The truly shocking cost of State pensions

[Sarenco]

I never suggested I want to debate it

Well then why did you introduce the point in the context of this discussion? Again, I'm more than happy to debate the point in a separate thread but I'm trying to keep this thread on topic.

You've shouted down any and all attempts at discussing the changes to mitigate the cost of pensions for future retirees.

Again, I'm more than happy to debate the sufficiency or otherwise of the steps that have been taken to date to address the State's pension liabilities elsewhere.

However, a number of posters suggested that the calculations in the article were bogus because they failed to take account of these changes. I simply pointed out that these changes had zero impact on calculating the present value of current PS pensions. I had to repeat this point of a few occasions because it was raised on a number of occasions but I hope I was courteous to other posters at all times.

You've also managed to land a dig with your assertion that public servants don't appreciate the value of their pensions, but I'm off topic when

I actually said that I am regularly surprised at the extent to which public servants underestimate the true value of their pension entitlements. That's hardly a dig - it's simply been my experience. Many of the contributions to thread are a good example of this phenomenon.

... so there doesn't seem to be much scope for discussion...??

I'm inclined to agree but some posters are still arguing that the article is bogus and hence the ongoing discussion.

 

[noproblem]

Same Sex Marriage?

Can we stick with the topic at hand?

Thanks.

Well then why did you introduce the point in the context of this discussion? Again, I'm more than happy to debate the point in a separate thread but I'm trying to keep this thread on topic.



Again, I'm more than happy to debate the sufficiency or otherwise of the steps that have been taken to date to address the State's pension liabilities elsewhere.

However, a number of posters suggested that the calculations in the article were bogus because they failed to take account of these changes. I simply pointed out that these changes had zero impact on calculating the present value of current PS pensions. I had to repeat this point of a few occasions because it was raised on a number of occasions but I hope I was courteous to other posters at all times.



I actually said that I am regularly surprised at the extent to which public servants underestimate the true value of their pension entitlements. That's hardly a dig - it's simply been my experience. Many of the contributions to thread are a good example of this phenomenon.



I'm inclined to agree but some posters are still arguing that the article is bogus and hence the ongoing discussion.

No, the article is not bogus, don't believe anyone said it was, but it's your article and some human beings on here disagree with it and quite rightly too. However, you're not listening and by simply refuting everything being said and believing only your own rhetoric your argument is going nowhere. Give it a rest like a good lad, you're a very unique person, just like everyone else.

 

[Sarenco]

No, the article is not bogus, don't believe anyone said it was

At least three other posters said the article was bogus (or used words to that effect).

it's your article

It's not actually.

you're not listening

More than happy to give full consideration to all substantive points. Did you intend to make one?

Give it a rest like a good lad, you're a very unique person, just like everyone else.

Any chance you could ease up on the condescending tone?

Many thanks.

 

[Jon Stark]

At least three other posters said the article was bogus (or used words to that effect).


It's not actually.


More than happy to give full consideration to all substantive points. Did you intend to make one?


Any chance you could ease up on the condescending tone?

Many thanks.

The irony of your second last sentence above, coming straight after the previous couple...!

 

[noproblem]

At least three other posters said the article was bogus (or used words to that effect).


It's not actually.


More than happy to give full consideration to all substantive points. Did you intend to make one?


Any chance you could ease up on the condescending tone?

Many thanks.

By synopsising my replies to suit yourself you are proving yourself to be the master of the condescending tone. Thankfully, others opinions have more than proved themselves correct, without trying to be superior in any way. I'm guessing that's what's called intelligence.

 

[Cervelo]

As a civil servant I'd have no problem with what you suggest, as long as my employer also increases my salary by the additional ~20% that I could earn in the private sector in an equivalent role...! I'd be delighted to have been earning 20% more gross, and not paying the PRD or PPC, for the last couple of years while starting a family and saving the deposit for a house...

I find it hard the believe that a civil servant would give up a DB pension and opt for a DC pension for a 20% salary increase givin' the cost of the DC fund needed to provide the same as the DB pension,
or am I missing your point ??

 

[elacsaplau]

No, the article is not bogus....QUOTE]

Hi noproblem,

Just one question - do you accept the accuracy of the annuity rates emanating from the Irish Life quotation system?

 

[cormacol]

I'm not getting all the ire being directed at the OP.

The simple fact is that the pension benefits offered to the current generation of public sector retirees are extremely valuable and most have no understanding of it or at least give that impression.

A combination of low interest rates to keep the existing system going combined with a period of unsustainable pay increases has resulted in a typical retiree becoming a millionaire and using up our scarce resources.

In one sense it is just another example of the older generation screwing the younger generation.

The big problem is the insistence of the state of taking on these risky liabilities

 

[noproblem]

It depends, doesn't it elacsaplau? Are you really asking me to accept what is fact or figures based on past performance? If it's past performance it means nothing because it has happened and may not happen again, if it's based on the future i'd imagine they call that "projection" or some other similar gobble de gook financial jargon. If not, they're geniuses and must have the market totally wrapped up. Don't you think?.

 

[elacsaplau]

Hi noproblem,

My question is not about what has happened in the past or what will happen in the future.

I am just trying to understand whether you accept that someone, with €1.5m in his pension fund, now will get an annuity of only €24k per year (on the contractual terms as described in previous posts)?

 

[noproblem]

Some get it for a very short while, some get it for years and some who have paid in will never get it at all. Allowing for what i've just given you, would you not think the figures you've given me as verbatim are indeed no such thing?

 

[elacsaplau]

Hi noproblem,

I think we are a little at cross purposes. I think what you are saying is that post retirement some folk will die shortly thereafter and some will live for ages. And also that some people will never make it to retirement age. All of this I accept fully.

My question is if you have someone who is not a member of a defined benefit plan but is a member of a DC plan - and this person arrives at retirement age and has a DC fund equal to €1.5m and wishes to buy an annuity with this fund, do you accept that the annual amount of the annuity (pension) that he will receive is c. €24k (based on the nature of the annuity as described)?

 

[Gordon Gekko]

The point that many seem to be missing is that the cost of an annuity where an insurance company must make a profit is very different to the cost of providing an annuity.

 

[Slim]

Could l respectfully suggest that using the cost of annuities offered by 'for profit' insurance companies presents an overly gloomy prospect for the retiree. In the US, an invested pension fund of €1.5m would be estimated to facilitate a safe withdrawal rate of 4% giving approx €60k pension per annum, based on the Trinity study. We should broaden this discussion to include non annuity mechanisms.

 

[Sarenco]

The point that many seem to be missing is that the cost of an annuity where an insurance company must make a profit is very different to the cost of providing an annuity.

It's certainly true that life companies have to make a profit on the annuity contracts that they write.

But...

If anything, the analysis as to what lump sum would be required to purchase an annuity to provide an income in retirement comparable to a PS pension actually underplays the true cost of PS pensions to the taxpayer. The annuity quotes detailed above all assume that the annuity payment will escalate in line with inflation, subject to an annual cap. However, PS pensions do not escalate in line with inflation - they increase in line with salary increases of serving PS employees.

The Department of Public Expenditure estimated a couple of years ago that the State would reduce its pension liabilities by around €16 billion if it linked future PS pension increases to the cost of living rather than increases in the salaries of serving PS employees. A saving of €16 billion would go a long way to securing the sustainability of the State's pension liabilities.

 

[cormacol]

Fair point Gordan re the profit.

Also the annuity investment strategy should be based on Irish bond yields rather than core euro yields although the difference isn't much at the moment.

Going against this - the public sector pension increase is salary linked which would be considerably more valuable than the max annuity increase available

 

[cormacol]

Could l respectfully suggest that using the cost of annuities offered by 'for profit' insurance companies presents an overly gloomy prospect for the retiree. In the US, an invested pension fund of €1.5m would be estimated to facilitate a safe withdrawal rate of 4% giving approx €60k pension per annum, based on the Trinity study. We should broaden this discussion to include non annuity mechanisms.

We really shouldn't unless your proposing that the investment strategies underpinning both approaches are the same - that you could generate the same drawdown by investing in Irish bonds and not run out of money if you live to normal life expectancy

 

[noproblem]

Hi noproblem,

I think we are a little at cross purposes. I think what you are saying is that post retirement some folk will die shortly thereafter and some will live for ages. And also that some people will never make it to retirement age. All of this I accept fully.

My question is if you have someone who is not a member of a defined benefit plan but is a member of a DC plan - and this person arrives at retirement age and has a DC fund equal to €1.5m and wishes to buy an annuity with this fund, do you accept that the annual amount of the annuity (pension) that he will receive is c. €24k (based on the nature of the annuity as described)?

Your question is not broad enough and is trying to get me to agree with an assertion based on a confined spread. Neither do I think public servants should have to apologise to anyone for what they get. There's a very good job done over the past few years by FG in particular in the divide and conquer department between private and public sector workers. A very nasty development and copied with great skill by FG from our conquerors in the past.
Look, everyone has an opinion on pensions, some seem to believe their opinion is exact, others like to debate that fact and, there's no proper answer really. One thing I do agree with though, the person/company selling the pension will do well out of it. Any other discussion from me on this is pointless, but let others carry on trying to impose so called calculations and so called facts on us mere mortals. Sure we're only first generation graduates and what would we know compared to you clever boys and girls. You've really proved yourselves in the pension field, haven't you?

 

[cormacol]

Your question is not broad enough and is trying to get me to agree with an assertion based on a confined spread. Neither do I think public servants should have to apologise to anyone for what they get. There's a very good job done over the past few years by FG in particular in the divide and conquer department between private and public sector workers. A very nasty development and copied with great skill by FG from our conquerors in the past.
Look, everyone has an opinion on pensions, some seem to believe their opinion is exact, others like to debate that fact and, there's no proper answer really. One thing I do agree with though, the person/company selling the pension will do well out of it. Any other discussion from me on this is pointless, but

But it is fact.....within the construct of the current iteration of the financial system.

I'd be interested in your view as to how you value a defined benefit pension (not just public sector)

 

[Sarenco]

Could l respectfully suggest that using the cost of annuities offered by 'for profit' insurance companies presents an overly gloomy prospect for the retiree. In the US, an invested pension fund of €1.5m would be estimated to facilitate a safe withdrawal rate of 4% giving approx €60k pension per annum, based on the Trinity study. We should broaden this discussion to include non annuity mechanisms.

Hi Slim

I think a discussion on the pros and cons of an ARF/withdrawal strategy versus purchasing an annuity would be an excellent topic for discussion on another thread.

For present purposes, I would just note that the Trinity study analysis applied in an Irish context gives a "safemax" withdrawal rate of only 2.6% over a 30 year period, using a portfolio comprised of 50/50 domestic bonds and equities.

Could this 2.6% "safe" withdrawal rate (adjusted for inflation) be relied upon in the future? Perhaps but bear in mind that interest rates are currently at their lowest levels in recorded financial history so even this low withdrawal rate is far from guaranteed to ensure that you won't run out of money before you run out of life. Annuities obviously take this risk off the table.