When you pay your prsi contributions you are also buying a claim on future government prsi receipts, the same as someone retired now getting a pension is recouping their bonds purchased during their working careers through their prsi contributions. The bond analogy works both ways and also we know the chaos and instability that ensues when governments (usually from developing countries) renege on paying back those bonds. Therefore a government can never renege on their social insurance obligations, however at least with a funded model they can say you didn't pay in enough into the fund to get back a full state pension
Why is there no concern about the state's unfunded pension liabilities?
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The change to the public sector pension scheme in 2013 should eliminate the capacity of the State to benefit from this deferral into the future. The 2013 scheme is equivalent or marginally worse than the private sector, which should force salaries to adjust to market level.
A lot of the conversation around pensions misses this point. We can improve our individual position relative to other retirees by saving. But saving doesn't solve a demographic issue.
Private sector occupational pensions and employer-funded PRSAs are also deferred remuneration. With the 2013 changes private sector and public sector workers now defer similar proportions of their remuneration into retirement.
Duke of Marmalade
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I think there is a broad philosophy to have State remuneration easily comparable with Private sector remuneration. After all why are public sector salaries not tax free?
As @TomEdison has stated, second pillar pension provision is in general deferred remuneration. Where the State has a unique aspect is that it doesn't need to have a separate legal fund - its covenant is good enough.
Guinness was the first, and is still the oldest, capital intensive foreign multinational in Ireland.
While they did employ a very large workforce 200 years ago, and did so up until about 60 years ago, they were capital intensive relative to most businesses.
Like most capital intensive businesses they can pay higher than average wages.
Am I missing something or does the demographic problem also have the real potential to hit the value of the underlying investments which are going to fund those future pensions?
In other words too many old people and too few working people equals a economic decline and a decrease in the value of stocks and bonds.
Duke of Marmalade
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Good point. By definition pensioners are no longer contributing to the economy. Their claim on the economy arises on several fronts, social transfers promised by Government, contractual transfers to PS pensioners and crucially a legal claim to the return on capital.
There are clearly limits to the socio political stability of this state of affairs which could lead to Labour demanding a much greater share of the economy than it currently enjoys.
I think the sooner that happens the better. We are moving rapidly towards a situation where high social transfers make those on welfare as well off as a large cohort of working people while in parallel more and more wealth is held in Capital. In the mid 1982 the Forbes Billionaire list owned the equivalent of 3.2% of US GDP. They now own the equivalent of 19.77% and the rate of proportional growth is increasing rapidly. REal wage growth over that period was 20% in the US while real GDP growth over that period was 232%. In simple terms less and less of the wealth being created is staying with Labour and more and more is going to Capital.
What has shielded Ireland from this more than most so far is our large Corporation Tax receipts. We are getting our cut of that Capital value inflation and redistributing it though State spending, but that doesn't insulate us from the trend in the developed world, that's why working people can't afford to buy Capital (a house) and working people feel squeezed.
If this continues pensions will be the least of our worries. When the middle class move from aspirational to despirational they burn the rich. Discussions like this will be remembered as quaint and naive.
I don't know how we can possibly sustain this in the longer term and when the wheels come off those who rely on pensions for their income will be screwed.
Duke of Marmalade
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Yes. I think that's where we are heading. Not yet and not any time soon but I think that it's completely inevitable if we keep on our current trajectory. Think French Revolution.
Duke of Marmalade
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@Purple
I have a dream.
A land where no man (or woman) is required to pay for Original Sin through labour.
Where AI absolves us from having to spend our formative years in training for a better cut of the pie.
Where Robots do all the dirty work.
Where there is really no need to cram into metropilises and we can live anywhere and have the robots build us luxurious homes.
Scream, I have just woke up
I have a dream.
A land where no man (or woman) is required to pay for Original Sin through labour.
Where AI absolves us from having to spend our formative years in training for a better cut of the pie.
Where Robots do all the dirty work.
Where there is really no need to cram into metropilises and we can live anywhere and have the robots build us luxurious homes.
Scream, I have just woke up
Then I heartily recommend reading the late great Iain Banks.
In the meantime, back in the real world, while there is a surplus in the PRSI fund I think circumstances will overtake us in the next 10-15 years.
My public sector brother does not like the suggestion that he does not actually contribute to the country's tax revenues
Doesn't this notion only work of there is no immigration?
From where? The whole developed world has the same problem. There isn't enough skilled labour to fill the need and we are competing with everyone else for those people.
You are talking like Lenin and Marx now, the rise of the proletariat?
The proletariat in ireland though gets plenty of social transfers more than most countries ,hardly the environment for a russian revolution ala 1917?
Are you wearing a Lenin cap now like Jeremy Corbyn?
No, a command economy ends up in the same place and Marxism is in effect a single entity owning all the wealth instead of a few thousand billionaires owning a large chunk of it. In a capitalist system where capital is taxed and transferred as much as income the average citizen retains a large enough share of their income to be aspirational. In a Communism system the average person owns nothing and aspiration is completely pointless.
People need self determination, not social transfers. It's simple Maslow's hierarchy of needs stuff. It's the same reason kids born rich are unhappy and unfulfilled. In the words of Jimmy Carr, "It's not the journey or the destination, it's the person who you become on the journey".
I'm thinking of now; the rise of the far right and the far left (two sides of same totalitarian coin), and a feeling of disenfranchisement amongst the population in general and young people in particular. For the first time in about 80 years younger generations will be poorer than their parents and grandparents. Best of luck getting them to pay our pensions.
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In the May day parades of the future they won't have banners of the happy worker in the steel mills or in the fields but of AI robots instead, the socialist realist art will all feature the brave new AI robots doing all the work.
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