‘Reforming’ pensions? December 18, 2013Posted by WorldbyStorm in Economy, Irish Politics.
There’s an editorial in the SBP this last weekend – which CMK referenced in comments – entitled ‘Unsustainable Pensions’, and of course we know what pensions they’re referring to. It starts with the ESB pension fund and goes on from there.
There is something important in the background to the debates we have been seeing about the ESB pension fund and also the pension entitlements of bosses in the charity sector. It is the extraordinary pension arrangements which prevail across most of the public sector. Labour Relations Commission chief executive Kieran Mulvey suggested after the ESB deal was brokered that we needed a national forum on the issue. He is right, but a key part of this must be how to address the divide which exists between the public and private sector on this issue, centred around the huge benefits which remain available to retiring public servants.
That’s all true except for the last bit. Or rather, it is that the last bit isn’t entirely. Not all retiring public servants reap ‘huge benefits’. Some do, many, most, don’t.
Pensions in the public sector are unfunded – in other words their payment comes out of day-to-day revenue. True, public servants have been hit with a pensions levy, though this is really an additional form of taxation.
That may be correct but… clearly it goes some way to funding pension – and more importantly if the issue is with that funding and the state isn’t doing it correctly in relation to the ‘levy’ then that per se isn’t an argument against PS pensions.
Anyhow, what reform there is is insufficient.
New public servants join a scheme which is less generous – in particular their pensions are based on average earnings over their entire period in employment, rather than final salary which is the case for established public servants.
Let’s note that the SBP wasn’t shy in advocating such measures in the past, such as career average. To be honest I’ve no huge problem with that at all as we move forward. It seems quite reasonable if one considers the structure of pension provision as it stands.
But this only applies to those joining the public sector from now on. Those employed before this year will benefit from a pension (on full service) which is half their final salary, plus an untaxed lump sum of one and a half year’s salary. These are the calculations which lie behind the pensions which have featured in the news in recent days. But they apply across the public service – for example a retiring principal officer with full service retires with a pension which would cost over Ђ1.3 million to buy in the market.
The SBP has tended to exaggerate the size of pension payouts in the PS, and has itself noted that the majority of PS pensions (and lump sums) are relatively small, even the example of the PO is – obviously – far from the generality.
Anyway, inevitably, the SBP isn’t impressed:
This is insane. These kinds of sums are unaffordable given the pressure on the exchequer.
One rather suspects that pressure on the exchequer or not the SBP would never really be supportive of them.
But what of private sector pensions, also, by the way, funded in part out of the exchequer through tax relief.
At a time when private sector pension payments are being decimated, it is not reasonable to have this burden coming out of the government’s budget each year. We can wait until the public sector pension liability destabilises the public finances before we decide to tax this payment and reform public sector pensions, or we can do it before that point is reached.
That’s all very fine. But the problem is that the SBP’s call addresses neither issue. By forcing down public sector pension provision but not simultaneously calling for an entirely new dispensation this cannot by any measure be entitled ‘reform’. Let’s also note that there’s not a word about those in the private sector who have no pension provision (at least 50% of workers, and if I recall correctly of those with pensions a significant number are self-funded with no financial assistance from employers). In all this they appear almost entirely forgotten, destined to be the element of pension supplements in the media whose situation is shrugged away when the issue of lack of affordability – given low wages – of private pensions comes into view. And let’s not forget that for many on private pensions where funded by their companies pension provision – that small and select crew – can be very very generous indeed.
It is this lack of acknowledgement of the sheer inequity of pension provision more generally and in the very sector that the SBP seeks to uphold that, as ever, makes the calls for reform so hollow. The goal is simply to divest the state of a responsibility to its workers, but to do nothing to establish a framework for all citizens.