"cuts to state pensions must be considered"

[44brendan]

defined benefit pensions

These are becoming a very rare breed of pension indeed and are heading towards extension in virtually all non-public service occupations. Most employers are applying a defined contribution to new employees over the past few years. Based on current returns you would need to build up a very high pension pot to meet a 50% of final salary return. The OAP is currently being relied upon as the minimum supplement required to meet a minimum standard of living for most and if that is not inflation linked or even reduced we will see an eldery population suffering severe financial difficulties within the next 10 or even 5 years. Many will be penalised further by having mortgages that carry on beyond normal retirement age.
In my view the only realistic solution is to extend retirement dates beyond 65! Changes in longevity/health mean that many of us are well capable of working up to at least 70. Also we now have a workforce that are only commencing full time employment in their mid 20's. I started my career at 18 and while I would like to work on past 65, I would like the option of doing this on a part time rather than full time basis. Many of us will have skills that will be useful to our employers and would be prepared to work on past normal retirement date on a part time basis.

 

[Firefly]

In my view the only realistic solution is to extend retirement dates beyond 65! Changes in longevity/health mean that many of us are well capable of working up to at least 70.

That's fine if you have a nice, secure job when you're 65+ , good luck getting something decent if you don't!

 

[44brendan]

Fair comment Firefly. However on that issue, I believe that there is currently a significant restriction on those of us not in the first flush of youth but in position of good quality CV's in obtaining employment. That is the perception of "ageism". I regard it as a perception because most employers regard those over 50 as being past their best. However, most of us have grafted hard to build up our experience and hopefully are keeping senility at bay. I would see both myself and many of my friends/colleagues of a similar age group being highly employable even past 65. Also if we can draw our pension at that stage we will not need a similar salary level and will only need to supplement pension income.
Look at the age profile of workers in the US. Many of those in retail/hotel/restaurants are well over 65 and need to work to supplement their pensions. I will have no problem taking a job in McDonalds if that is all on offer when the time comes!

 

[Firefly]

Fair comment Firefly. However on that issue, I believe that there is currently a significant restriction on those of us not in the first flush of youth but in position of good quality CV's in obtaining employment. That is the perception of "ageism". I regard it as a perception because most employers regard those over 50 as being past their best. However, most of us have grafted hard to build up our experience and hopefully are keeping senility at bay. I would see both myself and many of my friends/colleagues of a similar age group being highly employable even past 65. Also if we can draw our pension at that stage we will not need a similar salary level and will only need to supplement pension income.
Look at the age profile of workers in the US. Many of those in retail/hotel/restaurants are well over 65 and need to work to supplement their pensions. I will have no problem taking a job in McDonalds if that is all on offer when the time comes!

Interestingly, and obviously against the law, I helped out once with interviewing a potential candidate and the hiring manager remarked to me (before the interview) that the candidate was a bit too old. He was 46..

Firefly.

 

[Sarenco]

That's completely unsustainable! A quarter of GDP on pensions before we even try to run the country, which we can't even do currently without borrowing 15,000 euro a minute!

I'm guessing that the OAP won't increase with inflation as time goes by, so only those with defined benefit pensions will be OK at the expense of the others, creating the talked-about "pensions apartheid" situation.

Just to be clear - I am not suggesting that we will ever need to spend a quarter of GDP on State pensions! The issue is certainly serious but there is no need to exaggerate the position.

What I am suggesting is that the percentage of the total tax take (currently 33.5% of GNP) that will need to be spent on pensions will increase dramatically at a time when there will inevitably be increased spending and lower labour market participation associated with an ageing population.

If you assume that taxation as a % of GNP (which is lower than GDP in Ireland) remains constant (and that's a big assumption) and you assume that nothing is done to address the current trajectory (another big assumption), then I would calculate that the percentage figures above represent a reasonable estimate of the % increase of the total tax take that will need to be expended on unfunded State pensions. However, it is important to understand that any of these projections are highly sensitive to the assumptions used in the analysis.

In any event, if we can agree that the current position is unsustainable, I think we should move on to discuss possible solutions rather than getting bogged down in defending or attacking existing entitlements.

 

[Purple]

Increasing the retirement age is already happening.
Working part time beyond 65 or 68 is a good option and, indeed, desirable for many people. A soft exit from the labour market is socially as well as economically beneficial.
Where I work we offer part time hours to retiring employees. While their work rate has almost certainly declined with age their experience is still of great value.
It is also good for moral within an organisation to see that retirement doesn't have to have such abruptness and that the employer shows loyalty to their people.
While I would love to have more time off I enjoy work and would like to think I would "keep my hand in" as I get older. I started work at 17 and I'm no spring chicken but I still have over 25 years before I have these decision to make. I am quite sure it will be a very changed landscape by then.

 

[monagt]

Many of those in retail/hotel/restaurants are well over 65 and need to work to supplement their pensions. I will have no problem taking a job in McDonalds if that is all on offer when the time comes!

Thats all very well but 25% of people between 65 and 71 will have a major health problem and 71 to ?? it will be 1 in 3 (I can't remember the 71 upper limit).
Extreme Ageism is a fact of life in Ireland and is based on more than the physical well being or willingness of the candidate to work (will the mature candidate fit in with rest of the staff, take orders from a person the same age as his/her grandson, etc.)

Will the interviewing manager actually hire his/her grandfather/mother or great grandfather/mother? (Most would not even hire their parents)
Can he manage and control the mature employee the way he manages his own peer group? (His own confidence comes into situation as well)

Over 45 you are in trouble.........Over 60 in Ireland, forget it.

 

[Purple]

Look at the age profile of workers in the US. Many of those in retail/hotel/restaurants are well over 65 and need to work to supplement their pensions.

Many people continue to work past retirement age in the USA because the medical insurance plan provided by their employer will cover necessary medication which their could not otherwise afford.

 

[Sarenco]

As Purple points out the State pension age was increased last year to 66 and will rise to 67 by 2021 and to 68 by 2028.

However, the net savings to the State from these measures will be significantly reduced by an anticipated increase in the number of recipients of other benefits such as jobseeker's and illness benefit as well as invalidity pensions (the self-employed obviously need not apply!).

Also I think we have to accept that, notwithstanding average increases in longevity, our physical and cognitive abilities do tend to diminish as we age. For example, I certainly wouldn't fancy working on a building site at 68.

In any event, the increases in the State pension age were already baked into the KPMG actuarial report referenced in my earlier post so the changes don't impact on the projected shortfall in the social fund.

 

[Sophrosyne]

While it's easy looking back and getting averages from what happened over a certain no of years, etc. I don't see anyone predicting what "will" happen in the future. We may have huge oil deposits, gas deposits, gold deposits, never mind all the other unpredictables. Life could be brilliant in a short time, then again it may not, there may not be a civilization at all, in which case a pension or piggy bank is a bit of a laugh anyway. Why the hell should I be worried about what happens in 25 or 30 years time if I'm getting a pension now? There's only so much each generation can do, or should be expected to do and to be quite honest, we're not a bad old nation at putting one another down. If there were degrees in begrudgery, we'd be top of the pile. We've come a long way in the last 40 or so years, we're doing ok, we'll be alright over the next few years, but it won't be ourselves who will decide what happens on our stupid planet over the next 50 years + and that's for sure. A pat on the back, a bit of praise, a look at where we've come from a short few decades ago wouldn't do a few of us any harm at all. No running water, basic electricity , a bath or a shower didn't really exist, a carpet was "what? no central heating, almost no social welfare and some of you know the rest as well. Come on people, we can bloody well look forward with happy faces. There'll be enough to go around, but of course some won't be happy with just that. God help them.

Agreed!

This is rather like statisticians in 1950’s Ireland, with only the past to draw upon, trying to forecast the economic situation up to year 2000!

 

[Sarenco]

Agreed!

This is rather like statisticians in 1950’s Ireland, with only the past to draw upon, trying to forecast the economic situation up to year 2000!

Not really - the discussion is based on actuarial models relating to our current demographic profile with various assumptions derived from experience to date and certain rational projections in relation to average lifespans, etc. Economic forecasting, in contrast, is basically crystal ball gazing.

 

[roker]

If the retirement age keeps on rising, the fit old people will have to work while the sick with age related problems will be on health care allowance, effectively same as retiring early.

 

[Sophrosyne]

Not really - the discussion is based on actuarial models relating to our current demographic profile with various assumptions derived from experience to date and certain rational projections in relation to average lifespans, etc.

I agree. That is all it is - a demographic projection, based on assumptions.

 

[noproblem]

I remember not too long ago certain important people within this forum and involved in finance and the banking industry advising people to accept interest rates of 4%/5% + on their house loans. I'm sure this advice was given based on actuarial models and all that gobbledegook talk that's spoken at round oak tables in conference rooms. A good job for a lot of less learned people that they didn't listen to this. If you want to make God smile, just tell him you're going on holiday in a few months time. He'll have a chuckle, I wonder why?

 

[Sarenco]

I agree. That is all it is - a demographic projection, based on assumptions.

That is basically correct and the assumptions are detailed in the relevant actuarial reports. Are you arguing that certain of the assumptions are not reasonable? If so, could you be more specific?

To be clear, I believe the prognosis for the future of the unfunded State pension system is serious but it is manageable. However, denying that a problem exists or simply wishing it away is not a realistic strategy.

Bear in mind that when Charlie McCreevy set up the NPRF in 2001, the idea was that future State pension liabilities would be funded by contributing 1 per cent of GNP per annum to the fund. The NPRF is now gone and no alternative strategy has been devised to deal with a problem that hasn't gone away.

 

[Sarenco]

I remember not too long ago certain important people within this forum and involved in finance and the banking industry advising people to accept interest rates of 4%/5% + on their house loans. I'm sure this advice was given based on actuarial models and all that gobbledegook talk that's spoken at round oak tables in conference rooms. A good job for a lot of less learned people that they didn't listen to this. If you want to make God smile, just tell him you're going on holiday in a few months time. He'll have a chuckle, I wonder why?

I'm sorry noproblem but I have absolutely no idea what point you're making. Could you clarify?

 

[noproblem]

I'm just making the point that trying to predict the future is simply impossible. Yet, our most powerful institutions base a lot on what they call " projections ".

 

[Sophrosyne]

That is basically correct and the assumptions are detailed in the relevant actuarial reports. Are you arguing that certain of the assumptions are not reasonable? If so, could you be more specific?

I am not arguing anything. I am simply pointing out that they are assumptions – which may or may not be correct.

Demography is not necessarily linear and is actually very difficult to predict, particularly over a 50-year period.

 

[Sarenco]

I'm just making the point that trying to predict the future is simply impossible. Yet, our most powerful institutions base a lot on what they call " projections ".

This will come as a shock to the actuarial profession and the life assurance industry they support!

It is obviously true that nobody can accurately or consistently predict the direction of interest rates or the future value of financial assets such as real estate or publicly traded securities. However, it is possible to predict, to a reasonable degree of accuracy, how long, on average, individuals can be expected to live, based on factors such as their gender, etc. it is also possible to predict with a degree of accuracy what the demographic profile of the country will look like in the medium term based on current birth and mortality rates as well as migration patterns.

I do take the point though that the further into the future you try and look the greater the possibility that your assumptions will turn out to be inaccurate. For example, we might cure cancer in the next decade. Oh wait, that will make the pension situation even worse!

 

[Sarenco]

I am not arguing anything. I am simply pointing out that they are assumptions – which may or may not be correct.

Demography is not necessarily linear and is actually very difficult to predict, particularly over a 50-year period.

Sorry Sophrosyne, yes I take the point that the further into the future you look the more sensitive projections become to the assumptions used, particularly as regards demographic trends.

However, I would suggest that the general trend is clear - our population is ageing rapidly and this trend is highly likely to continue over the coming decades. This will put a considerable strain on our current pension system in the medium to long term, which will be easier to manage if we start to address these problems sooner rather than later.