate or not.