"cuts to state pensions must be considered"

[Fin Crusader]

Maybe you should go work for the public service, maybe as a Garda

 

[Purple]

Maybe you should go work for the public service, maybe as a Garda

It's very hard to get into the Gardaí. Despite the huge cuts for new entrants (in order to protect the T&C's of existing members) the job is still seen as being very attractive. The gold plated pension is a big part of that.
The fact that the state is still broke and can't afford to employ more police is a big problem but we all know that.

 

[Sarenco]

I am attaching a link to the annual report for the NRPF for 2007 - the final full year of the fund before its assets were re-directed to addressing the banking crisis.

For anybody that is interested in the issue under discussion here, I would recommend taking a look at page 6 of the report. This contains a summary of the issue in a single page with some illuminating graphs showing the trajectory of the State's pension sustainability problem. What I found particularly interesting in the report was that the NRPF was projected to peak at 50 per cent of GNP around 2040 and this was projected to reduce the cost to the State by 3.6 per cent annually by mid-century (representing 1/4 of the projected cost).

Unfortunately the NPRF is now gone but the problem it was designed to (partially) address is still very much with us.

 

[VoiceofReason]

So the 6.5% is in fact 2.5%.

Public sector workers hired after 1995, that earn at least €352 per week, pay PRSI at a rate of 4 per cent on their gross remuneration. Stripping out this PRSI element from the integrated 6.5 per cent contribution leaves you with 2.5 per cent. However, when you include the cost to the State of the tax free retirement lump sum and the surviving spouse's pension, even this modest contribution looks largely illusory.


Can you explain your logic here? My understanding is the 4% is in addition to the 6.5% which is in addition to the Pension levy and therefore your post gives a very inaccurate view of the contributions actually paid.

 

[Sarenco]

Technically relevant post-1995 public sector employees contribute a total of 3.5 per cent of their net remuneration towards their pension. Net remuneration is defined as current remuneration and pensionable emoluments less twice the maximum social welfare contributory pension payable to a single person with no dependants. In other words, their total remuneration is reduced by twice the amount of the social welfare contributory pension before the 3.5 per cent contribution is calculated.

In addition, public sector workers contribute 1.5 per cent of their remuneration towards their (tax free) retirement lump sum and 1.5 per cent of their net remuneration towards the spouse's and childrens' pension scheme.

See here for further details:

http://www.askaboutmoney.com/threads/contribution-rate-on-public-service-integrated-pension.22478/

Pension related deductions (PRDs) are separate from the integrated pension contributions.

Again it should be emphasised that public sector pension contributions are notional in the sense that they are not ring-fenced in a separate fund - all pensions are still funded on a pay as you go basis.

 

[orka]

Can you explain your logic here? My understanding is the 4% is in addition to the 6.5% which is in addition to the Pension levy and therefore your post gives a very inaccurate view of the contributions actually paid.

When the pre/post-1995 split occurred, post-1995 civil servants were indeed required, on paper, to pay full PRSI and start making contributions towards their pension - which their pre-1995 colleagues did not pay. However, post-1995 pay scales were upped to effectively negate this cost. So while it appears that post-1995 pay something their pre-1995 colleagues don't, this is largely illusory as post-1995 salaries are, to this day, more than 5% higher (the factor is 20/19 which is about a 5.3% uplift) and separate payscales are maintained.

 

[Slim]

When the pre/post-1995 split occurred, post-1995 civil servants were indeed required, on paper, to pay full PRSI and start making contributions towards their pension - which their pre-1995 colleagues did not pay. However, post-1995 pay scales were upped to effectively negate this cost. .

There may be confusion here. Certain civil servants were paid salaries net of pension contribution(5%), so it was not a deduction but the salary scale was reduced accordingly. When this was changed, new civil servants were appointed at higher gross scales, hence the illusion of higher pay. Net effect, no change.

Post 1995 Public Servants paid a contribution that was co-ordinated with the contrib. OAP rate. Since the 1970,s all new public servants paid 5% superannuation plus(in most cases) 1.5% Spouses & Childrens, total 6.5%. Salaries did not change for new appointees.

Based on a salary of €49,000, the pre(Class D) & post(Class A) 1995 public servants pay as follows:

Class D: Pension Contrib (6.5%) = €3,185 Plus PRSI of €1,151.50 Plus Pension Related Deduction (PRD) of €3,528....Total Pension contribution of €5,978 or 12.2% of gross pay.
Class A: Pension Contrib (1.5% of gross plus 3.5% of gross less twice cont. OAP rate of €230.30) = €7,661 Plus PRSI of €1,960 Plus PRD of €3,528 or 15.63% of gross pay.

Clearly, Class A pay more in PRSI and presumably have a little additional entitlement, optical & dental, occupational illness etc.

Overall, pension contributions of 12.2% and 15.63% are not too shabby. Benefits are, on max. service, equivalent to 50% of final salary plus a lump sum of 15 times final salary. Pretty good, but, on death, the pension ceases, except for 50% paid on to spouses & children etc.

My understanding would be that private sector contributions to defined benefit schemes were around 6%, but benefits are 66% pension(no lump sum) and a cont. OAP at 66, having paid class A stamp.

The idea that public servants are enjoying some kind of free ride is misguided. In addition to the pension levy(PRD), pensions of already retired public servants have been reduced and pay rates have also been reduced twice since 2010.

It's still a good pay and pension but it is not free or even 'gold plated'.

 

[ashambles]

Believe that Slim is correct and there are a few pension deductions, though I'd personally not count my PRSI as being a pension contrib.

I would say that after the PRD quite a few public servants would be better off with a private pension.

However would Slim or anyone else know the exact status of employers PRSI for government staff, I believe it's paid in semi states, universities and so on but overall it's hard to tell. We occasionally see figures like 15B for overall pay, we never see a mention of 1.5B of that going into the PRSI fund.

My own pension contrib is 20%, then there's PRSI of 14.75, so a 34.75% pension contribution if you want to include PRSI.

 

[Gerry Canning]

Believe that Slim is correct and there are a few pension deductions, though I'd personally not count my PRSI as being a pension contrib.

I would say that after the PRD quite a few public servants would be better off with a private pension.

However would Slim or anyone else know the exact status of employers PRSI for government staff, I believe it's paid in semi states, universities and so on but overall it's hard to tell. We occasionally see figures like 15B for overall pay, we never see a mention of 1.5B of that going into the PRSI fund.

My own pension contrib is 20%, then there's PRSI of 14.75, so a 34.75% pension contribution if you want to include PRSI.

ashambles;
I do not think {afterPRD quite afew public servants would be better off with a private pension}

eg @ 65 to buy a pension of 10,000 per annum a private pension fund needs to have amassed 240,000 .
I think the overall argument is not private or public , it is , do we do have Government with the strength to force a pension funding system that will take the sting out of future costs.
The crowd that are in with their majority could have taken leadership and pushed this through.
Given the probability of the next bunch being (liquorice allsorts) I fear correct decision making will have little hope.

 

[orka]

There may be confusion here. Certain civil servants were paid salaries net of pension contribution(5%), so it was not a deduction but the salary scale was reduced accordingly. When this was changed, new civil servants were appointed at higher gross scales, hence the illusion of higher pay. Net effect, no change.

Really? I've never seen that spin put on it before. The cspensions.gov FAQ has the following Q/A for pre-1995 civil servants:
"Do I pay contributions for these benefits? There is no personal contribution towards their own personal pension for officers who pay modified PRSI. " Nothing about a netting down of salary scales. In contrast, the corresponding FAQ for post-1995 refers to a grossing-up of salary scales...

 

[Gerry Canning]

Really? I've never seen that spin put on it before. The cspensions.gov FAQ has the following Q/A for pre-1995 civil servants:
"Do I pay contributions for these benefits? There is no personal contribution towards their own personal pension for officers who pay modified PRSI. " Nothing about a netting down of salary scales. In contrast, the corresponding FAQ for post-1995 refers to a grossing-up of salary scales...

Orka,
From getting educated on this thread it looks like this was an attempt to have Civil Servants cover some of their pensions by increasing wages to compensate for said (new) contributions.
Probably in time these contributions would, as in the Private sphere have become an accepted norm and wages could be watched/increased/trimmed as the economy moved.
Had Private work kept salary increasing and we had no recession we probably would have no issue.
At present looks like a bit of a giveaway , but who foretold the recession?

 

[Firefly]

There may be confusion here. Certain civil servants were paid salaries net of pension contribution(5%), so it was not a deduction but the salary scale was reduced accordingly. When this was changed, new civil servants were appointed at higher gross scales, hence the illusion of higher pay. Net effect, no change.

Except that the pension itself is based on final salary, which has now been increased..

 

[Gerry Canning]

Except that the pension itself is based on final salary, which has now been increased..

Firefly ; Was there not legislation that pensions are to be averaged over years worked?

 

[Firefly]

Firefly ; Was there not legislation that pensions are to be averaged over years worked?

Only for new employees (post 2010 I think).

 

[Gerry Canning]

Only for new employees (post 2010 I think).

So (old) employees will get enhanced pensions and get the OAP contributory as well? #
Is this so?

 

[Firefly]

So (old) employees will get enhanced pensions and get the OAP contributory as well? #
Is this so?

I'm not sure. I guess my point above was meant to address the "net effect, no change" comment - pensions are calculated on salary, which was increased.

 

[ashambles]

I do not think {afterPRD quite afew public servants would be better off with a private pension}

eg @ 65 to buy a pension of 10,000 per annum a private pension fund needs to have amassed 240,000 .

I'm fairly sure that you'll find people at the edges who'd be better off with private pensions.

If you're on 30k looking at a 15k pension you're paying something like 7.5% for what seems like just 3k per annum more than the OAP. It is not impossible a 30k private sector worker would do better by putting 7.5% away for 40 years into a standard fund. If the private sector worker's employer was matching contributions to 5% then the private sector worker probably do better most of the time.

For high paid public servants such as someone earning 200k they might be tempted to feel they could do better with the 31k they're forced to contribute being placed into a normal fund. Or at least be allowed to fund their pension to whatever level they'd like.

Some are probably have to contribute beyond the tax relief cap - which no one in the private sector would do. If a 200k earning 35 year old can only contribute 23,000 to a pension fund before the tax relief cap is hit, what happens the remaining 8k of contributions? Does the government take the 8k, then charge 4k in taxes for doing so?

A lot of high earners in say NAMA and the NTMA don't intend to work there beyond a few years, they don't care about getting maybe 1/10 of even a very good government pension in a few decades, many of them would ditch that pension and keep the deductions given the choice.

 

[Slim]

I'm not sure. I guess my point above was meant to address the "net effect, no change" comment - pensions are calculated on salary, which was increased.

This anomaly does not apply to the majority of public servants, i.e local authorities, HSE. Pre and post 1995 employees should end up with same pension but the post 1995 employees pay increased PRSI.

PRSI is not a 'pension contribution' for pre 1995 public servants but forms part of pension entitlement for post 1995 PS.

 

[orka]

My understanding would be that private sector contributions to defined benefit schemes were around 6%, but benefits are 66% pension(no lump sum) and a cont. OAP at 66, having paid class A stamp.

Most DB schemes were integrated with the OAP so it was 66% including the OAP. The relevant issue here though is that most DB schemes are now recognised as unsustainable and have moved to DC schemes - with, hopefully, past service locked in to DB (I'm dubious about how many will actually be able to stand over their promises). The public sector is only moving to a career average for new entrants which leaves a massive liability still accruing for non-new-entrants for many years. The private sector has recognised the sums don't add up; the public sector should too - or does benchmarking only go one way? Private employers can't afford the continuation of DB accrual and neither can the state.

 

[Deiseblue]

I agree that some DB schemes & indeed DC schemes include the OAP in their figures when calculating final pensions - the AIB scheme comes to mind in this context ( note anybody employed prior to 1996 will in addition to the occupational pension receive the OAP ).

However employers such as Bank of Ireland , Smurfit & as recently shown Waterford Glass do not , if you serve the maximum time required you receive your full pension ( obviously the Glass falls into a different category ! ) & can also claim the OAP.

I have never seen a percentage breakdown of occupational schemes that include or do not include the OAP in calculating final pensions .

It should be pointed out that whether you are a member of a DB , DC or hybrid scheme you may well be entitled to claim the OAP in addition to your occupational pension depending obviously on the rules of your scheme.