Value of state's unfunded social welfare pensions: €359 billion

[Duke of Marmalade]

There is not much point in building up massive contingency funds for pensions - at the first sign of a crisis, no matter what, they would be raided and spent on whatever that day's issue was

No politician could withstand the pressure to raid the funds to provide for X, even though the funds are ring-fenced for Y

I think this is the point. Ring fenced funding is an illusion at a national level. It is not to say that nations should not invest. But investing vast sums in foreign equities would generally not make the best economic sense and saying these belong to oldies and no-one else dare touch them makes even less sense.

 

[Protocol]

The ageing society / sustainability issue sort of implies that we should do some pre-funding of State and/or PS pensions.

Yet others here don't agree.

I have often wondered is there and argument to pre-fund the PS pensions?

To slowly convert them from unfunded to funded pensions?

Maybe have all new entrants join a funded PS scheme?

 

[Duke of Marmalade]

Yes, but my question is specifically about PS pensions, not the State Pension.

Is there an argument to move towards funded PS pensions, rather than PAYG?

Let us dismiss the idea that because we have set aside a fund the State will be able to pay these obligations even if we can't afford it in the socio-political sense. I agree with @joe sod that this is delusion.
So maybe the argument is that the fund will enable us to afford it by adding to the nation's wealth. That raises the question of what funded the fund. If it was borrowing then we had taken on a massive geared investment, a gamble which would have paid off as we see it now but not in say 2008 and would we really have been able to borrow a further, say, 200bn* on the capital markets? So that leaves taxation. An extra 200bn taken out** of the economy would almost surely have been macro-economic vandalism.

* assuming we would have needed to invest c. 200bn to have the current 359bn
** unless of course it was reinvested in the economy (was the economy capable of servicing that investment?), but I think most in this parish are thinking foreign equities

 

[Brendan Burgess]

So maybe the argument is that the fund will enable us to afford it by adding to the nation's wealth. That raises the question of what funded the fund. If it was borrowing then we had taken on a massive geared investment,

Hi Duke

Good question.

Borrowing the money makes no sense as you point out.

We need to raise the PRSI contributions substantially.

So what would we do with them?

I see three options:

1) Put them in a pension reserve fund - makes no sense when we have €200 bn of national debt.
2) Pay down our national debt so that we would be in a better position to pay the COAP
3) Put them in individual accounts so that the individual decides what to do with them.

Brendan

 

[Duke of Marmalade]

Hi Duke

Good question.

Borrowing the money makes no sense as you point out.

We need to raise the PRSI contributions substantially.

So what would we do with them?

I see three options:

1) Put them in a pension reserve fund - makes no sense when we have €200 bn of national debt.
2) Pay down our national debt so that we would be in a better position to pay the COAP
3) Put them in individual accounts so that the individual decides what to do with them.

Brendan

3) is interesting. It is the most likely to ensure it is ring fenced. Not absolutely guaranteed. If workers are qu'ing at food banks the Government would have to find a way to raid these accounts.

 

[Purple]

3) is interesting. It is the most likely to ensure it is ring fenced. Not absolutely guaranteed. If workers are qu'ing at food banks the Government would have to find a way to raid these accounts.

Many non-Federal Public Sector employees in the USA have their own pension funds and nearly all are grossly under funded. It's an interesting way of seeing the liability crystallised.

 

[Dr Strangelove]

There’s an Irish Times “debate” on pension costs between an ESRI professor and an ICTU representative today.

Both agree that the cost of ageing is going to be huge. One of them supports raising the state pension age, the other not.

Either way, both of them think that pay-related social insurance contributions should be levied on non-pension income of people aged over 66!

I accept the principle that everyone needs to pay more over time, but this would just make PRSI even more like just another tax than it already is.

 

[Gordon Gekko]

Is this issue not replicated in most developed countries with ageing populations etc? We should look at what they’re doing for starters. I often wonder whether those ‘X working vs Y retired’ doomsday statistics are the entire story, or whether they ignore things like immigration, dividends from AI, or the taxes that retirees generate.

 

[joe sod]

How would "dividends from AI" apply to pensions. Nobody knows for sure what the dividends will be and where they will apply. Surely AI will be a benefit at corporate level as it means that the human factor can be replaced by AI but can't see how this would be a dividend to irish state pensions?

 

[tomdublin]

The state has the power to tax future workers to pay for these pensions

But it might not have the political will/ability to do so. There will always be fewer pensioners than there are tax payers, so at some point the political calculus might swing. That's the problem with funding pensions out of current expenditure, reflecting generations of political cowardice.

 

[jasdpace@gmail.]

........reflecting generations of political cowardice.

That's your fault - and mine - i.e. the electorate. We really do get the politicians we deserve!

 

[Purple]

But it might not have the political will/ability to do so. There will always be fewer pensioners than there are tax payers, so at some point the political calculus might swing. That's the problem with funding pensions out of current expenditure, reflecting generations of political cowardice.

Pensioners vote and they are entitled and greedy so they take it badly when it's pointed out that as a cohort they are rich and living off their children and grandchildren. They are the people who conflate wealth accumulated through property price inflation and pension fund inflation with the work they did during their working life, the "I worked hard all my live (did you, really?) and I earned what I have (no you didn't)" brigade.

 

[tomdublin]

Pensioners vote and they are entitled and greedy

That will apply less and less to future generations of pensioners. Many will still be renting when they retire, defined benefit pensions will be gone and inflation in healthcare & old age care cost will accelerate. Ireland has failed to create a proper savings fund to pay for all this which will exacerbate conflicts over the intergenerational distribution of income.

 

[joe sod]

But while the old might have accumulated alot of assets and are technically rich they actually don't generate much wealth now. Wealth is created by workers, building houses, working in factories producing food and goods and essential services. Even in the workforce there are many people "working" now that have a job but are so far away from the production and wealth creating jobs.
A good dividing line between the productive and the non productive workers were the essential workers during covid who were required to keep working during covid, they might not have been highly paid but without those workers the country would have collapsed. A million euro in the bank is no good when the shops have no food or goods
This is almost the communist manifesto

 

[Marsupial]

But while the old might have accumulated alot of assets and are technically rich they actually don't generate much wealth now. Wealth is created by workers, building houses, working in factories producing food and goods and essential services. Even in the workforce there are many people "working" now that have a job but are so far away from the production and wealth creating jobs.
A good dividing line between the productive and the non productive workers were the essential workers during covid who were required to keep working during covid, they might not have been highly paid but without those workers the country would have collapsed. A million euro in the bank is no good when the shops have no food or goods
This is almost the communist manifesto

Well Joe, I have generated plenty of wealth for the young, working QFAs who have sold me a succession of dud investments since I retired, as well as for the promoters of these products and the charlatans behind them.

In fact, when I remember all of the money that the shrewd Bertie Ahern won on the nags, I realise that I'd probably have been far better off putting it all on "Digout Donkey" in the three thirty at Leopardstown!

 

[jasdpace@gmail.]

Well Joe, I have generated plenty of wealth for the young, working QFAs who have sold me a succession of dud investments since I retired, as well as for the promoters of these products and the charlatans behind them.

Interesting comments Marsupial. Funnily enough, I have less of an issue with the young, working QFAs (in truth they know not fully what they do) than the promoters and charlatans behind them.

 

[joe sod]

Public sector pension benefits valued at €176 billion

Current and former public sector employees have pension benefits valued at €176bn, or 41.5% of Ireland’s GDP.

businessplus.ie

So along with the state pension liabilities of 350 billion odd, the state also has a very large liability for public sector pensions now valued at 176 billion as of January 2024, this has risen 14% in a very short space of time. Therefore the states total pension liabilities now stand at over half a trillion euros. The current bumper tax take only brings in circa 100 billion per year,

I think all the "green agenda " spending proposals are for the birds with this huge liability especially when populists get into power here

 

[Protocol]

To be fair to the public service, I must make two points.

(1) all public servants make substantially more pension contributions since the introduction of the PRD / ASC
(2) the SPSPS is less generous than previous schemes

 

[Fortune]

To be fair to the public service, I must make two points.

(1) all public servants make substantially more pension contributions since the introduction of the PRD / ASC
(2) the SPSPS is less generous than previous schemes

And a further point is that this half a trillion liability doesn't have to be paid out all at once.

 

[Purple]

And a further point is that this half a trillion liability doesn't have to be paid out all at once.

Does anyone know by how much the annualised liability is increasing? That would be a more useful figure.