The truly shocking cost of State pensions

The capital cost of an annuity of €24,000 indexed at 2% p.a. and reducing to 50% on the death of the pensioner (assuming a surviving spouse) is circa €1m. The retirement lump sum would be additional.
But of course State pensions are not funded and are paid out of ongoing taxation.
However for someone retiring from the private sector (DC) they would need a pot of c€1m to fund above pension (plus an amount for the retirement lump sum).

Another point worth bearing in mind. We have seen numerous cases over the years where senior(?) civil and public servants are granted "added years" of service on retirement (often early retirement) and because there is no concept or recognition of the "capital costs" involved in such cases it can be easy to increase Joe Bloggs pension by an extra couple of years service. After all what is (say) €5,000 p.a. extra pension (in reality the capital cost is circa €210,000).
 
Sarenco, are you're getting the €98bn figure from here? http://www.per.gov.ie/en/monitoring...the-accrued-public-service-pension-liability/



At the end of 2012 there were about 300,000 serving public servants? How many public servants were in receipt of a pension?
 
Yes, the results of the 2012 actuarial valuation, with all relevant assumptions, are available on the Department's website.

I'm afraid I have no idea how many individuals were in receipt of a public sector pension at the end of 2012. Why do you ask?
 
Ignoring the people (public and civil servants) already in receipt of a pension.

There are about 30,000 serving civil servants each having a pension with an actuarial value of €1.5m. That alone makes up €45bn yet they only represent 10% of the serving public servants.

Why the huge disparity?
 
Páid said:
Why the huge disparity?
Click to expand...

Sorry Paid but you are inappropriately mixing and matching figures.

The figure of €98bn represents the present value of all expected future superannuation payments to current public sector staff and their spouses in respect of service to December 2012, plus the liability for all future payments to current and preserved pensioners and to their spouses.

Nobody has suggested that all serving civil servants, whatever their age, gender or marital status, have accrued pension entitlements with a present value of €1.5m.

Again, the pension paid to the average civil servant who retires at 60 with 40 years of service would cost €1.5 million if bought in the marketplace, making the various assumptions outlined above. That represents a good, if imperfect, actuarial estimate of the value of that pension.
 
A pension is no different from a lease, I.e. it's a series of know payments to be made in the future over time. Nobody prices a lease at the cost of buying an annuity to pay for the regular payments of the lease. Similarly, the price to the pensioner of a public sector pension is the price of working in the public sector for 40 years; the price of the pension for the government is its capital sum (I.e. the pension amount by the estimated number of years to be paid). The fact that this may have an annuity value of over a million is neither here nor there; the actual value is at around 672,000. That's what the taxpayer, via the government, has to pay for this person's pension.


Something we can agree on. This backs up what I showed my post no 162 above; public sector pension costs have fallen and continue to fall. This point was also ignored in that nasty IT article; apart from giving the impression that public sector workers on modest incomes have millionaire pensions, it ignored the fact that public sector pension costs are falling and this reduction has come out of the salaries and pensions of public sector workers.

As for pension increases there have been various proposals on how these should handled over the years, and these were evaluated in 2000 by the Commission on Public Service Pensions. But nothing has been done in the 16 years since then, why?
 
Last edited:

And the astonishing failure in the article, that hasn't been picked up here (I haven't read the full thread yet, I will go through it though), is that since 1995 12k of that 24k Pension is supposed to be the State Contributory Pension that is to be integrated into the final 50% final pensionable salary.
 

That is because this is wrong - they do (or are supposed) to get what used to be known as the OAP, it is now called the State Contributory Pension, this is supposed to be "integrated" into the final retirement pension of 50% final pensionable salary.

There are two parts to the pension - the "occupational" part and the part that is supposed to be covered by the PRSI.
 
PMU said:
A pension is no different from a lease, I.e. it's a series of know payments to be made in the future over time.
Click to expand...

Except that a PS pension is not a series of known payments to be made in future over time. PS pensions payments are linked to PS salaries that increase over time.

A pension of €24k pa would have been worth an absolute fortune 40 years ago! You could buy a fine house in Dublin for under €20k at that time.

PMU said:
This backs up what I showed my post no 162 above; public sector pension costs have fallen and continue to fall.
Click to expand...

More than happy to acknowledge (again!) that the State's total accrued liability in respect of PS pensions fell between 2009 and 2012, largely because of pay and pension reductions since 2009. However, these cuts have already started to be reversed.

Furthermore, the Department of Public Expenditure and Reform has recently confirmed that there is no current plan to sever the link between PS pay and pensions.
 
ppmeath said:
And the astonishing failure in the article, that hasn't been picked up here (I haven't read the full thread yet, I will go through it though)
Click to expand...

The State pension is dealt with in the article and was discussed earlier in the thread.
 
Sarenco said:
Except that a PS pension is not a series of known payments to be made in future over time. PS pensions payments are linked to PS salaries that increase over time.
Click to expand...

Not anymore. This is one of the changes of the many that have been made since 1995.
  • post retirement pension increases are linked to CPI.

Sarenco said:
The State pension is dealt with in the article and was discussed earlier in the thread.
Click to expand...




Correct me if I am wrong, is this the comparison to the 24k PS average pension? If it is then it is wrong, because since 1995 the 24k is supposed to me made up of an "occupational" part and the State pension (formally OAP), that is supposed to be integrated to give the final 24k.
 
ppmeath said:
Not anymore. This is one of the changes of the many that have been made since 1995.
Click to expand...

Legislation introduced in 2012 enabled the minister to link public sector pensions to inflation, rather than existing salaries, though the relevant section has not been brought into operation. The IT reported last week that the Department confirmed there are “no plans at present to change that.”


Whether its integrated or not, the cost to the State doesn't change.
 
But the cost to buy it would. Because both the private and PS worker (PRSI A) are entitled to the State Contributory pension.
 
Sarenco said:
Again, the pension paid to the average civil servant who retires at 60 with 40 years of service would cost €1.5 million if bought in the marketplace, making the various assumptions outlined above.
Click to expand...
Agreed. But this does not mean the retiree has a pension worth 1.5 million. The retiree will get 672,000 (plus some cost increases) if he / she lives 25 years. And this is the cost of the pension the government.

Sarenco said:
That represents a good, if imperfect, actuarial estimate of the value of that pension.]
Click to expand...
No. It does not represent the value of the pension; it represents the cost of buying an annuity which is totally different. This is the 'mistake' (and I'm being charitable here) the IT article made. The value of a pension is what the pensioner gets (in this case about 672,000 over 25 years – more if he / she lives longer). The actual cost of the pension to the government is the amount the pensioner receives (i.e. also 672,000+).

An actuarial estimate of the value of the pension is its net present value, with future payments and PRD appropriately discounted. And there is no way this will come in at 1.5 m .
 
PMU said:
The retiree will get 672,000 (plus some cost increases) if he / she lives 25 years.
Click to expand...

"Some" increases?!

Again, PS pension increases are linked to PS salary increases. 40 years ago, the average civil service salary was around €4,000 pa so that's increased by ~1,000% over the intervening period.

You are also ignoring the benefits that will accrue to any surviving spouse.

Fun fact - the last widow to receive a soldier's pension from the US civil war died in 2008. The US civil war ended in 1865!
 
Hi Sarenco,

Very brief answers required....

(a) Just wondering if you wanted to buy an annuity for €24k p.a. on the open market and that this annuity would have broadly the same terms and conditions as the standard civil servant's pension (in terms of reversion, escalation, etc.) - any idea what the capital/annuity cost of that would be?

(b) Is there any place where a member of a DC plan (whether in the private or public sector) could purchase this guaranteed income stream in the market-place for less money than required under point (a)?
 

Around €1.5m (making certain assumptions re age at retirement, etc.)

elacsaplau said:
(b) Is there any place where a member of a DC plan (whether in the private or public sector) could purchase this guaranteed income stream in the market-place for less money than required under point (a)?
Click to expand...

Not that I know of.
 
Both are actuarial estimates of pensions, one of the liability to the State and the other how much the pension would cost in the marketplace. That €98bn represents the cost of pensions for what must be at least 400,000 public service workers and pensioners. How much would that cost be if the Government were purchasing annuities for every worker? €500 billion?

Sarenco said:
Nobody has suggested that all serving civil servants, whatever their age, gender or marital status, have accrued pension entitlements with a present value of €1.5m.
Click to expand...
Both you and the author are playing with words to make it look like civil servants are millionaires because of their pensions, citing how much it would cost in the marketplace and not stating how much those pensions actually cost the State.

That says more about the marketplace than anything else.
 
You must log in or register to reply here.
Menu
Log in
Register