Why is there no concern about the state's unfunded pension liabilities?

Boss this is starting to give me a sore brain:mad:

It is a very complex picture and undoubtedly many of your points are valid especially at the individual level.

I am simply pointing out the super-macro reality that if the economy/demographics are projected to be catastrophic the concept of "funding" is not going to help unless it leads to extra economic growth and I don't think you are arguing that it will. My argument is that I don't see how funding per se will add to economic growth. Again, no major economy does fund for future pensions in that book keeping sense, though I agree that Ireland's openness makes it fairly unique.

No, I am most certainly not a looney left Keynesian:oops: Yes, it is all about balance - would formal funding improve the balance? I am not convinced. Would individualisation of the problem help? It is more flexible, I suppose, but of itself cannot melt the economic/demographic iceberg.
 
http://www.oecd.org/els/public-pensions/2429310.pdf

I am attaching an OECD paper on the Chilean pension system that I mentioned previously that might be of some interest.

The Chilean system is something of a test case for transitioning to the sort of funding model suggested by Brendan and, as such, has been the subject of considerable academic interest over the last three decades.

The OECD paper contains an interesting discussion on the impact on a (relatively) open economy of transitioning away from a PAYGO funding model.
 
Duke of Marmalade said:
Unless you are claiming that what you are suggesting will enhance long term growth, I see the concept of funding as largely illusory in the context of the pensions time bomb.
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This is simply not the case, of course it is possible to fund an individual's pension! Most of my generation here in Switzerland are subject to the pension reforms introduced here over the past 30 years and the result is that I will rely on the state for less than 20% of my total pension, when I start to draw pension. When I moved here at the age of 27, I was required by law to start contributing to the first (state) and second (employer) pillars of the pension system. The first pillar contribution is about 5% on 106K for both employer and employee and the minimum second pillar contribution is about 7.5% for both the employer and employee. So at a minimum the contributions are around 25% of salary for young people and can raise to as high as 30% for people in their 50s.

Our biggest issue is the funding of pension for previous generations who are not already retired. But over time that issue will decrease and the majority of people will be primarily on funded pensions.
 
Jim2007 said:
This is simply not the case, of course it is possible to fund an individual's pension! Most of my generation here in Switzerland are subject to the pension reforms introduced here over the past 30 years and the result is that I will rely on the state for less than 20% of my total pension, when I start to draw pension. When I moved here at the age of 27, I was required by law to start contributing to the first (state) and second (employer) pillars of the pension system. The first pillar contribution is about 5% on 106K for both employer and employee and the minimum second pillar contribution is about 7.5% for both the employer and employee. So at a minimum the contributions are around 25% of salary for young people and can raise to as high as 30% for people in their 50s.

Our biggest issue is the funding of pension for previous generations who are not already retired. But over time that issue will decrease and the majority of people will be primarily on funded pensions.
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I have stated that individual pension funding is a different dynamic from collective funding. The time bomb is not really that people won't be adequately funded it is that pensioners will have too high a demand on the economy. Funding does not help that unless it leads to higher economic growth and I remain to be convinced that it does. In fact funding could exacerbate the problem by convincing pensioners that they have a claim on the social economy which it can't afford. If the majority of folk in Switzerland believe that they are adequately funded then that amounts to a collective illusion - you can't get blood out of a stone. If the social economy cannot afford the transfer to you in your dotage it will find a way to deny you your "entitlement" no matter how much you think you are funded.
 
I will leave it to Duke to advance the macro economic arguments!;)

I think it is also important to bear in mind that there is also a social solidarity aspect to any public pension system (however funded). The experience in Chile was that early joiners (in the early 80s) found that they were able to retire early because their individual retirement accounts performed so well whereas later joiners are now waking up to the fact that their individual accounts will not give them a decent income in retirement.

On one level that's the way capitalism is supposed to work but I would need some convincing that this is appropriate from a public policy perspective - regardless of the (in)efficiency of the funding system.
 
Duke of Marmalade said:
The time bomb is not really that people won't be adequately funded it is that pensioners will have too high a demand on the economy.
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OK, after a few pints, I can see the point that you are making.

But it's not enough to go from the individual to the collective level. You must go from the national level to the global level.

If we as a nation consume less of our output now and invest it abroad, then won't we be richer when we are older?

Your point would be valid if we were a closed economy.

Brendan
 
Boss those are blo*dy good pints:p

Yes, as a small open economy we have more options. But the more this interesting debate proceeds the more lucid my thinking becomes. I actually think that public funding is bad:eek: The time bomb is that the social economy will have too big a strain from dependancy. Assuming that funding does not actually increase the cake it merely increases the "entitlement" mindset of the pensioners and therefore makes the necessary adjustment all the more painful.
 
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Duke of Marmalade said:
Were the folk in the 1960s worried about a pensions time bomb exploding in the early 21st century? If they were they have been proven to be alarmist.
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Have they not being playing pass the parcel with the time-bomb?

Just because it does not go off on the current government's watch, doesn't mean it's not a problem.

The existing time-bomb will not go off for 10 or 20 years. We may well have a big Oireachtas Enquiry in 2035 asking people what warnings they had received and why they took no action.

Duke of Marmalade said:
I am sceptical of these long range "time bombs" (like climate change).
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Scepticism is fine. But the pensions and the climate change problems are both similar. It is costly to do anything about them now so there is very little public support for dealing with them now. But the longer we leave them, the worse they get. And we may leave it too late.
 
Duke of Marmalade said:
I actually think that public funding is actually bad

...Assuming that funding does not actually increase the cake it merely increases the "entitlement" mindset of the pensioners and therefore makes the necessary adjustment all the more painful.
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Duke that is a very interesting point.

Again, I would argue, that if the state invested the funds overseas, the public funding would be good.

Surely we would be a lot better off today if we had government reserves of €200 billion rather than national debt of €200 billion? If the €200 billion had been borrowed to build roads and schools and hospitals, maybe not. But if it was borrowed to pay social welfare, public service salaries and allow very low taxes, then it's not a good idea.

But maybe we should campaign to abolish public pensions completely and force people to fund them privately. If someone does not fund their pension, let them starve in their old age?

Brendan
 
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"If someone does not fund their pension, let them starve in their old age?"

One way of freeing up housing stock!

mf
 
If you don't pay anything into a pension I don't see why you should be entitled to anything, If someone does not fund their pension then "let them starve "is probably a bit harsh as they are expecting something , but it needs to change , at some point people need to be told save for it as there is going to be not enough money by 20** so make your own plans from now.
I mean if you work your whole life and haven't planned for retirement you deserve to feel the pinch when your older, I'm 34 and am making plans for my future all the time , in this country it's tiring watching people get everything for nothing and think they are entitled to it , social welfare , medical cards , rent allowance , non contributory pensions - you can do nothing your whole life in Ireland and still live a comfortable life , if your middle class you work your life and get the same pension as someone who has never worked a day its a joke system, I would like to see much more hardship on the unemployed and non contributors.
 
Duke of Marmalade said:
I am sceptical of these long range "time bombs" (like climate change). After all a far greater proportion of the population is over 65 to-day than it was 50 years ago. Were the folk in the 1960s worried about a pensions time bomb exploding in the early 21st century? If they were they have been proven to be alarmist.
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A big difference back in the 1960s is that Irish people had far bigger families - probably averaged over 4 per family. That was the pension plan - create lots of future taxpayers to pay for their (collective) parents in old age. We don't have that anymore - in common with the rest of Europe, Irish fertility rates are below replacement level.

This is quite a thought-provoking discussion. I started off thinking that it's a huge problem and something should be done. Now I still think it's a huge problem but from a selfish, personal point of view, I don't think it's in my interest for something to be done. As a high earner, I can pretty much guarantee that any solution will involve me paying in a lot more than I would ever get back. I am better off putting the cost of any solution into my own savings and looking after myself - in the full expectation that the contributory pension will be a lot lower/means-tested when I retire in 20/25 years time.

If good things come to pass and this is not an issue when I retire, happy days. But I don't think hope is a great strategy so I would rather trust myself than politicians to look after me in retirement.

I think a large part of the answer to the original question (why is there not much concern) is that those who will be most affected by this in retirement are those who have no/little provision other than the state pension and they (almost by definition I would say) are unaware of the problem. It's kind of a self-ending issue - once you start thinking about this and you realise there's a big problem, you take the only steps you personally can take - which is to start making provision for yourself. Once you make provision for yourself, the problem lessens for you personally so there's less need to campaign for change - because to do so will remove control of your finances from you - and possibly pool your resources for the greater good (also known as taking from the prudent and giving to the less prudent).
 
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Fella said:
I would like to see much more hardship on the unemployed and non contributors.
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The trouble with that, from a purely selfish point of view, is it creates an under-class which leads to more crime and social disorder. We could end up like the USA where 5% of the worlds population has 25% of the worlds prison population. We'd end up spending the same amount of money, just on different things.
 
Just found this website showing Ireland's population pyramids from 1950 through to projected 2100 (from United Nations, Department of Economic and Social Affairs, Population Division.)

http://populationpyramid.net/ireland/2050/

You can visually see the bulge growing at the top of the pyramid - from a smallish triangle of over 65s supported by a much larger block of under 65s now (2015) - to relatively much larger blocks of over 65s as the years progress.
 
Sitting of the Inquiry into the Pensions Crisis 2035
Ostrich Module

Q. Was this crisis not forecast a long time ago and why was nothing done about?

A. The possibility of the crisis was forecast but the expectation was that long term growth would continue along the lines of the previous 200 years. Few commentators projected that growth would dry up completely as it has.

Q. Should contingency plans not have been put in place?

A. Like issuing free cigarettes to over 65s to increase mortality:):):)

Q. I remind you against contempt of this Inquiry:( Specifically why did you not invest for this possibility?

A. What do you think the tunnel from Dublin to Holyhead (to name but a few) was?

Q. But should this not have been put in a separate fund for pensioners?

A. And what good would that bit of book keeping do?

Q. Would it not be better that we acquired foreign assets?

A. There would be no tunnel then and a share in the tunnel from Spain to Africa would be a poor substitute. In any case there is a limit to how long we can rely on foreign assets to solve our problem, it is at best a temporary fix to get us over a hump.

Q. The government has announced a 30% reduction in all its pensions both public service and social welfare. Why has it also introduced a 30% levy on private pension provison?

A. The issue is that working men and women are struggling to make ends meet whilst many of our elderly citizens are living in relative leisure and luxury. Social solidarity required that all pensioners needed to contribute to this situation.

Q. There is a mob waving brollies and walking sticks outside this very Inquiry. Are you saying that nothing could have been done to prevent this debacle?

A. I suppose we should have eased in the pain more gradually. But could we have done anything more to prevent this adjustment? the answer is no.
 
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orka said:
Just found this website showing Ireland's population pyramids from 1950 through to projected 2100 (from United Nations, Department of Economic and Social Affairs, Population Division.)

http://populationpyramid.net/ireland/2050/

You can visually see the bulge growing at the top of the pyramid - from a smallish triangle of over 65s supported by a much larger block of under 65s now (2015) - to relatively much larger blocks of over 65s as the years progress.
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Excellent graphic.
 
Sitting of the Inquiry into the Pensions Crisis 2035 continued

Call the next Witness: Taoiseach Mr Simon Harris

Sinéad Cowen (Fianna Fáil - Laois Offaly) Mr Harris you were the Minister of State at the Department of Finance at the time. Did you not read the papers forecasting this time-bomb?

Mr Harris: Yes, but we were busy clearing up the mess made by your father when he sold our sovereignty to the IMF and the former ECB. The economic reports from the ECB never highlighted this as an issue. Anyway, in those days we had a Department of Social Protection led by Joan Burton of the defunct Labour Party. It was her area. Not mine.

Cowen: That Department produced a KPMG report in 2010 saying that the default was in excess of €350 billion euro - the equivalent of 18 trillion punts in today's money.

Harris: But I was only 28 at the time - pensions were the last thing on my mind. It will probably all be sorted by the time I retire at 85.
 
Of course politicians with their gold plated pensions don't have to worry about this issue for themselves, and nor do their civil servant advisors.
 
Brendan Burgess said:
Sitting of the Inquiry into the Pensions Crisis 2035 continued

Call the next Witness: Taoiseach Mr Simon Harris

Sinéad Cowen (Fianna Fáil - Laois Offaly) Mr Harris you were the Minister of State at the Department of Finance at the time. Did you not read the papers forecasting this time-bomb?

Mr Harris: Yes, but we were busy clearing up the mess made by your father when he sold our sovereignty to the IMF and the former ECB. The economic reports from the ECB never highlighted this as an issue. Anyway, in those days we had a Department of Social Protection led by Joan Burton of the defunct Labour Party. It was her area. Not mine.

Cowen: That Department produced a KPMG report in 2010 saying that the default was in excess of €350 billion euro - the equivalent of 18 trillion punts in today's money.

Harris: But I was only 28 at the time - pensions were the last thing on my mind. It will probably all be sorted by the time I retire at 85.
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What vision you have!

Unfortunately this may not be far from the truth... Eoghan Murphy as Minister for Finance (formerly Minister for Health, Minister for Education and whatever you're having yourself...)
 
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