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

[Gordon Gekko]

They could remove the tax advantages for people putting heaps of money into private pensions to avoid tax.
That way they'd bring in more tax revenue.

They already have. Government policy is to support the delivery of a maximum pension of €60k per annum. Previously, the regime was far more lenient.

And it's not tax avoidance. It's tax deferral. I put money into my pension fund at the moment. I only get relief from income tax. PRSI and USC still arise on the contributions. And when I draw down the pension, I pay income tax and USC plus PRSI if I'm less than 66.

It's hardly the Ansbacher scheme, is it?

 

[Sarenco]

PAYE employees pay 14.75% (4% and 10.75% from their employers) now, so it's only 5.25% extra.

Self employed would have to pay a lot extra. At the moment, they are paying very little and getting the full state contributory pension. That is wrong.

Brendan

That is simply untrue.

Employees and the self-employed pay precisely the same level of PRSI. Employers pay additional PRSI in respect of their employees and this covers a lot of benefits that are not available to the self-employed (redundancy, unemployment benefit, etc).

You can certainly argue that the ratio of employer contributions to employee/self-employed contributions is inappropriately high and I would have no difficulty with a change to this ratio but it is not true that employees pay a higher rate of PRSI than the self-employed.

Bear in mind that a lot of self-employed people have employees and the employer PRSI contributions hit their bottom line.

 

[RichInSpirit]

It's hardly the Ansbacher scheme, is it?

I know, and it's hard to criticise people planing for their future taking advantage of tax breaks for pensions if they exist.
There is a bit of a public pension versus private pension divide in society. Or socialist versus capitalist divide. I'm not saying either is right or wrong.

 

[Brendan Burgess]

Employers pay additional PRSI in respect of their employees and this covers a lot of benefits that are not available to the self-employed (redundancy, unemployment benefit, etc).

Hi Sarenco

The Social Insurance Fund covers other areas as well as pensions
You can find the accounts for 2013 here






As far as I understand it, the self-employed get the full Contributory Old Age Pension for their 4% contribution. I don't think that they qualify for any of the other benefits, but I am not sure.

So pensions account for 62% of the expenditure. This proportion has been smaller in the past when unemployment was higher. But I would expect the proportion to rise in the future as the number of pensioners increases and unemployment falls.

I think that we should have two separate charges - Social Insurance and Pensions.

Charge employers for the Social Insurance - say 5% of salary. This would cover the benefits for which employees only qualify.

As both employees and the self-employed qualify for the same Contributory Old Age Pension, charge them the same rate and call it "Pension Contribution". This would probably be 15% of income.




Brendan

 

[Brendan Burgess]

The original article by Cormac Lucey is now online:

http://cormaclucey.blogspot.com/2015/07/the-states-gargantuan-pension-gap.html

The failure to face up to a massive problem that is staring us in the face is reminiscent of the failure to face to the credit bubble that inflated here between 1997 and 2007. The same combination of cowardice, cynicism, personal and institutional self-interest impeded the Irish state (and public too) from facing up to it in real-time.


Since then the matadors of hindsight – Regling, Honohan, columnists, academics, Oireachtas inquiries – have been busy retrospectively slaying the Celtic Tiger and those most closely associated with it. But, when they might have been of some use, where were these peoples’ real-time warnings? And who is warning today about Ireland’s unfolding pension disaster?

 

[Firefly]

Some action has been taken, the State Pension age has been increased from 65 to 68, in three stages.

Hi Protocol,

I think this action could have unintended consequences regarding the provision of private pensions by individuals. 2 groups of people come to mind:

(1) Those who have precarious employment stability would normally put money away in their late 50s / early 60s in case they lost their jobs before the OAP kicks in. They will now have to put more away to do them until they reach 68.
(2) Anyone forced to retire at 65 (it's in a lot of employee contracts!) will now also have to put money away until the OAP kicks in at 68.

This 65-68 gap, coupled with the recent theft of private pensions by the government, IMO, will mean more & more people will provide for their retirement in other ways - property if they can afford it, cash, prize bonds etc rather than put money into "standard" pensions and therefore more & more will end up surviving on only the OAP.

Firefly.

 

[Gerry Canning]

Maybe the main reason for non-worry about future liabilities lies in the word FUTURE!

1. Election cycles are too short for any Party to tackle pension shortfalls.ie tell citizens to pay in more today.
2. Todays workers just can,t envisage 30 + years down the road.
3. Public Service workers are particularly exposed to a shortfall (golden civil-servants pensions won,t be so golden if there ain,t funding in place!) Suggest get some Additional Voluntary Contributions (AVC,s)
in now.
4. Paye/self-employed need to be TOLD get some pension savings now , because our jellyfish politicians will not lead on this.
5. More people will end up (surviving ) on a smaller and smaller OAP.

Cheerful isn,t it ?

 

[Boyd]

Don't entirely agree with point 2 above Ger, I'm 33 and am lashing in the max of 20% into my pension!

I am galled at the notion thought that govt may at decide at some future point to fund other people's pension from my pot (as suggested by Gordon Gecko above somewhere), just because I was prudent and started early.

Its talk like this that makes me think should I just scale back the AVC and save the extra cash external to a pension, where at least I'd have control over it, despite losing the tax benefits........

 

[galway_blow_in]

I best start a pension so. This is crazy. What does our State Pensions compare with the rest of the EU?

extremely generous considering how little needs to be contributed

 

[Purple]

I know, and it's hard to criticise people planing for their future taking advantage of tax breaks for pensions if they exist.
There is a bit of a public pension versus private pension divide in society. Or socialist versus capitalist divide. I'm not saying either is right or wrong.

As pointed out above they are not tax breaks. The tax is deferred. If you have the good fortune to end up with a decent income when you retire then you will actually have paid tax twice on the same income since the tax is only deferred at the lower marginal tax rate.
If taxation is based on income levels then pensions should be as well, just like they are in most of the rest of Europe, but our socialist model doesn't just punish people when they work, it continues to punish them after they retire.

 

[Brendan Burgess]

Folks

This is a very important topic.

A similar thread 6 months ago went completely off topic.

Please do not do the same with this one.

This thread is about how we deal with the pensions crisis and nothing else. If you want to let off steam about other issues, please do so in a separate thread.

Brendan

 

[Purple]

Most of the guys and gals that are runnin' things now are close to the finishing line themselves, just about ready to cross that line that makes them untouchable!
I, like many others, do not expect to enjoy anything like the pension perks that are currently enjoyed by retirees. I expect that circumstances will necessitate a situation where everyone has to fund their own pension and that they won't get it until they are in their 70's.

 

[Gerry Canning]

Purple,

I agree with you , the (golden circle) boyos have ring fenced their perks. most others have @ best an adequate pension.

You accept that your pension must by pure economics await your 70,s.
Maybe that's a fact of life expectancy.If so its a positive enough sign.
Problem then arises , if people work to 70,s how can the young get jobs?

Maybe not just bring in later state pensions, but what about a sensible hard reduction in pension before future pensions are reduced by even more by necessity.

 

[orka]

Looking at high level numbers, to provide a pension of €12,000 (the approximate level of the state pension), you would need a fund of around €300K. If someone works for 50 years (age 18 to age 68), every year they are accruing a benefit of €6,000. [And similarly, someone heading for a non-contributory pension accrues a benefit of €6,000 every year from 18 to 68]. If someone works only 30 years, they will accrue a benefit of €10,000 every year.

These are mind-boggling benefits accruing each year (large unbeknownst and unappreciated). In this context, anyone paying less than €6,000 per annum in tax, USC and PRSI is a net beneficiary from the state every single year of their working life…

Lower-paid self-employed people have a minimum PRSI contribution of €500 so for €500 * 30 years (€15,000), they can accrue a benefit of €300,000.

But at least the self-employed are contributing something – the non-contributory is virtually the same amount so you get the €300,000 benefit for nothing.

The pensions liability is a huge problem that is largely ignored – and I honestly can’t see this problem being solved fairly or equitably. The state can’t let people starve so there will always have to be a minimum level of income for those who make inadequate provision for themselves. That leaves those who have made provision for themselves to suffer the reductions that will just have to be imposed.

There is no guaranteed contributory pension amount – the CP could be reduced to €4K tomorrow and still meet the contract implicit in the PRSI contract – give us the money we ask for while you’re working and we’ll give you the CP when you retire. I think it’ll have to be something like that – a much-lowered CP and then a means tested top-up for those without alternate provision. It will be unfair and unpalatable to implement but if the alternative is the NCP at below subsistence level, then it will be the only option.

On the contributions, yes they do need to be increased a lot with benefits linked to total contributions (I’m not a big fan of linking to final salary as this can be gamed). I also think there should be a salary cap – being realistic no government is ever going to give a 50K pension to a former high earner while the NCP gets ever smaller – so I would prefer a cap on contributions rather than pretending fair benefits will come out the far side.

 

[Sarenco]

I think orka has fairly highlighted the uncomfortable truth in this whole debate - our unfunded State pension benefits (contributory and non-contributory OAPs and public sector pensions) are excessively generous and, in the medium term, will rapidly become unaffordable.

We can certainly make changes on the revenue side but, ultimately, we will have to face the harsh fact that unfunded State pension benefits will have to be scaled back as our population ages.

The only question to my mind is whether this adjustment will be spread across the generations by starting this adjustment now or whether the full adjustment will be deferred and allowed to fall on future taxpayers and retirees.

Assuming there are no meaningful steps to bring about the necessary adjustments in the near term, the next question is how an individual might proceed to protect their own family's financial position. No easy answers here but the fact that our Government has already expropriated private retirement savings gives us some clue as to how things may play out.

 

[Gordon Gekko]

Perhaps shifting your pension fund overseas is the answer?

Having €2m (in today's terms) in your fund while those who have done nothing to provide for themselves struggle is likely to only end one way...with your fund being raided.

Maybe best to plan to exit Ireland.

 

[Steven Barrett]

PAYE employees pay 14.75% (4% and 10.75% from their employers) now, so it's only 5.25% extra.

You never mentioned the 10.75% coming from the employer I still can't see it happening. The self employed get less tax credits and get hit with a much higher USC that their employed equivalent if they earn over €100k. If you were in the higher bracket, 70% of income would be taken by the government. and it's not as if we've great roads, police service, education, health service etc. The government would fall if they tried to take 70% of people's income.

What they need to do is bite the bullet and get the Pensions Reserve Fund up and running again. But pension benefits in 20/ 30 years won't win votes next year. Tax cuts and increased spending will.

Steven
www.bluewaterfp.ie.

 

[ashambles]

What they need to do is bite the bullet and get the Pensions Reserve Fund up and running again. But pension benefits in 20/ 30 years won't win votes next year. Tax cuts and increased spending will.

Steven
www.bluewaterfp.ie.

I do not support a pension reserve fund until a government commits to paying some non discretionary level of pension for OAPs.

As it was no one was particularly concerned when the last fund was utilized to help reduce the deficits caused by bank support and government overspending. The private sector expected nothing from the fund and the public sector expected their lump sums and pensions would be paid regardless.

A fund that's supposed to cover guaranteed pensions for one group and unguaranteed pensions for another larger group is so flawed it will always be used as a source of emergency funds.

 

[Gerry Canning]

The question was {why no concern?}.

It is too far away for any generation under 30 to worry forward 40 + years. Unless forced to contribute enough.
It is too far away for any generation under 40 to worry forward 30 + years. Unless forced to contribute enough.
It is getting a bit late for generation @50 to then worry forward 20 + years.

Only @ under20 years to retirement do most people start entertaining Pension thoughts.

Government who should future proof pensions,work in 5 year cycles , and in this term they have sadly frightened people who pay into pension.

 

[44brendan]

What they need to do is bite the bullet and get the Pensions Reserve Fund up and running again. But pension benefits in 20/ 30 years won't win votes next year. Tax cuts and increased spending will.

Same rationale as applies to any long term strategy needed to surmount impending difficulties in maintaining elderly care for the future. The NH fair deal scheme is a similar example of a pending future funding time-bomb.
Steven is quite correct in his commentary that reserves are badly needed to fund this rise in outlay. Why are Government exempt from putting aside funds now to cover future PS pensions? Whatever about providing standard OAP's in the future in appears to be a big mistake to continue paying PS pensions from current spending! Average life-span in Ireland is now 81 and rising. Mandatory minimum contributions from those employed must be introduced without delay if we are to avoid a situation where a realistic pension bill cannot be met from the public purse!