Thanks for your measured response.
It would important that ALL pension benefits, including tax relief is on the table for any review of pensions. I suspect that some people would like to see a review of 'all pension benefits that apply to other people but not me'. Such reviews aren't a great basis for sound public policy, so if we are going to have a review or strategy, we need to have everything on the table.
This is factually untrue. Tax will NOT be due on all amounts drawn down. The 25% lump sum will avoid tax. The annual tax free allowance will avoid tax on a chunk of the annual income. The lower tax rate will allow for a reduced tax rate on another chunk of the annual income. The investment growth of the tax-free contributions will come into play also. The tax relief is an awful lot more than a deferral, and even if it were just that, the cash flow/timing implications would be a major issue which need to be on the table for any review.
I was basing this on your comments about "career averaging should be introduced immediately for all such pensions (whether in payment or otherwise). Alternatively, a pro-rata reduction of all such pensions may be more equitable/easier to administer". Your proposals would involve a walking away from existing contractual commitments.
Not really. Most of those studies have shown that average salaries in the public sector are higher than average salaries in the private sector. If I noted that average salaries in Google are higher than average salaries in Greyhound, no-one would be hugely surprised. Most people understand the difference in roles, skill levels, qualifications and experience. But somehow, when the Irish Indo or other DOB-owned media reports another survey that average salaries in public sector are higher than average salaries in the private sector, common sense seems to go out the window.
The ESRI survey that looked at this issue did a fairly crude level of job matching, based on keywords iirc. If you want to do proper job-matching, the kind of job-matching that MNCs do when analysing their own salary levels, that might provide some more interesting results.
That amendment referred to future salary levels iirc, and had nothing to do with previously earned pensions.
I (and probably most other public sector employees) allow themselves a little grin at all the talk of raiding and robbing in relation to the very modest levy on private sector pensions (which affects me too btw), when compared against the real pension levy - the fairly savage immediate, direct and ongoing cut to salary of 5%-8%. The real pension levy hit low-earning staff who earn no public sector pension above the standard contributory pension. So really, stop whinging - it's a tax, like many other taxes. It's not nice, but it's necessary.
Hi RainyDay
I would like to follow up with you on some of your points in the above post.
While I certainly have no difficulty having a debate on whether it is appropriate to continue incentivising saving for retirement through the tax system, the topic of this thread is the sustainability, or otherwise, of unfunded State pension liabilities. While removing, or materially reducing, the remaining tax incentives to save for retirement through private pension vehicles may well escalate tax revenue, at least in the short term, it will not of itself have any impact on the sustainability of unfunded State pension liabilities (and, in my opinion, would act as a further disincentive to work which may actually be negative from a revenue perspective in the medium term).
I have been careful to stress in my earlier posts that, in my opinion,
all unfunded pension liabilities and benefits should be reviewed and I do not think my proposals unfairly penalise or exempt any particular cohort of workers or pensioners.
I’m sorry but it is factually correct to say that all drawdowns from a private pension fund will be subject to income tax as it applies at the time of drawdown. There is no assurance that the current ability to draw down a tax free lump sum will remain or that the current ceiling on the TFLS will not be further reduced in the future. Similarly, there is no assurance that the current rates of income tax or that the current bands, reliefs and credits will not change in the future. I am not trying to argue that private pensions are not tax efficient vehicles – they clearly are – I was simply making the point that it is inaccurate to say that tax relief on pension contributions represents tax foregone.
Again, I am not suggesting that the State should unilaterally walk away from anything. I am suggesting some proposals to help manage what I consider to be an important and growing problem. I am unclear from your posts whether you are denying that a problem exists at all or whether you simply disagree with my proposals to address the problem. If the later is the case, I would be interested to hear your alternative proposals.
I fully agree that the fact that the average public sector worker earns 48% more than the average private sector work (according to the latest statistics produced by the CSO) does not give us a complete picture of the position. However, I do not agree with your characterisation of the ERSI report as crude and I would recommend the paper to anybody that it is interested in this area. I would also recommend the comparative analysis published by European Commission in October 2013 that sets out the degree to which the public sector pay premium exists in Ireland (accounting for age, gender and educational achievement) and compares this with the position in other member states. It is interesting to note that there is no observable public sector pay premium in the UK.
I do not think your reference to “DOB-owned media reports” advances your arguments and, to be frank, leaves me with the impression that you are approaching this issue from a deeply ideological perspective.
In any event, my point is not to criticise public sector pay levels as such but rather to refute the suggestion that public sector pensions compensate public sector workers for accepting lower wages than they could otherwise command in the private sector. All the available evidence clearly demonstrates that this contention cannot be sustained.
The reduction in judicial pay will presumably have a knock-on effect on judicial pensions as the two issues are linked. In any event, my point was really that the constitutional amendment represented a precedent for resolving legal issues where there is a substantial consensus on how to proceed.
Grinning public servants aside, I cannot agree with your characterisation of the pension levy as “modest”. It is currently estimated that the State will expropriate almost €2.5 billion of retirement saving by the end 2015 under the guise of this levy – that is not a modest figure by any standards. The compounding effect of the levy will materially impact the living standards of thousands of citizens in retirement and has had a significant impact on the limited number of remaining DB occupational pension schemes that are already suffering from funding difficulties. In my opinion, the pension levy was a deeply unfair and discriminatory measure that has adversely impacted the level of trust that Irish citizens can place in their government.
I also disagree that the pension levy was a necessary measure. It was no more necessary that the VAT reductions given to certain preferred sectors (including the print media) that the expropriated retirement savings were intended to fund.
I don’t think anybody would dispute the fact that public sector workers have been required to take material reductions in remuneration in the wake of the financial crisis. However, all things are relative and I would point out that the public sector pay premium increased significantly in the years immediately prior to the crisis and private sector wages, on average, fell much further than public sector wages after the crisis. Again, I don’t want to derail this thread into a discussion on public sector pay and conditions but I think it is unfair to portray the public sector as having been somehow uniquely impacted by the financial crash experienced in this country.
