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Thread: Public sector pensions - biting the bullet

  1. #1

    Default Public sector pensions - biting the bullet

    As we know, our pension obligations for the future look set to bankrupt the state. We've hundreds of thousands set to get a pension based on their earnings at the time of retirement, guaranteed until the day they die. God only knows where this money will come from. We're not alone in this - many states have this (defined benefit) scheme in place, and a lot of anxiety in private about how to fund it. However, we've gone and blown the money we had set aside for the rainy day on propping up insolvent banks.

    But what if we switched over to a defined contribution* scheme for new entrants to the public service? Our long-term debt would almost instantly be worth a lot more than it currently is, making our borrowing cheaper. We'd also be able to increase productive public sector employment in the future without adding to the black hole in our pension reserves.

    The public sector unions would of course hop on it from a great height and make all kinds of noise, but that doesn't neccessarily make it a bad idea. Also, I think hostility to the PS unions is higher than its ever been. A measure that saves future generations billions without damaging the level of service we receive is an easy thing politically to sell.

    Am I missing something? Otherwise, why are no mainstream politicians arguing for this?


    * This is where the annuity (the income a person earns from retirement until death) is based on the contributions a person and his/her employer makes to a pension fund, rather than being set at a guaranteed level as is currently this case.

  2. #2
    Politics.ie Member hammer's Avatar
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    Can anyone find a report etc where the Dept of Finance can predict a return to exchequer surpluses ?

    How much would the national debt have to be before institutions would stop lending to us ?

    €150,000,000,000 ? or €100,000 per worker ?

  3. #3

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    I honestly don't know. But if such a point exists, we're getting closer by the minute, and condemning our children to that situation.

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    Politics.ie Member b.a. baracus's Avatar
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    The number of people contributing to the pension scheme at the moment far outweighs its current outgoings in pension payments. At the moment it is a net contributor. Unfortunately as the current huge number of public servants retire in the years ahead, and live longer, this will change and we are sitting on a ticking timebomb.

    A new scheme needs to be introduced which offers a Defined Benefit (DB) scheme on earnings up to 40k. This would mean a person retiring on 40k with a full 40 years service would get a DB pension of c9k from the pension scheme and 11k from the normal state pension which every class A PRSI contributor receives. This would also protect the less well off public servants.

    Any earnings over 40k should receive a Defined Contribution pension based solely on invested employee contributions thus costing the state nothing. The state could make a risk free contribution to this DC scheme for earnings up to 60k to make this a bit better for those retiring on less than 60k.

    The fact that we will have to pay a DB pension in the future to people on massive salaries will literally bankrupt us. For example a Hospital Consultant on the new contract retiing on full 40 years service receives about 240k in salary meaning a guaranteed pension (for an ever increasing lifespan) of 120k per annum. This is not sustainable.

    I think the proposal above is the most sensible one to protect the pensions of the low paid (and a very small portion of the pensions of the higher paid). It should be introduced for new entrants immediately.
    I ain't gettin' on no plane

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    A hybrid pension scheme could be the way to go e.g. the first 50k is guarnteed to be paid 2/3 (i.e. 33.5k) and the balance depends on the performance of the fund.

    It would be hard for the unions to argue the pensioners are struggling on 33.5k a year.

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    Politics.ie Member nonpartyboy's Avatar
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    The state pension for all should be capped in the morning at a max of €40,000 , its disgusting to think of the likes of molloy,neary,ahern,harney,parlon walking away with pensions worth hundreds of thousands.

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    Politics.ie Member west'sawake's Avatar
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    Quote Originally Posted by Niceguyeddie View Post
    As we know, our pension obligations for the future look set to bankrupt the state. We've hundreds of thousands set to get a pension based on their earnings at the time of retirement, guaranteed until the day they die. God only knows where this money will come from. We're not alone in this - many states have this (defined benefit) scheme in place, and a lot of anxiety in private about how to fund it. However, we've gone and blown the money we had set aside for the rainy day on propping up insolvent banks.

    But what if we switched over to a defined contribution* scheme for new entrants to the public service? Our long-term debt would almost instantly be worth a lot more than it currently is, making our borrowing cheaper. We'd also be able to increase productive public sector employment in the future without adding to the black hole in our pension reserves.

    The public sector unions would of course hop on it from a great height and make all kinds of noise, but that doesn't neccessarily make it a bad idea. Also, I think hostility to the PS unions is higher than its ever been. A measure that saves future generations billions without damaging the level of service we receive is an easy thing politically to sell.

    Am I missing something? Otherwise, why are no mainstream politicians arguing for this?


    * This is where the annuity (the income a person earns from retirement until death) is based on the contributions a person and his/her employer makes to a pension fund, rather than being set at a guaranteed level as is currently this case.

    This is a good post and I fully agree with you. Defined benefit pensions are akin to a pyramid scheme, the losers being the generation. In the long term they are simply not sustainable what will happen is one or a comination of these three things: Taxes will increase to fund them ii) The benefits will not be given to future public servantswho will in effect become a lower grade Public servant, even if as capable or talented as their seniors, iii) The total numbers of Public Servants will fall, public services will suffer because much much of the higher tax take neededto maintain services will be sued to finance the privileged retirees.

    As a critical cohort of the electorate with a higher propensity to vote, The defined benefit scheme that Public Servants enjoy will not be faced down by Lobur, F.G or F.F., the price of a cosy consensu of our political tweedle dums and tweedle dees. The truth is only a genuine Centre Right party favours the next generation and guaranteeing satisfacoryr public serices by stopping the leakage of limited resources to defnined benefit schemes as well as protecting the interests of private sector workers who don't have secure jobs or defnined benefit pensions and whose taxes have to go up to subsidise them..

  8. #8

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    Government should make all PS pensions DC from now on. Any payments made already will count as DB so a worker with 35 years under belt will only get rest of his years as DC.

  9. #9

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    the only way PS pension timebomb could be averted and still continue as DB would be for FF to grow population to 10million in this country to support all the retired PS millionaires in future. I wouldnt put it past them. Import loads of people to fill their mates empty properties and grow economy in nominal but not per capita terms.

  10. #10

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    Quote Originally Posted by b.a. baracus View Post
    The number of people contributing to the pension scheme at the moment far outweighs its current outgoings in pension payments. At the moment it is a net contributor. Unfortunately as the current huge number of public servants retire in the years ahead, and live longer, this will change and we are sitting on a ticking timebomb.

    A new scheme needs to be introduced which offers a Defined Benefit (DB) scheme on earnings up to 40k. This would mean a person retiring on 40k with a full 40 years service would get a DB pension of c9k from the pension scheme and 11k from the normal state pension which every class A PRSI contributor receives. This would also protect the less well off public servants.

    Any earnings over 40k should receive a Defined Contribution pension based solely on invested employee contributions thus costing the state nothing. The state could make a risk free contribution to this DC scheme for earnings up to 60k to make this a bit better for those retiring on less than 60k.

    The fact that we will have to pay a DB pension in the future to people on massive salaries will literally bankrupt us. For example a Hospital Consultant on the new contract retiing on full 40 years service receives about 240k in salary meaning a guaranteed pension (for an ever increasing lifespan) of 120k per annum. This is not sustainable.

    I think the proposal above is the most sensible one to protect the pensions of the low paid (and a very small portion of the pensions of the higher paid). It should be introduced for new entrants immediately.
    This is actually very fair - and close to impossible to argue against.

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