Value of state's unfunded social welfare pensions: €359 billion

@Brendan Burgess

Ireland was very, very close to an actual default in spring 2011. A lot closer than the public ever knew.

Potential default at the time was very little to do with current spending and all to do with a 30% collapse in tax revenues and huge bank bailouts.

Even a 10% cut to the state pension would have made very little difference and neither investors nor Troika ever looked for 1%. In fact it would have done more damage than good as angry voters would have made it harder to implement other policies to recover fiscal stability.
 
NoRegretsCoyote said:
Potential default at the time was very little to do with current spending and all to do with a 30% collapse in tax revenues and huge bank bailouts.
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What?

The bailout of depositors ended up costing about €30 billion if I recall correctly.

The rest was the gap between income and expenditure.

So was the income too low or the expenditure too high?

It was both.

We have all the same ingredients now - except, hopefully the depositor bailout.

artificially high tax receipts combined with low rates on the general population
uncontrolled government expenditure

There is a very high chance of a default.
Sure, it could be avoided but we don't have any adults in the Dáil.

Brendan
 
According to the Controller & Auditor General (C&AG) taxpayers paid a net cost of €45.7 billion up to the end of last 2021 to bail out banks during the financial crisis.

But as @NoRegretsCoyote mentioned, there was also the spill over into the general economy .

Businesses couldn’t borrow and so couldn’t pay their creditors who in turn couldn’t pay theirs and so on.

Employees lost their jobs or were on reduced hours.

Unemployment rose from an average of 4.4% in 2007 to 13.8% in 2010 and to 14.7% in 2012.

People who have been given 95% mortgage loans at 5 or 6 times their salary could no longer afford to pay as even where they retained their jobs full-time, salaries were cut and/or prospective rises did not happen.

Public debt, at 24% in 2007, rose to 124% during the crisis.

GNI shrank by 10% in 2008 and a further 12% in 2009.


But we did not default.
 
The state will need to provide a minimum level of income to the poorest. There is only so big the social welfare budget can get. They cannot cut the non- contributory pension. Something will have to give . There is an argument that means tested approach is a more progressive approach that allowing it to decrease in real terms by increasing with inflation.
 
FintanJ said:
The state will need to provide a minimum level of income to the poorest. There is only so big the social welfare budget can get. They cannot cut the non- contributory pension. Something will have to give . There is an argument that means tested approach is a more progressive approach that allowing it to decrease in real terms by increasing with inflation.
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The link I posted to the Pension Commission was to the Executive Summary, but the actual report is extensive. You can view the Full Report and the Technical Working Papers here.

From this you can see why the Commission concluded that increased contributions rather than erosion of the contributory pension to be the more appropriate.
 
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Let's get real about this 359bn. This is a projection over 80 years. The discounted value of our economy on the assumptions in the report over that period is 26tn or 65 times that. It is absolutely right that this should be PAYG. If we can afford it we should pay it. We should of course have a look at where it is taking us and manage expectations as to its sustainability. But any thoughts that we should have accumulated and "set aside" 359bn worth of ETFs is off the wall. This would have crippled the economy. And in any case the idea that oldies of the future could be living off the fat of their fund whilst workers were queueing at food banks is hare brained. Society will either be able to afford these levels of social protection or it won't.
And the COAP is a form of social protection. It is unlike things like healthcare or a basic living income as it recognises that some folk need higher social protection than others simply because they have been used to a higher standard of living. A difficult concept to get across and hence the delusion that folk have paid for it and therefore are entitled to it. Which in turn leads to the false arguments in this thread that we have promised these folk a return on their PRSI and we haven't funded for it - shock, horror!!
I really don't understand why the EU want this sort of information.
 
www.independent.ie

Majority expect to have to rely on the State pension when they retire

MOST workers expect to have to rely on the State pension when they retire.
www.independent.ie www.independent.ie
Most people will be relying on the state pension and most people have contributory pensions because they are working.
It maybe the case that the prsi contributions do not fully fund the state pension in the future but people that have worked all their lives have also paid tax for 30+ years.

It also has to be remembered that the state increased considerably the entitlement to a state pension to people that don't have a full prsi record. Middle income earners, the majority also hit the high tax bracket much earlier than most other countries. Those people have been paying higher taxes all their lives

Therefore the idea that the state can renege on its promise to pay a state pension to those who have paid prsi and taxes all their lives is preposterous and unacceptable and will not be accepted. If the state finds itself in such a financial crisis it will have to cut all benefits equally . Even I Greece during the financial crisis this never happened.
 
joe sod said:
Therefore the idea that the state can renege on its promise to pay a state pension to those who have paid prsi and taxes all their lives is preposterous and unacceptable and will not be accepted. If the state finds itself in such a financial crisis it will have to cut all benefits equally .
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Hi Joe

The state may have no choice.

We have been used to unlimited borrowing and a Troika bailout.

That may not be available to us the next time.

Or the Troika will determine spending. And they won't see the logic of paying Contributory Pensions to people who have enough income already.

Brendan
 
joe sod said:
It maybe the case that the prsi contributions do not fully fund the state pension in the future but people that have worked all their lives have also paid tax for 30+ years.
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And they'll be retired for close the same amount of time. That's crazy. Nobody should get a full state pension if they've only worked for 30 years. It should be 40 years at an absolute minimum.
joe sod said:
It also has to be remembered that the state increased considerably the entitlement to a state pension to people that don't have a full prsi record.
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Yep, stupid idea.
joe sod said:
Middle income earners, the majority also hit the high tax bracket much earlier than most other countries. Those people have been paying higher taxes all their lives
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Everybody's been paying tax all their lives. Low and middle income earners pay way less income tax than their Northern European counterparts. Our ridiculously high tax free allowances mean that low and middle income earners are under taxed in this country, though marginal income tax rates are too high. There is also a large social transfer to working people on low incomes. As a cohort the bottom 70% of earners are net recipients from the State.
joe sod said:
Therefore the idea that the state can renege on its promise to pay a state pension to those who have paid prsi and taxes all their lives is preposterous and unacceptable and will not be accepted. If the state finds itself in such a financial crisis it will have to cut all benefits equally . Even I Greece during the financial crisis this never happened.
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Nobody's been paying PRSI all their lives and the State hasn't made any promises to pay anything to anyone. It certainly hasn't made promises to pay very generous pensions to people who pay low income taxes.
 
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Brendan Burgess said:
Or the Troika will determine spending. And they won't see the logic of paying Contributory Pensions to people who have enough income already
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The troika aren't socialists, they determine how much money should be spent and raised in taxation, it's upto governments to do the gory details and sell it to their populations.
You say the government doesn't have a choice but that's false, it can stop raising pensions and welfare payments and allow them to reduce with inflation. That would encourage bigger participation in the labour force as staying in work becomes more attractive relative to welfare payments
 
Brendan Burgess said:
Why did we not default?

Because we were bailed out!

We might not be bailed out the next time.

Brendan
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Boss your OP asked do we have an issue with the 359bn unfunded COAP obligations. I saw this as two questions really. Do you have an issue with the level of the COAP? Do you have an issue that it is unfunded? I have given my answers but you have made the questions rhetorically. Do you yourself have either of these issues?
 
Hi Duke

You have explained well why the COAP should not be funded. I am not sure of this but I see your point. What I don't understand is if you see no problem with €359 bn unfunded COAP, does that mean that there is no problem with a €1,359 bn COAP? Where does it stop? Or does it stop?

Why do we bother contributing to private pensions? Surely we could stop doing so and get an OAP of €50,000 a year each. And not bother funding it. It seems to me that both positions are extreme. I don't know where the right answer lies.

Duke of Marmalade said:
Do you have an issue with the level of the COAP?
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Yes, definitely.
Self-employed pay 4% a year and get the full COAP. That is wrong. They should not be getting it at all or getting 4/15th of the general level.
Someone who has paid Employers and Employees PRSI on a salary of €100k a year should be getting more than someone who paid 4% on €20,000 a year.
But on the other hand, it's likely that the person on €100k a year will have more other income so won't need it.

If you look at the COAP in isolation, maybe it's affordable. But what with €200 bn of national debt and rising interest rates and a potential fall in tax revenues, and the unfunded public sector pensions, when do we get worried?

I am amazed at the majority responses here: "Sure, can't we cut the pension or raise taxes if we can't afford it?"

So people seem to be suggesting that we should pay this very large pension to everyone while we can afford it and when we run out of credit, stop paying it. I am probably more financially conservative and would build up a lot of resilience in the public finances so that we could handle most of what will be thrown at us.

Brendan
 
Brendan Burgess said:
Hi Duke

You have explained well why the COAP should not be funded. I am not sure of this but I see your point. What I don't understand is if you see no problem with €359 bn unfunded COAP, does that mean that there is no problem with a €1,359 bn COAP? Where does it stop? Or does it stop?
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The focus should be taken away from this present value amount. I think the report says current social protection spending is 7.9bn or about 2%-3% of GDP. Can we afford that? Can we afford quadrupling it? Let's look down the line, can we afford where it is going and if not should we start doing something about it? These are the valid ways to look at the issues. IMHO the bandying about of an 80 year discounted figure of 359bn which is heavily caveated by sensitivities running to over 100bn is not helpful.
Brendan Burgess said:
Why do we bother contributing to private pensions? Surely we could stop doing so and get an OAP of €50,000 a year each. And not bother funding it. It seems to me that both positions are extreme. I don't know where the right answer lies.
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Ah Boss! I must be missing your point put that sounds very nigh eve. For a start countries are, for planning purposes anyway, immortal. It is reasonable to project its current PAYG capabilities continuing to grow indefinitely assuming no "life changing" shifts in its condition. The human condition for most individuals is that they will be income earning for say 40 years and then they will need to live off any assets they have accumulated and/or any social protection. So of course individuals have to fund for those dramatic changes in their economic productivity/dependence.
Brendan Burgess said:
Yes, definitely.
Self-employed pay 4% a year and get the full COAP. That is wrong. They should not be getting it at all or getting 4/15th of the general level.
Someone who has paid Employers and Employees PRSI on a salary of €100k a year should be getting more than someone who paid 4% on €20,000 a year.
But on the other hand, it's likely that the person on €100k a year will have more other income so won't need it.
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I agree that the rules are riddled with anomalies but I am a big picture man and like to stay out of the weeds :D
Brendan Burgess said:
If you look at the COAP in isolation, maybe it's affordable. But what with €200 bn of national debt and rising interest rates and a potential fall in tax revenues, and the unfunded public sector pensions, when do we get worried?
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There's that "unfunded" word again. These are all sustainable if the nation's current PAYG capabilities keep on a growth course. But sure there are risks. A certain amount of prudence and rainy day funds is probably justified but it is delusion that we can put ourselves in a position that we are bullet proof to whatever is coming down the line. We saw in the crisis that we had to take steps like cutting public service pay that would have been thought impossible.
Brendan Burgess said:
So people seem to be suggesting that we should pay this very large pension to everyone while we can afford it and when we run out of credit, stop paying it. I am probably more financially conservative and would build up a lot of resilience in the public finances so that we could handle most of what will be thrown at us.

Brendan
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Yes, these are big judgement calls. I would certainly be against building up massive contingency funds. Our biggest parachute is that we are credit worthy. We got bailed out of the awful Bertie mess. We proved that our credit is good. I shudder to think where we would be if we had followed Fierce Doherty and burnt the bondholders.
 
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There is not much point in building up massive contingency funds for pensions - at the first sign of a crisis, no matter what, they would be raided and spent on whatever that day's issue was

No politician could withstand the pressure to raid the funds to provide for X, even though the funds are ring-fenced for Y
 
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