Brendan Burgess
Founder
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Very much a first draft.
Submission from Brendan Burgess
Piecemeal tinkering with the social welfare system without paying attention to the overall context will result in very poor outcomes.
The overall context is a massive underfunding of the Social Insurance Fund
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, as at 31st December 2018.
It’s very easy for a government minister to say “Give the self-employed Contributory Old Age Pensions” or “Increase the pay related Jobseeker’s Benefit” but the long-term funding has to be addressed.
The PRSI contributions need to be massively increased and/or contributory pensions need to be massively reduced
Again, tinkering with a percentage here or there will not solve the problem.
We will simply not be able to provide the Contributory Old Age Pensions we are promising people. The €359 billion ADL is a good measure of the difficulty the state will have in meeting the expectations of people.
The only way to get people to contribute more is if they see the link between what they put in and what they get out
At the moment PRSI is just another tax.
No one sees it as insurance as the benefits are not linked in any way to the premiums.
Despite the very low rates of social insurance in Ireland, most people think it’s a tax and as such, it’s too high.
And recipients of social welfare payments think that they are too low.
A distinction should be made between insured benefits and pension benefits
The nature of insurance is that you pay a small premium for something you hope won’t happen. For example, to provide for the loss of income during unemployment or disability. We pay the premium and hope never to claim.
The nature of pensions is completely different. We all hope and expect to live a good few years into retirement. We don’t need to insure that, we need to save for it. On retirement, there might be a small element of insurance to insure against a very long life, but generally, it’s a savings issue rather than an insurance issue.
PRSI should be split into an insurance fund and a pensions savings fund
About 2/3rds of the SIF is spent on pensions and 1/3rd on the other benefits more suited to insurance cover e.g. illness, maternity and Jobseekers.
The insurance fund should continue to cover the insurance “claims” on a community rating basis as at present.
The pensions element should be hived off into a separate Individual Savings Account Fund
People have to see that there is a direct relationship between their contributions and what they draw down when they retire.
Without this the pressure will always be for the contributors to pay as little as possible and for the pensioners to draw out as much as possible.
Our political system does not allow governments to think long term about these issues and to increase contributions and retirement ages despite all the expert advice and warnings of the deficit. Whichever government proposes it, the opposition will oppose it. And, indeed, many TDs in the governing parties will also oppose sensible long-term policies.
If people saw that their increased contributions went into an account in their name, they would be prepared to pay more.
If people are told that their PRSI contributions need to be doubled and the Contributory OAP needs to be means-tested to try to get the ADL under control, there will be a revolt and politicians will just keep deferring it to the next administration.
But if people are told that their pension in retirement will be directly linked to what they contribute while working, there will be more acceptance of it.
Ideally, this should be via a fund in their own name.
In particular, the self-employed must be charged appropriately for their pension entitlements
The 15% paid by and on behalf of PAYE employees is not enough to fund pensions. But the 4% paid by the self-employed is just crazy.
It just makes an unsustainable system even worse.
The self-employed must either pay the same as PAYE employees or their pension entitlements should be abolished.
I am not proposing that the €359 billion ADL be matched by some sort of Pension Reserve Fund
We have spent 100 years building up this ADL and so it would not be possible to eliminate it. It would not be necessary to eliminate it either.
But it must be greatly reduced and the only way to reduce it is to increase contributions and to reduce the payouts.
The best way to do that is to link them.
And the best way to do that is to set up individual accounts.
Maybe there could be a half-way house
2/3rds of a person’s PRSI contribution would go into a fund in their name.
The pension on retirement would be linked to the amount in the fund, but still have a ceiling on it, depending on the state of the fund at the time.
So where does the Pay Related Jobseekers come into it
Any decisions on increasing the benefit must be made in the context of the dire underfunding of the Social Insurance Fund.
On the one hand, I fully support tying in the benefit to the contributions made.
On the other hand, we simply can’t afford it.
Submission from Brendan Burgess
Piecemeal tinkering with the social welfare system without paying attention to the overall context will result in very poor outcomes.
The overall context is a massive underfunding of the Social Insurance Fund
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, as at 31st December 2018.
It’s very easy for a government minister to say “Give the self-employed Contributory Old Age Pensions” or “Increase the pay related Jobseeker’s Benefit” but the long-term funding has to be addressed.
The PRSI contributions need to be massively increased and/or contributory pensions need to be massively reduced
Again, tinkering with a percentage here or there will not solve the problem.
We will simply not be able to provide the Contributory Old Age Pensions we are promising people. The €359 billion ADL is a good measure of the difficulty the state will have in meeting the expectations of people.
The only way to get people to contribute more is if they see the link between what they put in and what they get out
At the moment PRSI is just another tax.
No one sees it as insurance as the benefits are not linked in any way to the premiums.
Despite the very low rates of social insurance in Ireland, most people think it’s a tax and as such, it’s too high.
And recipients of social welfare payments think that they are too low.
A distinction should be made between insured benefits and pension benefits
The nature of insurance is that you pay a small premium for something you hope won’t happen. For example, to provide for the loss of income during unemployment or disability. We pay the premium and hope never to claim.
The nature of pensions is completely different. We all hope and expect to live a good few years into retirement. We don’t need to insure that, we need to save for it. On retirement, there might be a small element of insurance to insure against a very long life, but generally, it’s a savings issue rather than an insurance issue.
PRSI should be split into an insurance fund and a pensions savings fund
About 2/3rds of the SIF is spent on pensions and 1/3rd on the other benefits more suited to insurance cover e.g. illness, maternity and Jobseekers.
The insurance fund should continue to cover the insurance “claims” on a community rating basis as at present.
The pensions element should be hived off into a separate Individual Savings Account Fund
People have to see that there is a direct relationship between their contributions and what they draw down when they retire.
Without this the pressure will always be for the contributors to pay as little as possible and for the pensioners to draw out as much as possible.
Our political system does not allow governments to think long term about these issues and to increase contributions and retirement ages despite all the expert advice and warnings of the deficit. Whichever government proposes it, the opposition will oppose it. And, indeed, many TDs in the governing parties will also oppose sensible long-term policies.
If people saw that their increased contributions went into an account in their name, they would be prepared to pay more.
If people are told that their PRSI contributions need to be doubled and the Contributory OAP needs to be means-tested to try to get the ADL under control, there will be a revolt and politicians will just keep deferring it to the next administration.
But if people are told that their pension in retirement will be directly linked to what they contribute while working, there will be more acceptance of it.
Ideally, this should be via a fund in their own name.
In particular, the self-employed must be charged appropriately for their pension entitlements
The 15% paid by and on behalf of PAYE employees is not enough to fund pensions. But the 4% paid by the self-employed is just crazy.
It just makes an unsustainable system even worse.
The self-employed must either pay the same as PAYE employees or their pension entitlements should be abolished.
I am not proposing that the €359 billion ADL be matched by some sort of Pension Reserve Fund
We have spent 100 years building up this ADL and so it would not be possible to eliminate it. It would not be necessary to eliminate it either.
But it must be greatly reduced and the only way to reduce it is to increase contributions and to reduce the payouts.
The best way to do that is to link them.
And the best way to do that is to set up individual accounts.
Maybe there could be a half-way house
2/3rds of a person’s PRSI contribution would go into a fund in their name.
The pension on retirement would be linked to the amount in the fund, but still have a ceiling on it, depending on the state of the fund at the time.
So where does the Pay Related Jobseekers come into it
Any decisions on increasing the benefit must be made in the context of the dire underfunding of the Social Insurance Fund.
On the one hand, I fully support tying in the benefit to the contributions made.
On the other hand, we simply can’t afford it.
