Grandchildren to pay government worker pensions?

[patslatt]

An August 8th article in The Times of London "The Financial and Political Costs of Public Pensions" might well have been written about the Irish situation. Given the lack of adequate funding set aside to cover future pensions of government employees, future Irish governments probably will have to borrow huge sums to pay pensioners. That would create an intergenerational transfer of pension debts to the grandchildren, a nice political move!

Key points in the Times article:

[] For every £1 that private sector workers put into their pensions, they will have to pay £2.99 in present and future taxes to finance public sector pensions (even though public sector workers are only a fifth of the total work force),according to actuaries Watson Wyatt.

[] The closure of most private sector final salary schemes has widened the gap with state sector schemes which are still almost exclusively on final salary.

[] Increased life expectancy is increasing actuarial estimates of state pension liabilities, with the teachers' liabilities increasing by £38 billion in one year by one measure (about £2,620 in tax on an average English household would cover it).

[] Private sector pay has just started to outpace public sector pay but that trend would have to continue to alleviate the sense of grievance of private sector workers towards public sector pensions.

As for the latter point, in Ireland public sector pay excluding pensions is about 25% higher than in the private sector. In addition, pensions rise not merely in line with inflation,but in line with pay of the government department that employed the pensioner. This feature is totally unique to Irish government pensions and an extremely costly one as life expectancy rises. By contrast,most small and mid-size company private sector pension plans in America and possibly the UK have no guaranteed inflation adjustment.

No doubt public sector workers believe they are worth every penny of their pensions. If they were delivering efficient services,private sector workers might agree. But as headline news stories tell a tale of woe about HSE waiting lists,infrastructure project cost overruns,poor public transport,legal system delays,the Garda Siochana (hardly any civilian admin until recently),an education system burdened with unsackable, burned out teachers,lack of social housing etc, private sector workers should be skeptical.

They should demand radical reforms that require pension benefits and pay to be closely tied to efficient delivery of services as determined by independent auditors,not Benchmarking box tickers. Regrettably,the large,established political parties will undertake only the mildest,diluted reforms,since they dare not offend the powerful public sector unions. Maybe the time has come for a new political party focussed on radical reform of our medieval public sector. This would appeal to voters under the age of 40 with demanding, consumerist attitudes to government services who do not regard pampered government trade unions as sacred cows.

[tumeltyni]

Em, did you miss the bit where anyone employed since a while back pays their own contributions too?

[patslatt]

Em, did you miss the bit where anyone employed since a while back pays their own contributions too?

What percentage of their final pension can be attributed to those contributions?

[smiffy]

Em, did you miss the bit where anyone employed since a while back pays their own contributions too?

What percentage of their final pension can be attributed to those contributions?

Why don't you tell us, given that you're the one making the claims?

[Ronanr]

To give you a concrete example to work with, patslatt, how about answering this hypothetical:

What proportion of their own pension will a public servant paying superannuation and PRSI Band A (ie, post 1995 recruits) have paid if they serve 40 years and have a pension for (say) 15 years?

(For arguments sake, let us say that they are earning 50,000 Euro per annum on retirement)

[Bray Head]

An August 8th article in The Times of London "The Financial and Political Costs of Public Pensions" might well have been written about the Irish situation. Given the lack of adequate funding set aside to cover future pensions of government employees, future Irish governments probably will have to borrow huge sums to pay pensioners.

I don't think that's the case. First of all Ireland is about 25 years behind Europe demographically. Many countries' birth rates peaked in the 50s, Ireland's didn't until 1980. So the problems of heavy dependency ratios won't be faced for a good quarter century after many other countries. There's no point using UK comparisons when the situations are not comparable.

And why do you say there isn't adequate money being put aside to cover future pensions? Charlie McCreevy introduced the National Pension Reserve Fund which diverts 1% of national income towards future pension requirements - a vast amount. Say what you like about him but we'll be reaping the rewards of that truly visionary decision for the next century.

You have a point on public sector pay but I don't see how an independent adjudicator would provide an equitable solution. At the end of the day wages are always set at the end of some bargaining process between employer and employee.

On the issue of civil servant pension it's been estimated that a post-95 recruit's pension is in effect worth another 15% on top of his salary.

[patslatt]

An August 8th article in The Times of London "The Financial and Political Costs of Public Pensions" might well have been written about the Irish situation. Given the lack of adequate funding set aside to cover future pensions of government employees, future Irish governments probably will have to borrow huge sums to pay pensioners.

I don't think that's the case. First of all Ireland is about 25 years behind Europe demographically. Many countries' birth rates peaked in the 50s, Ireland's didn't until 1980. So the problems of heavy dependency ratios won't be faced for a good quarter century after many other countries. There's no point using UK comparisons when the situations are not comparable.
And why do you say there isn't adequate money being put aside to cover future pensions? Charlie McCreevy introduced the National Pension Reserve Fund which diverts 1% of national income towards future pension requirements - a vast amount. Say what you like about him but we'll be reaping the rewards of that truly visionary decision for the next century.

You have a point on public sector pay but I don't see how an independent adjudicator would provide an equitable solution. At the end of the day wages are always set at the end of some bargaining process between employer and employee.

On the issue of civil servant pension it's been estimated that a post-95 recruit's pension is in effect worth another 15% on top of his salary.

===

As for the above points, the investment of 1% of GNP will go disproportionately to paying very generous pensions of state sector
employees, a minority of about 20% of the work force. Do the Irish people
really want their elected representatives to award vastly superior pensions to the state sector through this tax which falls largely on the private sector? In the old days,state pensions compensated state employees for low pay but now that they are paid more than in the private sector,by the same token their pensions should be less than the private sector's!

While Ireland's favourable demographics will postpone the kind of pensions financing crisis facing many European countries with aging populations, this is not an argument for vastly superior state sector pensions. As economist Moore McDowell has pointed out, the voracious pay and pensions demands of the Irish public sector is forcing the government to go for maximum economic growth aided by unlimited immigration. The economic alternative,which I don't favour, is slow economic growth and a quiet life. After all,people in advanced industrial countries are no happier now than 30 years ago.

Independent adjudicators could rule on whether government departments and state sector enterprises were achieving delivery of services,given the means available. In large private sector companies,this occurs in the financial budgeting for operations, goals and targets and the financial monitoring processes. Of course, targets can distort the delivery of government services, as can be seen in the British government's centrally dictated targets. So targets shouldn't be too numerous and their achievement should not be boxticked,but judged with a holistic view of the departmental activities.

Ministers could take adjudicator's views into account in setting pay increases. For example, the Garda Siochana's annual targets could include recruitment of a certain number of civilian administrators and of ethnic gardai. If at the end of the year, the Garda had failed,say, to meet the civilian HR workers target, the adjudicator would have reason to be critical, since there is no shortage of HR workers. If they failed,say, to recruit sufficient Polish nationals as gardai, the adjudicator would have research the difficulty of finding candidates with a suitable command of English for the job before deciding on whether the Garda had a sufficient excuse for failure.

At present, government seems to operate with a casual approach to performance, except when severe criticism from the media and the public galvanises action.

[NeilW]

[] For every £1 that private sector workers put into their pensions, they will have to pay £2.99 in present and future taxes to finance public sector pensions

Is that an argument for private sector workers to invest more money in their own pensions or for public sector pensions to be cut back?

You may not be aware but most public sector pension schemes in the UK are in the process of being reformed in order to cap the increase in future costs arising from future increases in longevity. I'm sure it's a process that the Irish government can and should look at.

[Bray Head]

Not quite!

As for the above points, the investment of 1% of GNP will go disproportionately to paying very generous pensions of state sector
employees, a minority of about 20% of the work force. Do the Irish people
really want their elected representatives to award vastly superior pensions to the state sector through this tax which falls largely on the private sector?

Not necessarily - this depends on at what level the state pension is set. And if you can predict the intentions of politicians in 2025 fair play to you!

In the old days,state pensions compensated state employees for low pay but now that they are paid more than in the private sector,by the same token their pensions should be less than the private sector's!

I don't follow this point.

While Ireland's favourable demographics will postpone the kind of pensions financing crisis facing many European countries with aging populations, this is not an argument for vastly superior state sector pensions.

Nobody is making this argument. I'm just saying that Ireland doesn't face the problems the UK does as you initially stated.

As economist Moore McDowell has pointed out, the voracious pay and pensions demands of the Irish public sector is forcing the government to go for maximum economic growth aided by unlimited immigration. The economic alternative,which I don't favour, is slow economic growth and a quiet life. After all,people in advanced industrial countries are no happier now than 30 years ago.

Fair point on happiness, and there are costs to untramelled growth. But show me a government in the modern world, anywhere, which has deliberately tried to discourage economic growth. There are plenty of beneficiaries from higher living standards and public sector pensioners are only one of them.

Independent adjudicators could rule on whether government departments and state sector enterprises were achieving delivery of services,given the means available. In large private sector companies,this occurs in the financial budgeting for operations, goals and targets and the financial monitoring processes. Of course, targets can distort the delivery of government services, as can be seen in the British government's centrally dictated targets. So targets shouldn't be too numerous and their achievement should not be boxticked,but judged with a holistic view of the departmental activities.

And who would appoint independent adjudicators? Politicians of course! I'm quite happy to leave the electorate to be the judge of people who make decisions. And as for your British comparison (again) Ireland is far more centralised.

Ministers could take adjudicator's views into account in setting pay increases. For example, the Garda Siochana's annual targets could include recruitment of a certain number of civilian administrators and of ethnic gardai. If at the end of the year, the Garda had failed,say, to meet the civilian HR workers target, the adjudicator would have reason to be critical, since there is no shortage of HR workers. If they failed,say, to recruit sufficient Polish nationals as gardai, the adjudicator would have research the difficulty of finding candidates with a suitable command of English for the job before deciding on whether the Garda had a sufficient excuse for failure.

This point is a little strained but I think you're saying that pay levels in semi-state or government department should be set according to pre-defined goals and targets. This isn't a bad idea but seems more to apply to the top tier of management than the vast majority of quite unimportant public servants. Why should their pay suffer if senior management allocates resources inefficiently or sets priorities badly?[/quote][/i]

[patslatt]

Not quite!

As for the above points, the investment of 1% of GNP will go disproportionately to paying very generous pensions of state sector
employees, a minority of about 20% of the work force. Do the Irish people
really want their elected representatives to award vastly superior pensions to the state sector through this tax which falls largely on the private sector?

Not necessarily - this depends on at what level the state pension is set. And if you can predict the intentions of politicians in 2025 fair play to you!

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Since state pensions are vastly superior, in all probability they will get a disproportionate share of the accumulated investment.
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In the old days,state pensions compensated state employees for low pay but now that they are paid more than in the private sector,by the same token their pensions should be less than the private sector's!

I don't follow this point.

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In the distant past when civil servants low pay relative to the private sector, in compensation for low pay,they were given pensions superior to private sector pensions. Inverting this logic,now that civil service pay is higher, it can be argued that their pensions should be inferior to the private sector's.
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As economist Moore McDowell has pointed out, the voracious pay and pensions demands of the Irish public sector is forcing the government to go for maximum economic growth aided by unlimited immigration. The economic alternative,which I don't favour, is slow economic growth and a quiet life. After all,people in advanced industrial countries are no happier now than 30 years ago.

Fair point on happiness, and there are costs to untramelled growth. But show me a government in the modern world, anywhere, which has deliberately tried to discourage economic growth. There are plenty of beneficiaries from higher living standards and public sector pensioners are only one of them.

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Lots of governments discourage economic growth by failing to make hard economic choices that would risk political unpopularity. Most of Europe is suffering anemic growth, due to both job-killing payroll taxes on employers for funding bloated welfare states and massive regulatory bureaucracy.
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Independent adjudicators could rule on whether government departments and state sector enterprises were achieving delivery of services,given the means available. In large private sector companies,this occurs in the financial budgeting for operations, goals and targets and the financial monitoring processes. Of course, targets can distort the delivery of government services, as can be seen in the British government's centrally dictated targets. So targets shouldn't be too numerous and their achievement should not be boxticked,but judged with a holistic view of the departmental activities.

And who would appoint independent adjudicators? Politicians of course! I'm quite happy to leave the electorate to be the judge of people who make decisions. And as for your British comparison (again) Ireland is far more centralised.

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Appointed adjudicators would be more likely to make objective decisions than politicians courting the vote of state sector employees. The ultimate decision should still rest with the ministers, of course.
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