IBEC on Pensions 10-10-2006

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ajapale

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This is a summary of a presentation made by an IBEC person at the Four Seasons Hotel today.

What do people think?

Speaking at the opening of the IBEC Human Resources Summit held in the Four Seasons Hotel in Dublin today, IBEC Director Brendan McGinty said:

“It is time for everyone, whether in the private or public sector, to take responsibility for their own lives and look at the reality of saving for retirement. While the private sector is adjusting painfully to a changed world, pension arrangements in the public sector are not sustainable and need urgent reform."
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Its already started, the normal retirement age for a lot of new entrants into the public sector has been pushed back from 60 to 65. (Part of Benchmarking). I fear this is only the start...
 
I'm no fan of IBEC but what they are saying does make perfect sense. As a young professional in the private sector I'm in the position of knowing that it's next to impossible for me to ever contribute enough to match a public sector pension. This is obviously unsustainable in the long term why would the vast majority of people in the country be willing to subsidise the few in the future. Eventually people will call time on all of this.
 
sunshine? said:
Its already started, the normal retirement age for a lot of new entrants into the public sector has been pushed back from 60 to 65. (Part of Benchmarking). I fear this is only the start...
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Why is that a bad thing. 65 is a standard age for retirement in the private sector.
 
The coverage is higher in the public sector, the schemes are mainly non-contributory unfunded defined benefit schemes and public sector pensions are indexed to existing pay scales not just to inflation. This cannot continue indefinitely.

“If the second benchmarking process is to have any credibility in the eyes of the public it is essential that the benchmarking body undertakes a detailed actuarial assessment of the real value of public sector pensions along with annual leave, security of tenure, working hours and conditions of employment. Nothing less will do.”
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I think that IBEC Director Brendan McGinty is referring to the Public Service (as opposed to the broader Public Sector) when he made the quoted points above.

While "non-contributory unfunded defined benefit pay parity" pension schemes (and benchmarking) are the norm in the civil and public service (guards, teachers, nurses etc) they are not the norm in the commercial semi-state sector. The schemes in the commercial semi-state sector are more closely alligned to those DB schemes in the Private Sector. Here funded, contributory schemes with discretionary pension increases are more the norm.

By confusing the Public Service and Public Sector I think that IBEC Director Brendan McGinty is doing his argument a disservice. The big problem is with the Public and Civil Service pension arrangements.
 
But DB schemes are much much rarer in the private sector nowadays. I don't know anyone my age with a DB scheme all anyone has is DC schemes. In fact until last year many of the people in my company had DB schemes but they were all bought out of the DC schemes. This process is becoming far more common.
 
OK but I think the director of IBEC should focus on the public service (cs + guards, nurses,teachers, members of the defence forces, local authorities etc.) Mixing up the broader public sector and the public service serves to confuse the issue.

When looking at pension schemes it is worth considering whether a scheme is:

  • defined benefit/defined contribution
  • non-contributory/contributory
  • unfunded/funded
  • pay parity/indexed with inflation/indexed at a fixed %/discretionary increase/not indexed at all.
The creme dela creme of shcemes exist in the civil service (and most of the public service) and some banks and financial institutions.

I know of some commercial semi state organisations where the DB (contributory,funded with discretionary increases) is effecitvely closed and new entrants are offered a DC scheme (or PRSA) as part of their contract.
 
Just to be clear, most public service pension schemes are contributory, in that the workers must contribute a % of salary.

Teachers, nurses, guards, etc. all contribute to their pensions. The norm is 6.5% of salary.

As far as I know the only non-contributory scheme is the civil service. This represents approx. 30,000 staff, whereas the wider public service is over 200,000 staff.
 
Thanks Protocol,

So Brendan McGinty is wrong when he said that such (public sector) schemes are mainly non-contributory:

The coverage is higher in the public sector, the schemes are mainly non-contributory unfunded defined benefit schemes and public sector pensions are indexed to existing pay scales not just to inflation.
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aj
 
Thanks again, for the record here is the paragraph:

11.9.4 The majority of public service occupational pension schemes in Ireland (covering about three-quarters of all pensionable public servants) are contributory, although this fact does not appear to be widely recognised outside the public service. We have shown in Chapter 3 that a main scheme contribution of 5% of remuneration applies to a number of groups, including teachers, and local authority and health service personnel. The contribution rate for spouses’ and children’s benefits is 1.5% of remuneration. Thus, the combined contribution made by many public servants is 6.5% of remuneration.
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Just to set the record straight, staff recruited to the Civil Service on or after 6 April 1995 pay Class A (full) PRSI and pay into to a contributory pension scheme (5% + 1½%). See here for more info.

So the situation in the CS is changing and has been for some time now. In about a decade of so the majority of Civil Servants should be in the contributory pension scheme.

SPM.
 
Im glad weve been able to put the record straight in the matter of contributions to the Civil Service and Public Service schemes.

However Civil Service and Public Service schemes are still unfunded with full pay parity.

Compare this to other parts of the Public Sector and the Private Sector where such DB schemes are funded and do not enjoy (anything even approaching) full pay parity.

Very generous Civil and Public Service pension arrangements still have to potential to have a very serious impact on the finances of the state.
 
ajapale said:
However Civil Service and Public Service schemes are still unfunded with full pay parity...Very generous Civil and Public Service pension arrangements still have to potential to have a very serious impact on the finances of the state.
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Maybe not directly funded but the was established to “meet as much as possible of the costs of social welfare and public service pensions from 2025 onwards”. This should somewhat diminish any negative impact on the finances of the state when the dependency ratio is not as favourable as it is now. Of course the NPRF is funded out of current Govt revenue so the taxpayer pays either way.

Mind you, I’m not complaining – particularly in view of the fact that I was recruited before 1995. Roll on Benchmarking-2!!!

SPM.
 
Maybe not directly funded
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OK but when dealing with pensions the term "funded" has a very precise meaning. These funds are protected by leglislation and minimum funding standards have to be adhered to. These can impose a enormous burden on Private Companies (and some commercial semi state companies).


 
ajapale said:
OK but when dealing with pensions the term "funded" has a very precise meaning. These funds are protected by leglislation and minimum funding standards have to be adhered to. These can impose a enormous burden on Private Companies (and some commercial semi state companies).
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Agreed, and I wouldn’t suggest otherwise.

But this was not the angle I was approaching the issue from. Rightly or wrongly, I interpreted your post as linking the term “unfunded” with having the “potential to have a very serious impact on the finances of the state”. This seemed to give the impression that the Govt was not doing anything in terms of funding future public service pension liabilities. I just wanted to make it clear that this is not the case. Whether or not the NPRF will adequately address public service pension liabilities from 2025 is a moot point.

SPM.
 
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