Value of state's unfunded social welfare pensions: €359 billion

[Brendan Burgess]

I was looking for this figure as part of my submission to the Consultation on Jobseekers Benefit

1.5 Results of the review

The value of the State’s ADL [Accrued to date Liability] in respect of social security pension schemes was estimated to be €359.2 billion, or 110.9% of GDP 3, as at 31st December 2018.

This figure represents the central estimate of the present value of all expected future payments to current and former contributors of working age in respect of contributions to date, plus the liability for all future payments to current pensioners entitled to State Pension (Contributory), Widow's, Widower's or Surviving Civil Partner's (Contributory) Pension and Invalidity pension.

The €359.2 billion compares to the figure of €231 billion at 31st December 2015. Thus, over the 3 years, the ADL has risen by €128 billion or 55%.


Should we be concerned at all about this?

 

[NoRegretsCoyote]

Should we be concerned at all about this?

Not really.

The state has the power to tax future workers to pay for these pensions.

The state can also reduce pensions in real terms if it lacks resources to pay them.

People with an accounting mindset (and I'm not accusing you of this) often don't understand this. The state doesn't have a balance sheet like a corporation does.

 

[Towger]

The Magic Money Tree will provide for all.

Back in the real-world we have the ever delayed Pension Auto Enrollment, which long term will reduce the pension burden on the state... For some reason I got complaints from other users last time I stated that!

The governments policy on growing the population by migration. It may have to grow exponentially to work, but that is full of other issues. I am not sure how it will washout. Many with enough 'stamps' will return home to where their money goes much further. This has the effect of removing money/taxes from the state. Others who don't qualify for a contributy pension will stay here, as the state will look after them. I am married to an immigrant and am already starting to see this happen with friends and acquaintances.

 

[The Horseman]

The Magic Money Tree will provide for all.

Back in the real-world we have the ever delayed Pension Auto Enrollment, which long term will reduce the pension burden on the state... For some reason I got complaints from other users last time I stated that!

The governments policy on growing the population by migration. It may have to grow exponentially to work, but that is full of other issues. I am not sure how it will washout. Many with enough 'stamps' will return home to where their money goes much further. This has the effect of removing money/taxes from the state. Others who don't qualify for a contributy pension will stay here, as the state will look after them. I am married to an immigrant and am already starting to see this happen with friends and acquaintances.

For what it's worth I suspect if a worker retires to another state having worked in Ireland they will get the equivalent state pension in the state they are living not the monetary fig payable in Ireland.

This is what happened with child benefit ic I am not mistaken ie the child has to be living in Ireland to qualify for the Irish child benefit rate and ic not living in Ireland they get the local rate.

 

[T McGibney]

The state has the power to tax future workers to pay for these pensions.

Classic Ponzi scheme.

 

[joe sod]

The governments policy on growing the population by migration. It may have to grow exponentially to work,

that solved the pension issue for today's pensioners as they are benefitting from the taxation from today's working immigrants. However tomorrow all those immigrants will also be drawing pensions themselves and we seem to be reaching the limits of that now due to the shortages of housing and other resources to service this growing population .

 

[Brendan Burgess]

The state has the power to tax future workers to pay for these pensions.

Well my question was should we be worried about this. Surely future workers should be very worried about the this? Why are we asking future workers to tax the benefits that I am building up?

The state can also reduce pensions in real terms if it lacks resources to pay them.

So I should be worried about this as someone who expects a Contributory Pension. The State might not be able to afford to pay what they have promised me.

Brendan

 

[Brendan Burgess]

I am getting nightmares now.

There is another €150 billion due to public servants.

1.19. The value of the State’s ADL in respect of public service occupational pension schemes was estimated to be
€149.6bn, or 46.2% of GDP , as at 31 st December 2018. This ADL figure of €149.6bn represents the present value
of all accrued retirement entitlements in respect of current and former employees in the public service, calculated in
accordance with the revised assumptions prescribed by Eurostat for year-end 2018 valuations.

1.20. The State’s ADL calculated using the assumptions prescribed at the previous valuation is €124.9bn. This ADL figure
is comparable with the previous estimate of €114.5bn calculated by the Department as at 31st December 2015.

 

[Brendan Burgess]

And €200 bn of net national debt

Statistics

Home

www.ntma.ie

 

[Allpartied]

I am getting nightmares now.

There is another €150 billion due to public servants.

1.19. The value of the State’s ADL in respect of public service occupational pension schemes was estimated to be
€149.6bn, or 46.2% of GDP , as at 31 st December 2018. This ADL figure of €149.6bn represents the present value
of all accrued retirement entitlements in respect of current and former employees in the public service, calculated in
accordance with the revised assumptions prescribed by Eurostat for year-end 2018 valuations.

1.20. The State’s ADL calculated using the assumptions prescribed at the previous valuation is €124.9bn. This ADL figure
is comparable with the previous estimate of €114.5bn calculated by the Department as at 31st December 2015.

You are comparing the liabilities of the state with the liabilities of a household, or private company.
The state can act like a Ponzi scheme, because future investors ( ie; working people ) are guaranteed. Unless there is some cataclysmic disaster and people stop having children, there will always be population in Ireland. Along with technological advancement, the actual productivity of a state should continue to rise. Even if there are fewer working people, it should be perfectly possible to have enough wealth, to provide some basic income to people in their final years.
There have been significant changes to the Public Sector pension arrangements, designed to reduce costs and there are significant debates about changing the State pension system too. We can argue about the rights and wrongs of that ,but sensationalist figures like this are not helpful.
In fact, I think the aim of such fearmongering is to reduce the state pension and increase the private sector involvement in the pension industry.
We all know, that such vested interests are not, always, working for the common good.

 

[Brendan Burgess]

sensationalist figures like this are not helpful.

Are the figures wrong?

As far as I understand them, and that is why I asked the question, these are genuine liabilities which will have to be paid by someone.

If they are right, but irrelevant, then would it matter if they were €1 trillion?

Brendan

 

[Allpartied]

Are the figures wrong?

As far as I understand them, and that is why I asked the question, these are genuine liabilities which will have to be paid by someone.

If they are right, but irrelevant, then would it matter if they were €1 trillion?

Brendan

Probably, better to cost them per annum.
Lets take the average life of a pensioner. From 66 to 83, thats 17 years. So divide the fgure by 17 and you get about 21 billion, which is still a big figure, but about 5% of GNP. So, perfectly, manageable. If it got to a trillion and our GNP remained the same, it would, obviously, be a problem.

 

[Brendan Burgess]

Thanks Allpartied

5% is perfectly manageable? But everything is measured in terms of GNP.

What is it as a percentage of Tax Revenues?
And then we have the repayments of the national debt.
And then we have the unfunded public sector pensions.
And then we have the expected growth in these.

Brendan

 

[Allpartied]

Thanks Allpartied

5% is perfectly manageable? But everything is measured in terms of GNP.

What is it as a percentage of Tax Revenues?
And then we have the repayments of the national debt.
And then we have the unfunded public sector pensions.
And then we have the expected growth in these.

Brendan

But this is government spending. So, it has to be calculated in the long term.
Saying we have a liability of 360 billion is accurate, in the long term. But, in the long term,we're all dead.

The true meaning of “In the long run we are all dead” | Simon Taylor's Blog

www.simontaylorsblog.com

 

[NoRegretsCoyote]

The Stage might not be able to afford to pay what they have promised me.

The state hasn't "promised" anyone anything specific.

If you pay PRSI you have a legitimate expectation of a pension at the end of it.

The precise amount is always dependent on the resources available to government and political willingness to spend it on pensions and not other things.

There is no formal or even informal indexation in the Irish welfare system.

Surely future workers should be very worried about the this?

I am paying my grandmother's pension via my taxes. My grandchildren (if I have any) will pay mine. It's an intergenerational set-up.

There is no fund or company that can go bust. Sovereigns are perpetual and can only pay out what they can afford to.

 

[Brendan Burgess]

There is no fund or company that can go bust. Sovereigns are perpetual and can only pay out what they can afford to.

Sovereigns go bust! During the last crisis some prominent economists called for us to default on our national debt.

In theory we could means test the Contributory Old Age Pension and halve the pensions paid to retired public servants.

But it's not a simple bookkeeping exercise. We would have a failed state.

I don't think that people are taking this seriously enough.

Brendan

 

[24601]

I don't think that people are taking this seriously enough.

I think this is the key point. It doesn't feature as a major political issue at all, and that is a huge problem.

 

[Duke of Marmalade]

Interesting paper. I agree broadly with the comments of @Allpartied and @NoRegretsCoyote. Just to embelish these a little. For a start these benefits are not at all guaranteed, as we have seen in the debate about the pension age. In particular the rate of increase is far from guaranteed. The report assumes increases in lines with wage inflation. In line with CPI would knock off 70bn; no increases would knock off a further 100bn. I am surprised the EU want these figures as they suggest some form of guarantee. What about commitments to non contributory, to health care and to other services for people including the elderly who cannot fund their full costs?
I agree that the focus on these PAYG payments should be on the trend in their proportion of the country's wealth. The report says the current cost is 7.9bn. That is out of c. 400bn GDP. Can we afford that? Can we afford double that?
One rabbit hole we must definitely avoid is the one that could flow from this statement in the report "this is to give a number for the amount which needs to be set aside...". People whose career is advising on pensions will think immediately that the Government should have built up a fund of (mostly) foreign assets of 359bn. Believe me that would have had very negative macro economic effects on Ireland Inc. This would make sense for very few countries (Norway the exception) but let's not go there.

 

[Brendan Burgess]

Hi Duke

At what stage do you get worried?

The government can't just decide in 5 years that the annual cost is now too high, so we will halve the pension payout.

It's much easier for them to do the exact opposite - "The poor self-employed - let's give them the same contributory pension entitlements as everyone else" despite the fact that they are paying only 4% into the fund.

Brendan

 

[Towger]

For what it's worth I suspect if a worker retires to another state having worked in Ireland they will get the equivalent state pension in the state they are living not the monetary fig payable in Ireland.

The PRSI Contributory Pension works off the number of Insurable Weeks worked. In simple terms, at the moment to qualify for the minimum you need 520 Weeks. *Once you qualify*, it does not matter where you live in the world. Payments are not reduce for living abroad unless Ireland has a reciprocal agreement, in which case is it pro-rated etc. In my wifes county the state pension is a little under 50 euro a month, if you payed into the social security system and 10 euro if you did not. It is not clear if the lower 10 euro is also paid to those with a social security pension.
What we now have is the older skilled workers who arrived during the early 2000s in their 40s starting to retire, with a PRSI and maybe a 50% HSE pension. Many/Most are now Irish citizens and are renting. It is a no brainer to return home where their pension(s) is gives them an a good income.
This is why I think the government's grow the population by immigration policy will only work with exponential immigration growth. In other words it looks or works like a ponzi scheme.