Gordon Gekko
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It a completely irrelevant point...the State doesn't have to buy annuities from for-profit corporations in order to fund pensions. It's just sensationalism.
The truly shocking cost of State pensions
- Thread starter Sarenco
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It a completely irrelevant point...the State doesn't have to buy annuities from for-profit corporations in order to fund pensions. It's just sensationalism.
What is the 'truly shocking cost' of state (i.e. public sector) pensions? Well, it's EUR 2.5 bn (2013), about 15% of the total public sector pay and pensions bill and about 4% of total government expenditure (2013 figures; source IPA). Is this 'truly shocking'?
The public service pay and pension bill peaked at 18.7bn in 2008. Since then it has decreased to €16.2bn in 2014, of which pensions accounting for approximately 15 per cent. In 2009, the public service pay and pensions bill accounted for 11 per cent of GDP and 13.3 per cent of GNP. By 2014 public service pay and pensions were reduced to 8.6 per cent of GDP and 10 per cent of GNP.
As for the IT article, it's bogus. The cost of providing a civil service pension is its assessed capital cost and not the amount of money a civil servant would have to put away each year to fund it. This is the methodology used in previous benchmarking studies. The 1.5 ml 'market – cost' of an average civil servant's pension is specious. Public sector pensions are not funded this way. And it's nonsense to classify the average civil servant as a millionaire on this basis .
The article goes on to say that pensions are extraordinarily expensive, which is correct in both the public and private sectors, but in the public sector, in terms of government expenditure, public sector pensions are, at present, not excessively onerous, whether as a percentage of total government expenditure or of GNP, and, most importantly, have decreased in recent years. Someone who retires on a civil service pension of 24,000, had a final salary of 48,000, which is about the max. of the executive officer scale for pre-1995 entrants. To suggest that this person could be classified as a millionaire shows a distinct lack of seriousness in assessing financial outcomes.
The public service pay and pension bill peaked at 18.7bn in 2008. Since then it has decreased to €16.2bn in 2014, of which pensions accounting for approximately 15 per cent. In 2009, the public service pay and pensions bill accounted for 11 per cent of GDP and 13.3 per cent of GNP. By 2014 public service pay and pensions were reduced to 8.6 per cent of GDP and 10 per cent of GNP.
As for the IT article, it's bogus. The cost of providing a civil service pension is its assessed capital cost and not the amount of money a civil servant would have to put away each year to fund it. This is the methodology used in previous benchmarking studies. The 1.5 ml 'market – cost' of an average civil servant's pension is specious. Public sector pensions are not funded this way. And it's nonsense to classify the average civil servant as a millionaire on this basis .
The article goes on to say that pensions are extraordinarily expensive, which is correct in both the public and private sectors, but in the public sector, in terms of government expenditure, public sector pensions are, at present, not excessively onerous, whether as a percentage of total government expenditure or of GNP, and, most importantly, have decreased in recent years. Someone who retires on a civil service pension of 24,000, had a final salary of 48,000, which is about the max. of the executive officer scale for pre-1995 entrants. To suggest that this person could be classified as a millionaire shows a distinct lack of seriousness in assessing financial outcomes.
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Yes, the State doesn't buy annuities - I have already acknowledged that fact repeatedly.
However, the cost of a purchasing an annuity is a very good proxy for the cost of providing a State pension.
Admittedly it's an imperfect proxy - primarily because the benefits provided by State pensions can be expected to outstrip annuity payments that escalate in line with inflation. In other words, the cost to the taxpayer in providing a pension will almost certainly be higher than the cost of an annuity that simply escalates in line with inflation.
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Point has probably already been made, but the person in the private sector who works 40 years will get State Contributory Pension, circa 12k for single person, up to 23k for person with adult dependent.
Perhaps I should have titled this thread:-
"The truly shocking cost for somebody in the private sector to buy an annuity that provides an income comparable to the pension currently payable to an average civil service pensioner".
J
Jon Stark
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It certainly could've saved us several pages of posts...
elacsaplau
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Sarenco,
Are you crazy - that would cause riots man? Seriously, I don't know what more you could have done......
How many more times will you have to say that annuity costs are fierce dear altogether?
J
Jon Stark
Guest
They can do more than just wish for it - the public sector hires from, guess where, the general public...
There are plenty of areas where public sector employees get recruited back out into the private sector, so either those people fail to understand the value of the pension benefits they're foregoing (I know Sarenco's view on that!) or the entire deal of pay, (limited) opportunities for advancement, and pension isn't always that great...
I suppose the point I'm getting at is that you can look at the pensions and say, "Holy Crap, look how much they're costing!" (15% of the PS pay bill presently I think was indicated earlier) but the alternative is that (if people do have any appreciation of the value of the pension) to recruit/retain staff, the overall package can't easily be substantially reduced in value.
J
Jon Stark
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Lol at that - it would indeed be the mother of all backtracks to turn around at this point and assert that his concern is about how expensive annuities are!
elacsaplau
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In what way?
I'm more than happy to acknowledge just how expensive annuities are at the present time.
Purchasing an income in the marketplace that is comparable to a State pension is expensive - very expensive. That's really the whole point of the thread.
I know this is a bit off topic at this stage but....
While the full annuity cost is not totally representative of the cost to our society for public sector pensions it is pretty close.
In our current financial system, our limited resources have to be divided and in my opinion too much of our limited resources have historically been allocated to public sector pensions..while steps have been taken it will take a very long time for this to wash through the system.
The argument that private sector employees should stop giving out and join the public sector misses the point unfortunately- it's the totality which is unsustainable
While the full annuity cost is not totally representative of the cost to our society for public sector pensions it is pretty close.
In our current financial system, our limited resources have to be divided and in my opinion too much of our limited resources have historically been allocated to public sector pensions..while steps have been taken it will take a very long time for this to wash through the system.
The argument that private sector employees should stop giving out and join the public sector misses the point unfortunately- it's the totality which is unsustainable
J
Jon Stark
Guest
The whole point of the thread is in your title surely? But since state pensions are, by definition, not purchased in the marketplace the exercise is fundamentally flawed.
You are not expressing concern in your OP (and again see my earlier comments re standards, discussion etc) or anywhere that I've noticed since, about the cost of annuities.
J
Jon Stark
Guest
Because quite clearly and repeatedly his concern has been expressed as relating to the cost to the exchequer of funding its pension commitments - at risk of going into fully broken record mode, the cost of annuities in the marketplace has no bearing on this cost.
Just because your not buying annuities does not mean their costs aren't relevant. How do you place a value on it?
J
Jon Stark
Guest
Mother of.....
If you are worried about the COST of it, or the sustainability of that cost, then you can work out actuarially what that cost is.
Exactly - how do you think the cost of an annuity is derived?
I'd be interested in why there is no relation between the two - I think everyone has acknowledged that there are differences in the two but I would have thought the main drivers of the cost are the same.
Gordon Gekko
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No you don't!
A quote from an insurance company includes their profit margin.
The State is a "not for profit" entity, so the real cost of providing a public sector pension is the annuity quote less the insurance company's profit margin.
So quoting the annuity quote is utterly misleading.