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Public sector pensions - biting the bullet


Niceguyeddie

Member
Joined
Nov 8, 2009
Messages
90
As we know, our pension obligations for the future look set to bankrupt the state. We've hundreds of thousands set to get a pension based on their earnings at the time of retirement, guaranteed until the day they die. God only knows where this money will come from. We're not alone in this - many states have this (defined benefit) scheme in place, and a lot of anxiety in private about how to fund it. However, we've gone and blown the money we had set aside for the rainy day on propping up insolvent banks.

But what if we switched over to a defined contribution* scheme for new entrants to the public service? Our long-term debt would almost instantly be worth a lot more than it currently is, making our borrowing cheaper. We'd also be able to increase productive public sector employment in the future without adding to the black hole in our pension reserves.

The public sector unions would of course hop on it from a great height and make all kinds of noise, but that doesn't neccessarily make it a bad idea. Also, I think hostility to the PS unions is higher than its ever been. A measure that saves future generations billions without damaging the level of service we receive is an easy thing politically to sell.

Am I missing something? Otherwise, why are no mainstream politicians arguing for this?


* This is where the annuity (the income a person earns from retirement until death) is based on the contributions a person and his/her employer makes to a pension fund, rather than being set at a guaranteed level as is currently this case.
 


hammer

Well-known member
Joined
Jul 6, 2009
Messages
58,506
Can anyone find a report etc where the Dept of Finance can predict a return to exchequer surpluses ?

How much would the national debt have to be before institutions would stop lending to us ?

€150,000,000,000 ? or €100,000 per worker ?
 

Niceguyeddie

Member
Joined
Nov 8, 2009
Messages
90
I honestly don't know. But if such a point exists, we're getting closer by the minute, and condemning our children to that situation.
 

b.a. baracus

Well-known member
Joined
Feb 3, 2009
Messages
2,230
The number of people contributing to the pension scheme at the moment far outweighs its current outgoings in pension payments. At the moment it is a net contributor. Unfortunately as the current huge number of public servants retire in the years ahead, and live longer, this will change and we are sitting on a ticking timebomb.

A new scheme needs to be introduced which offers a Defined Benefit (DB) scheme on earnings up to 40k. This would mean a person retiring on 40k with a full 40 years service would get a DB pension of c9k from the pension scheme and 11k from the normal state pension which every class A PRSI contributor receives. This would also protect the less well off public servants.

Any earnings over 40k should receive a Defined Contribution pension based solely on invested employee contributions thus costing the state nothing. The state could make a risk free contribution to this DC scheme for earnings up to 60k to make this a bit better for those retiring on less than 60k.

The fact that we will have to pay a DB pension in the future to people on massive salaries will literally bankrupt us. For example a Hospital Consultant on the new contract retiing on full 40 years service receives about 240k in salary meaning a guaranteed pension (for an ever increasing lifespan) of 120k per annum. This is not sustainable.

I think the proposal above is the most sensible one to protect the pensions of the low paid (and a very small portion of the pensions of the higher paid). It should be introduced for new entrants immediately.
 

toughbutfair

Well-known member
Joined
May 28, 2009
Messages
9,765
A hybrid pension scheme could be the way to go e.g. the first 50k is guarnteed to be paid 2/3 (i.e. 33.5k) and the balance depends on the performance of the fund.

It would be hard for the unions to argue the pensioners are struggling on 33.5k a year.
 

nonpartyboy

Well-known member
Joined
Dec 24, 2006
Messages
6,853
The state pension for all should be capped in the morning at a max of €40,000 , its disgusting to think of the likes of molloy,neary,ahern,harney,parlon walking away with pensions worth hundreds of thousands.
 

west'sawake

Well-known member
Joined
Sep 15, 2008
Messages
3,649
As we know, our pension obligations for the future look set to bankrupt the state. We've hundreds of thousands set to get a pension based on their earnings at the time of retirement, guaranteed until the day they die. God only knows where this money will come from. We're not alone in this - many states have this (defined benefit) scheme in place, and a lot of anxiety in private about how to fund it. However, we've gone and blown the money we had set aside for the rainy day on propping up insolvent banks.

But what if we switched over to a defined contribution* scheme for new entrants to the public service? Our long-term debt would almost instantly be worth a lot more than it currently is, making our borrowing cheaper. We'd also be able to increase productive public sector employment in the future without adding to the black hole in our pension reserves.

The public sector unions would of course hop on it from a great height and make all kinds of noise, but that doesn't neccessarily make it a bad idea. Also, I think hostility to the PS unions is higher than its ever been. A measure that saves future generations billions without damaging the level of service we receive is an easy thing politically to sell.

Am I missing something? Otherwise, why are no mainstream politicians arguing for this?


* This is where the annuity (the income a person earns from retirement until death) is based on the contributions a person and his/her employer makes to a pension fund, rather than being set at a guaranteed level as is currently this case.

This is a good post and I fully agree with you. Defined benefit pensions are akin to a pyramid scheme, the losers being the generation. In the long term they are simply not sustainable what will happen is one or a comination of these three things: Taxes will increase to fund them ii) The benefits will not be given to future public servantswho will in effect become a lower grade Public servant, even if as capable or talented as their seniors, iii) The total numbers of Public Servants will fall, public services will suffer because much much of the higher tax take neededto maintain services will be sued to finance the privileged retirees.

As a critical cohort of the electorate with a higher propensity to vote, The defined benefit scheme that Public Servants enjoy will not be faced down by Lobur, F.G or F.F., the price of a cosy consensu of our political tweedle dums and tweedle dees. The truth is only a genuine Centre Right party favours the next generation and guaranteeing satisfacoryr public serices by stopping the leakage of limited resources to defnined benefit schemes as well as protecting the interests of private sector workers who don't have secure jobs or defnined benefit pensions and whose taxes have to go up to subsidise them..
 

politicaldonations

Well-known member
Joined
Sep 28, 2006
Messages
682
Government should make all PS pensions DC from now on. Any payments made already will count as DB so a worker with 35 years under belt will only get rest of his years as DC.
 

politicaldonations

Well-known member
Joined
Sep 28, 2006
Messages
682
the only way PS pension timebomb could be averted and still continue as DB would be for FF to grow population to 10million in this country to support all the retired PS millionaires in future. I wouldnt put it past them. Import loads of people to fill their mates empty properties and grow economy in nominal but not per capita terms.
 

Niceguyeddie

Member
Joined
Nov 8, 2009
Messages
90
The number of people contributing to the pension scheme at the moment far outweighs its current outgoings in pension payments. At the moment it is a net contributor. Unfortunately as the current huge number of public servants retire in the years ahead, and live longer, this will change and we are sitting on a ticking timebomb.

A new scheme needs to be introduced which offers a Defined Benefit (DB) scheme on earnings up to 40k. This would mean a person retiring on 40k with a full 40 years service would get a DB pension of c9k from the pension scheme and 11k from the normal state pension which every class A PRSI contributor receives. This would also protect the less well off public servants.

Any earnings over 40k should receive a Defined Contribution pension based solely on invested employee contributions thus costing the state nothing. The state could make a risk free contribution to this DC scheme for earnings up to 60k to make this a bit better for those retiring on less than 60k.

The fact that we will have to pay a DB pension in the future to people on massive salaries will literally bankrupt us. For example a Hospital Consultant on the new contract retiing on full 40 years service receives about 240k in salary meaning a guaranteed pension (for an ever increasing lifespan) of 120k per annum. This is not sustainable.

I think the proposal above is the most sensible one to protect the pensions of the low paid (and a very small portion of the pensions of the higher paid). It should be introduced for new entrants immediately.
This is actually very fair - and close to impossible to argue against.
 

powderfinger

Well-known member
Joined
Jun 13, 2007
Messages
3,352
Kathleen Barrington raised a figure in excess of €100 bn. based on a report from the C&AG for the public pension liability.
The current farcical proposal(unpaid leave) that has come into the public domain from the talks on public sector payroll costs does nothing to address this.
Beware the public pensions bill: ThePost.ie

This time last year, the government told us that the public sector pension bill was €75 billion at the end of 2007.

Now, however, the annual report of the Comptroller and Auditor General (C&AG) has revealed that the bi l l amounted to a staggering €108 billion at the end of 2008. Even when you adjust the figure to take account of the contribution from the National Pensions Reserve Fund, John Buckley, the C&AG, calculated that the net public sector pension liability was €101 billion.

Whichever way you look at it, the public sector pension bill is now at least €26 billion more than was thought a year ago, a discrepancy which has attracted remarkably little attention.
 

Niceguyeddie

Member
Joined
Nov 8, 2009
Messages
90
Kathleen Barrington raised a figure in excess of €100 bn. based on a report from the C&AG for the public pension liability.
The current farcical proposal(unpaid leave) that has come into the public domain from the talks on public sector payroll costs does nothing to address this.
Beware the public pensions bill: ThePost.ie
Jesus that's terrifying. And that's just the situation we're in now: it's going to get worse unless something happens to change it!
 

powderfinger

Well-known member
Joined
Jun 13, 2007
Messages
3,352
Jesus that's terrifying. And that's just the situation we're in now: it's going to get worse unless something happens to change it!
Lest we forget.This Government has extended the comforting hand of the taxpayer to a number of underfunded schemes earlier this year.
Taxpayers forced to rescue underfunded public sector pensions - National News, Frontpage - Independent.ie

Same terms and conditions despite the shortfalls.Presumably.
Some of the underfunded schemes included.

  • Arts Council
  • Bord Bia
  • Cert(now Failte Ireland)
  • IDA
  • Irish Goods Council
  • UCD
  • TCD
  • NUIM
  • FAS
  • IPA
  • ESRI
  • NUIG
  • UCC
 

powderfinger

Well-known member
Joined
Jun 13, 2007
Messages
3,352
Jesus that's terrifying. And that's just the situation we're in now: it's going to get worse unless something happens to change it!
Why did Lenihan ignore this demographic in yesterday's Budget?
Is he precluded by 'legal constraints' from imposing a cut in current public sector pensions paid out by the State?
 

HighInBandon

Member
Joined
May 1, 2009
Messages
17
As we know, our pension obligations for the future look set to bankrupt the state. We've hundreds of thousands set to get a pension based on their earnings at the time of retirement, guaranteed until the day they die. God only knows where this money will come from. We're not alone in this - many states have this (defined benefit) scheme in place, and a lot of anxiety in private about how to fund it. However, we've gone and blown the money we had set aside for the rainy day on propping up insolvent banks.

But what if we switched over to a defined contribution* scheme for new entrants to the public service? Our long-term debt would almost instantly be worth a lot more than it currently is, making our borrowing cheaper. We'd also be able to increase productive public sector employment in the future without adding to the black hole in our pension reserves.

The public sector unions would of course hop on it from a great height and make all kinds of noise, but that doesn't neccessarily make it a bad idea. Also, I think hostility to the PS unions is higher than its ever been. A measure that saves future generations billions without damaging the level of service we receive is an easy thing politically to sell.

Am I missing something? Otherwise, why are no mainstream politicians arguing for this?


* This is where the annuity (the income a person earns from retirement until death) is based on the contributions a person and his/her employer makes to a pension fund, rather than being set at a guaranteed level as is currently this case.
A defined contribution scheme is fine as long as it is either (a) not mandatory OR (b) provides some guarantee of a minimum return on investment.

Do defined contribution schemes generally guarantee (b)? If they do not, then I think no person should be forced into effectively gambling with their pension.
 

bm42

Active member
Joined
Jun 15, 2004
Messages
293
The number of people contributing to the pension scheme at the moment far outweighs its current outgoings in pension payments. At the moment it is a net contributor. Unfortunately as the current huge number of public servants retire in the years ahead, and live longer, this will change and we are sitting on a ticking timebomb.

A new scheme needs to be introduced which offers a Defined Benefit (DB) scheme on earnings up to 40k. This would mean a person retiring on 40k with a full 40 years service would get a DB pension of c9k from the pension scheme and 11k from the normal state pension which every class A PRSI contributor receives. This would also protect the less well off public servants.

Any earnings over 40k should receive a Defined Contribution pension based solely on invested employee contributions thus costing the state nothing. The state could make a risk free contribution to this DC scheme for earnings up to 60k to make this a bit better for those retiring on less than 60k.

The fact that we will have to pay a DB pension in the future to people on massive salaries will literally bankrupt us. For example a Hospital Consultant on the new contract retiing on full 40 years service receives about 240k in salary meaning a guaranteed pension (for an ever increasing lifespan) of 120k per annum. This is not sustainable.

I think the proposal above is the most sensible one to protect the pensions of the low paid (and a very small portion of the pensions of the higher paid). It should be introduced for new entrants immediately.
Excellent suggestion as it offers protection to the employee in the form of a floor below which their pension cannot fall and pretection for the taxpayerby providing a maximum limit to their liabilities, meanwhile the employee has the option of topping up their pension by means of a defined contribution fund.
The private sector could also be encouraged to follow this model of part DB and part DC, which wouldn't open the company up to the black hole of a full DB scheme, while providing more security to employees and for once and for all ending the public v's private pensions debate.


A defined contribution scheme is fine as long as it is either (a) not mandatory OR (b) provides some guarantee of a minimum return on investment.

Do defined contribution schemes generally guarantee (b)? If they do not, then I think no person should be forced into effectively gambling with their pension.
You can generally chose your level of risk, from cash funds (least risk, least potential growth), bonds (lower risk, almost guatanteed returns), equity funds that track an index like the ISEQ, FTSE, DOW, NASDAC by holding shares in all of the listed companies in proportion to their market capitalisation (more risky but more potential reward), equity funds that try to outperfrom the market by selecting particular stocks that the fund managers believe will do better than the market averge (riskier again but even more growth potential), some schemes will offer other investments including hedge funds, ethical investment funds, property, etc...
 

HighInBandon

Member
Joined
May 1, 2009
Messages
17
You can generally chose your level of risk, from cash funds (least risk, least potential growth), bonds (lower risk, almost guatanteed returns), equity funds that track an index like the ISEQ, FTSE, DOW, NASDAC by holding shares in all of the listed companies in proportion to their market capitalisation (more risky but more potential reward), equity funds that try to outperfrom the market by selecting particular stocks that the fund managers believe will do better than the market averge (riskier again but even more growth potential), some schemes will offer other investments including hedge funds, ethical investment funds, etc...
Thanks BM. That answers my question.

Are cah funds equivalent to lodging money in a bank at a certain interest rate? Is a net gain guaranteed? (as long as the bank stays float of course!). In that case, is 'defined benefit' not a better description of funds like this?
 

gombeensville

Member
Joined
Dec 18, 2008
Messages
42
Why did Lenihan ignore this demographic in yesterday's Budget?
Is he precluded by 'legal constraints' from imposing a cut in current public sector pensions paid out by the State?
Yup.. Hanafin said as much yesterday on Today FM with Cooper. Seems public sector pensioners are in the same happy place as the judicary and TD pensioners in being safe from direct cuts indefinitely. I reckon there'll be loads bailing out in the next 2 weeks to avoid taking a 6-7-8% hit on the untaxable lump sum and indefinite pension. Going to be chaos in the PS with glaring gaps appearing all over the show.
 

bm42

Active member
Joined
Jun 15, 2004
Messages
293
Thanks BM. That answers my question.

Are cah funds equivalent to lodging money in a bank at a certain interest rate? Is a net gain guaranteed? (as long as the bank stays float of course!). In that case, is 'defined benefit' not a better description of funds like this?
It could be described as defined benefit in the context of you know what you're going to get back out but defined benefit in pensions lingo describes a scheme where you get a certain percentage of your final salary (sometimes averaged over the last number of years), prorated for the number of years worked. Defined contribution in pensions lingo means you pay a certain amount of your salary through out your career, employers often make a contribution too, and the money is invested. On retirement, out of the total value of that fund you can take a tax free lumpsum (not sure what the limit is as I've a few years to go yet) and then use the rest to purchase an annuity whereby in return for the balance of your pension fund after the tax free lump sum, an insurance company agrees to pay you a set ammount every month for the rest of your life, or for a defined period of time, depending on your choice.
 
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