The truly shocking cost of State pensions

[Sarenco]

They sure do, and they still would even if the scheme didn't exist or was different, hence my reference to the MARGINAL cost - but since you've admitted you were only being a smart This post will be deleted if not edited to remove bad language referring to it we may travel no further down this particular cul de sac...

Yes, the cost of framing, administering and enforcing our tax code is marginal. As is the profit margin of a life company in writing an annuity. I certainly agree that there is no need to travel any further down this particular cul de sac.

 

[Jon Stark]

Yes, the cost of framing, administering and enforcing our tax code is marginal. As is the profit margin of a life company in writing an annuity. I certainly agree that there is no need to travel any further down this particular cul de sac.

So if there was no DB PS pension scheme, there would be no cost of framing, administering and enforcing our tax code - I'm intrigued to hear how you stand that up...??

 

[Slim]

Can somebody clarify for me how much PRSI a pre 95er pays on €48k, would i be right in thinking its .9% ??

Yes, from €352 - €500, it's .9%. Over €500, it's .9% of first €1,443, 4% on balance.

 

[Sarenco]

So if there was no DB PS pension scheme, there would be no cost of framing, administering and enforcing our tax code - I'm intrigued to hear how you stand that up...??

I'm not trying to stand anything up! I'm simply making the (somewhat tongue in cheek) point that there is a cost associated with framing, administering and collecting the taxes required to make State pension payments. I wouldn't attempt to quantify that cost but it's not zero.

 

[Cervelo]

Yes, from €352 - €500, it's .9%. Over €500, it's .9% of first €1,443, 4% on balance.

So a person earning €48k only pays .9% in total or is it .9 on the first €500 and 4% on the next €432 ??
Is the first €1,443 per week or year ?

 

[PMU]

Yes, the State doesn't buy annuities - I have already acknowledged that fact repeatedly.

However, the cost of a purchasing an annuity is a very good proxy for the cost of providing a State pension.

Admittedly it's an imperfect proxy - primarily because the benefits provided by State pensions can be expected to outstrip annuity payments that escalate in line with inflation. In other words, the cost to the taxpayer in providing a pension will almost certainly be higher than the cost of an annuity that simply escalates in line with inflation.

No it's not. The cost of providing a pension is comparable to establishing a sinking fund, not to purchasing an annuity.

Also, on what planet are you living? Public service salaries shave not increased; they have been decreased. Pensions have been reduced in line with salary reductions and a pensions-related deduction (average 7%) was introduced in 2009. Future pensions will be based on career averaging and not on final salary. The 'link' between pension increases and salary always was discretionary, and can be reviewed under the recent public service agreements 2010 – 2018.

The important point, which you haven't responded to in my post no 162 above, is that public sector pensions are decreasing both in terms of annual cost (i.e. as a % of total expenditure) and in terms of affordability (i.e. as a % of GNP). They are not increasing. Is 4% of total government expenditure really 'shocking'?

 

[Slim]

So a person earning €48k only pays .9% in total or is it .9 on the first €500 and 4% on the next €432 ??
Is the first €1,443 per week or year ?

From €352 - €1443 per week, it's .9%. Over €1443 pw it's 4%.

 

[Sarenco]

http://www.telegraph.co.uk/finance/...w-annuity-firms-clean-up-at-your-expense.html

"Only one company, Standard Life, actually discloses its profit margins on annuities. We asked other insurers to follow suit but none would do so. Standard Life made a margin of 18.6pc on annuities in 2011."

Just to develop the point that it is unsafe to rely on data relating to annuity margins prior to the UK pension reforms that were introduced in 2014, the margins that Standard Life generated on its new annuity business last year fell by a whopping 66% -

http://www.rte.ie/news/business/2015/0220/681588-standard-life-profit/

 

[Sarenco]

No it's not. The cost of providing a pension is comparable to establishing a sinking fund, not to purchasing an annuity.

I respectfully disagree.

The cost of purchasing an annuity that provides a comparable benefit to an individual State pension is a perfectly valid, if imperfect, way of estimating the actuarial value of that pension. I believe I have already explained why I consider your "sinking fund" approach to be inappropriate.

Also, on what planet are you living?

I'm afraid I don't have an answer to that knockout argument!

As you know, the Department of Public Expenditure and Reform carried out an actuarial valuation of the State's public service pension liabilities as at December 2012.

The key result was that the total accrued liability in respect of public service pensions was estimated at €98bn. This compares with the previous estimate of €116bn for 2009. Therefore, over the three years from 2009 to 2012 the liability had fallen by €18bn or by 16% and the main reasons for the reduction were the pay and pension cuts since 2009 and the freeze in pay and pension rates that are currently under negotiation.

The Department itself has estimated that the accrued liability would fall by a further €16bn if future pension increases were linked to inflation, rather than the salary increases of serving staff members.

Whatever way you look at it, the accrued (and obviously unfunded) public sector pension liability is a big number and the question remains as to how it will be discharged when the ratio of retirees to workers is projected to deteriorate from 1:5 to 1:2 by 2050.

Put bluntly, where's the money going to come from in the future?

 

[Merowig]

http://www.independent.ie/business/...nds-of-public-sector-pensioners-35116538.html

Triple boost for thousands of public sector pensioners
(...)
The increases will see some retired public sector workers getting an annual increase in their income of €1,000.

The big gains for retired nurses, civil servants and teachers will come from a further unwinding of cuts to their pensions in the austerity budgets. They are set to get around €500 restored to their pension payments from the start of next year.
(...)

 

[Sarenco]

Last June the Minister Donohue announced the restoration of pension income that was subjected to the Public Service Pension Reduction (PSPR) in the wake of the financial crisis.

The changes provide for the restoration of pension income on a phased basis over three years as follows:

• 1 January 2016 – return of €400 to most PSPR-impacted pensioners.
• 1 January 2017 – return of €500 to most PSPR-impacted pensioners.
• 1 January 2018 – return of €780 to most PSPR-impacted pensioners.

and/or removing pensioners from the PSPR “net” entirely.

This will obviously have a material impact on the State's accrued public service pension liabilities, the reporting of which is now mandatory (commencing with the end-2015 position) as part of our national accounts under EU Regulations.

 

[Páid]

What is the actual cost to the state for the average €24,000 pension? Is it anywhere near €1.5m ?

 

[Cervelo]

What is the actual cost to the state for the average €24,000 pension? Is it anywhere near €1.5m ?

Is it not €24K, or is it a trick question ??

 

[Sarenco]

Meanwhile, in other news, the IT are reporting that the forthcoming Commission on Public Sector Pay will consider the value of public servants’ pensions as part of their remuneration, compared to those available in the private sector.

Needless to say, the Beards are not too thrilled and are lobbying hard to ensure that the Commission contains "an adequate number" of members with trade union backgrounds. They're not too keen on having any pesky "academics" about the place.

http://www.irishtimes.com/news/poli...der-value-of-public-sector-pensions-1.2815424

 

[Páid]

Is it not €24K, or is it a trick question ??

It's €24,000 per year. I'm wondering what the total cost of the average Civil Service pension is to the State i.e. the total paid to the person receiving the pension.

 

[Sarenco]

It's €24,000 per year. I'm wondering what the total cost of the average Civil Service pension is to the State i.e. the total paid to the person receiving the pension.

Do you mean historically? When the cost of living and life expectancy was much lower.

Or are you looking for an actuarial projection as to what the pension will cost the State, making certain reasonable assumptions?

 

[Páid]

Or are you looking for an actuarial projection as to what the pension will cost the State, making certain reasonable assumptions?

That sounds good. It just seems reasonable to me that if you are going to compare pensions you would compare what the pension costs the State to what it would cost to purchase in the private sector. We have the figure for the second part of the comparison (€1.5m), but not the first.

 

[Sarenco]

Paid

The annuity cost is based on an actuarial projection! That's really the whole point.

You can deduct ~5% to allow for the life companies anticipated profit margin but then you have to add back ~10% to allow for the fact that PS pensions increase in line with salary increases rather than increases in the cost of living.

Or you could just take the annuity cost as a reasonable, if imperfect, way of estimating the actuarial value of that pension and call it a day.

 

[Cervelo]

This is what i think it would cost both public and private workers for a pension of €24k
For ease of caculation starting and ending pay is €48k and 40 years service

Public sector worker pays prsi at .9% total €17280 and recieves lump sum €72k and a pension of €24k

Private worker pays prsi @ 4% total €76800, then pays into a private pension a further €176,400 (€315k gross) to hopefully get the same pension

 

[Sarenco]

For ease of caculation starting and ending pay is €48k and 40 years service

It may ease the calculation but that's not a very realistic assumption.

In any event, Paid was asking about the cost to the State rather than the individual.