Irish Fiscal Advisory Council recommends prefunding pension liabilities

[Brendan Burgess]

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.

@Duke of Marmalade @Allpartied @NoRegretsCoyote

Would you guys please set the Irish Fiscal Advisory Council straight?

Immediate action on future funding for State pension age of 66, urged by spending watchdog

Report calls for ringfenced State Pension Fund financed by 3.5% rise in PRSI over next four years

www.irishtimes.com

The report argues that a separate State Pension Fund to fund pensions should be designed to take into the account the predictable long-term variation between the number of people paying PRSI contributions and the number of people claiming pensions. Other benefits would continue to be paid out of the Social Insurance Fund.
...

The report argues that a separate State Pension Fund to fund pensions should be designed to take into the account the predictable long-term variation between the number of people paying PRSI contributions and the number of people claiming pensions. Other benefits would continue to be paid out of the Social Insurance Fund.
...

“It may lead to the creation of significant pension reserves if demographic variations are smoothed by requiring current generations to contribute more and limiting the increase in PRSI rates for future generations,” the authors say, essentially moving from a fully-pay-as-you-go model to one that is partially funded in advance of known liabilities.

 

[jpd]

Is this like asking younger workers/voters to pay for their pensions twice - first to pay taxes/PRSI to fund current pension payments under PAYG and secondly, to build up a fund to pay their pensions when it is their time to retire?

 

[Brendan Burgess]

Unfortunately, it is a bit like that ok.

Because we did not ask workers in the past to pay enough towards the pensions they are drawing down now, we have to put the burden on existing workers.

We can't defer the problem forever.

Brendan

 

[MrEarl]

I can see that "solution" helping to drive young people out of Ireland, tbh, which will create even bigger problems, for the future.

Various Governments have elected to stick their heads in the sand, when it comes to this issue, and the currant one will probably get away with doing the same, given the strong revenue streams currently being received, at the Dept of Finance.

Radical change to the current system is needed, to include a significant reduction in the current payments (although a Government could look to defer those reductions by a few years, of it wanted to attempt to save its own skin).

 

[ashambles]

Social protection - Pension spending - OECD Data

Find, compare and share OECD data by indicator.

data.oecd.org

With the usual warning this is GDP not GNI - this puts Irish pension spending at the 4th lowest out of ~40 countries.
It could triple and still be under the higher spenders in the EU.

This problem is misinterpreted, it's less that state pensions will be too expensive and more the state has come to rely on spending relatively little on state pensions - that's not the same thing.

 

[Duke of Marmalade]

I don't want to get too drawn into this rabbit hole.
If they are convinced pre-funders what about public service pensions?
The fact that there is a quasi concept that PRSI is funding social benefits IFAC seems to be querying the validity of that assertion. Clearly PRSI does not adequately pre-fund the OAP and I am greatly surprised that IFAC are making any point about that.

 

[JimmyB99]

Various Governments have elected to stick their heads in the sand, when it comes to this issue, and the currant one will probably get away with doing the same, given the strong revenue streams currently being received, at the Dept of Finance.

I do not believe this is a fair comment for the reasons I explained in another thread yesterday. In summary, it's the opposition's fault......supported by those you vote for the opposition.......i.e. those who'll ultimately pick up the tab for all of this. See the streets of Paris, etc. Much like they'll be picking up the massively greater climate change tab!!

 

[24601]

Has there ever been a discussion around allocating a large share of the unusually high corporation tax take towards funding the public pension black hole?

 

[NoRegretsCoyote]

In a report published on Thursday, the Government spending watchdog calls for a stand-alone State Pension Fund, protected from plundering by governments on the basis of short-term economic and political pressures, and with a credible long-term funding plan based on an increase in PRSI rates and the use of windfall corporation tax receipts.

I had a quick look at the report and I think the above is journalistic hyperbole.

In any case it is not constitutionally possible. All expenditure has to be voted on by the Oireachtas annually, it can't be delegated.

The best that could be done - as the Fiscal Council proposes - is to set up better institutions to advice policymakers of the day on how to set PRSI rates, pension rates, and the retirement age.

 

[Marsupial]

A bit of a side issue, but it's interesting that the UK government announced today that it isn't, after all, going to increase the State pension age to 68. Well, not yet anyway! A further review is to take place in 2 years time ...... that's after the next UK General Election!

State Pension age Review 2023

www.gov.uk

 

[Duke of Marmalade]

I haven't read the report. I am unsure whether it is a recommendation for a long term investment policy or merely a recommendation for more clearly earmarked funds for pensioners.
If it is an investment proposal that will increase the nation's wealth in 40 years, by all means go ahead. But I doubt very much that this is what it is. How would that be achieved - by diverting the nation's current consumption to investment or engaging in geared equity investment?
I suspect it is nothing more than a bookkeeping device for attempting to ensure that pensioners have a first claim on some of the nation's resources in 40 years time. That will prove to be an illusion if the nation can't afford it and the workers rebel against it.

 

[Sophrosyne]

I suspect that PRSI contributions will increase slowly.

For employers, increases would come on top of changes to statutory sick pay and pension autoenrollment - hence the hesitance for sharp increases.

The Pensions Commission did recommend a separation of pensions within the SIF, but this was mainly to facilitate employees who wish to view their pension build-up online.