Recently in Pensions Category

There is nothing extraordinary about the proposed Cypriot levy on apparently untouchable deposits. The Irish Government led the way by imposing a 0.6 percent annual levy on similarly untouchable private pension funds. It expects to gather €1.8 billion from this underhand action which provoked minimal opposition or protests unlike developments in Cyprus.

Of course, no similar penalty applied to public sector pensions amidst recent ministerial claims that constitutional property rights preclude the slashing of outrageous pensions being paid to former politicians, mandarins and bankers.

Lead letter published in the Irish Times on 21st March 2013. This follow up letter was published on 27th March 2013.

William J XXX (26th March) stated that I was factually incorrect when quoting me as saying  (21st March) that "no penalty applied to public sector pensions". I actually wrote "no similar penalty" in the context of the Government's raid on private sector pension funds. This is factually correct. 

He goes on to write about public sector pensions being  dependent on employee contributions but ignores the fact that these pensions, particularly at higher levels, are largely financed by private sector taxpayers who could never aspire to secure such attractive pension benefits for themselves.

Former ministers will receive annual pensions averaging €81,000 and costing €8.8 million a year. This could amount to €80 million over the next decade and must be funded by new borrowings and additional taxation to cover interest charges and eventual repayments.

In accepting these pensions, do these former ministers not realise that the State is effectively bankrupt thanks, in some cases, to their mismanagement and incompetence?

Letter published in the Irish Times on 11th November 2011.

Now that Irish private sector pension funds can be raided, why do bondholders of busted banks and gold plated public sector pensions remain out of reach? Is it simply because we are softer targets than German, French and Irish public sector pensioners?

Letter published in the Irish Times on 13th May 2011.

As one of the best-paid Ministers of Health in the world, Mary Harney's take-it-or-leave-it offer to funding for Thalidomide sufferers as reported by Susan Mitchell (19th December) is extraordinary. Her offer of €62,500 lump sum plus an annual €,680 per survivor contrasts with her own prospective retirement package(based on those quoted for Ahern and Dempsey) of over €300,000 paid in first year in addition to an annual pension in excess of €120,000.

Letter published in the Sunday Business Post on 2nd January 2011. This letter was not tended to be a "dig" at Mary Harney but rather to illustrate (a) the extreme inequity in Irish society and (b) the extent to which our politicians are divorced from their constituents and have feathered their own nests.

Here are some suggestions for the Minister for Finance to consider when he is obliged by circumstances to present a supplementary budget early in the new year in response to the disastrous economic downturn which is still gathering momentum.

They should be implemented in the context of a realistic, attainable five-year plan for which the support of the social partners and opposition should be sought. Given that these are unlikely to acquiesce even though they offer no alternatives other than to strut, whine and oppose, the government should, for once, show real leadership and forge ahead on the grounds that there is no alternative and early action is crucial. Most people will accept pain provided it is seen to be fairly distributed and there is hope at the end of the tunnel. The alternative is much higher unemployment, cutbacks, emigration and extreme hardship which will take a decade to unwind.

As those who gained most from the Celtic Tiger should pay the most, the income levy percentages should be extended on a sliding scale from 0% for the lowest paid up to, say, 10% for those on the highest incomes. Alternatively, a new higher tax rate should be introduced for those earning more than, say, double the average industrial wage.

Given that payroll costs account for half of all public sector expenditure where salary rates are well ahead of equivalents in the private sector and internationally, the Government should roll back the first benchmarking exercise and plead "inability to pay" other than to the lowest earners under the new national wage agreement. It should only recommence payment of increases once major reforms have been confirmed by An Bord Slash.

Taxpayers can no longer be asked to subside "gold plated" pensions for politicians and public servants when the value of their own pensions (if they have one) is dropping through the floor. The Government should establish a realistically funded contributory pension scheme in lieu of the present prohibitively expensive and inequitable "pay-as-you-go" arrangement. As a stop gap, full PRSI should be applied across the public sector and, in recognition that PRSI is income tax in all but name, earnings limits should be removed for all workers in the private sector.

The foregoing measures will arrest the catastrophic deterioration in public finances and enable the new standard VAT rate of 21.5% to be reduced substantially. This will help the lower paid as well as assisting tourism and curtailing cross-border shopping.

Finally, the Dail should immediately start sitting for four full days every week for at least forty weeks a year. To ensure genuine debate and better decision making, backbenchers should be pressurised by constituents to exercise greater freedom of expression in Dail debates, and voting linked to constituents' needs rather than party loyalties should become the norm rather than the exception.

Lead letter published by Irish Times on 8th December 2008.

It is clear that (a) the Mininster has underestimated the looming problems (b) taxpayers were braced to accept some pain provided it was seen as equitably distributed (c) reform of the public sector has become a priority and (d) failure to recapitalise the banking systems will lead to a credit famine.

Here are some suggestions to address these matters:

1. It is clear that the majority will pay for the excesses of the past few years even though only a small minority were the principal beneficiaries. On the basis that those who gained most should pay most, the income levy percentages should be extended on a sliding scale from 0% for the lowest paid up to, say, 10% for those on the very highest incomes and expanded, as a condition of retaining Irish citizenship, to the worldwide incomes of our tax exiles. These changes should raise sufficient revenue to roll back the budget cuts and tax increases impacting on young, old and weak.
   
   
2. Extremely high salaries should be subsidised by shareholders rather than by taxpayers, To this end,  the Finance Bill should disallow any elements of total salary, bonus and pension contribution exceeding, say, 15 times the average industrial wage (c. €600,000) from being tax deductable.
   
   
3. Payroll costs account for about half of all public sector expenditure and salary rates are well ahead of their equivalents in the private sector and abroad. To help reduce costs, restore parity and reduce future borrowings, the Government should plead "inability to pay" other than to the lowest earners under the proposed new national wage agreement.
   
   It should only agree to recommence payment of increases post-rationalisation and -restructuring as guided by the forthcoming report on the Task Force on Public Service.
   
   
4. The scale of the looming pensions problem is evidenced by the sharp declines in the National Pension Reserve Fund and private sector funds, the poor uptake of pensions by the unpensioned and the surging cost of public sector pensions.
   
   Taxpayers with low/no pensions should not be required to subside "gold plated" pensions for politicians and public servants. The Government should immediately initiate a realistically funded contributory pension scheme in lieu of the present prohibitively expensive and inequitable "pay-as-you-go" arrangement.
   
   
5. The National Treasury Management Agency should immediately acquire substantial stakes in the quoted Irish banks to recapitalise them as insurances against defaults linked to the State guarantees and in anticipation of their profit declines over the next few years.
   
   Alternatively, the NPRF should liquidate some of its overseas holdings to acquire these stakes on the grounds that if our banking system fails the funding of pensions for two decades hence becomes academic. Of course, the annual payments of 1% of GNP, financed by borrowings, to the NPRF should be suspended immediately.
   

The National Pension Reserve Fund has lost about €3 billion (15% of value) over the past four quarters as a consequence of the international credit crisis.

In these circumstances, it makes no sense for the Exchequer to continue borrowing about €1.6 billion a year from abroad for the Fund to continue to making risky overseas investments while cutting back on domestic investment and turning to expensive Private-Public Partnerships and massive tax breaks to progress critical national projects.

This nonsense is compounded by the fact that the Fund must achieve a return on its investments in excess of the cost of borrowing "to wash its face". It is noteworthy that the NPRF is one of the few funds in the world not financed by oil and commodity revenue surpluses. Has the government forgotten the rules about never borrowing money to buy shares or investing what you cannot afford?

Surely it makes more sense for borrowings earmarked for the Fund to be redirected immediately to finance much-needed, major infrastructural projects now instead of being used to make overseas investments for pensions payable decades hence. This could be done simply by legislating a "contributions holiday", say, for three-years to free up about €5 billion.

This would enable critical projects to be progressed more quickly and kept in public ownership. For example, the eight co-located hospitals which will cost the taxpayer a fortune and further fragment our two-tier health service could be progressed in public ownership using a fraction of these liberated funds.

By 2025, the NPRF could be valued €80 billion at current prices (€150 billion at 2025 prices). Given that every taxpayer and consumer will have contributed to the Fund, what guarantees can be offered that payments out of the Fund after 2025 will be equitably distributed and not skewed towards increasingly unsustainable, unfunded "gold-plated" pensions for politicians and the public sector at the expense of much more numerous, poorly pensioned citizens in the private sector?

For example, the NPRF has indicated that public service pension costs will reach 3.7% of GDP by mid-century while social welfare pensions for a far larger number of people will only rise to 10.1%. 

As contributors to the Fund, we should be given absolute assurances that future governments will not treat the Fund as a massive "slush fund" to support vested interests as done with decentralisation, benchmarking etc.

Lead letter published in Irish Times on 26th July 2008.

Cliff Taylor's item about "Balancing the Books" (Sunday, 7th October) indicates that the Government will need to borrow about �1.5 billion this year to finance day-to-day expenditure. This is almost equivalent to the amount to be invested this year in the National Pension Reserve Fund and begs some basic issues about the Fund's operation and direction:

1. What is the economic justification for borrowing money simply to invest in overseas equities to fund future pensions? As recent market volatility has shown, this is a "good times" strategy that would be completely unsustainable in the event of any serious international or national slowdown or rise in inflation.
2. Surely a better return could be secured for the nation if these borrowings were invested in much-needed local infrastructure, or used to displace profit-seeking private funds going into private-public partnerships, or used to bring forward projects which could encounter above-average inflation?
3. The Fund is currently worth about 21 billion euro and will continue to grow rapidly as profits are generated and 1% of GNP is invested each year. As every taxpayer and consumer will have contributed to the Fund, what guarantees can be given that payments will be equitably distributed and not skewed towards increasingly unsustainable and unfunded pensions for politicians and the public sector at the expense of much more numerous, poorly pensioned citizens in the private sector? For example, the NPRF indicates that public service pension costs will reach 3.7% by mid-century while social welfare pensions payable to a far larger number of people will only rise to 10.1%.

As contributors to the Fund, we should be given absolute assurances that future Ministers will not treat the NPRF as a massive "slush fund" to support vested interests as done regularly in the past. The classic examples being decentralisation, benchmarking and the distribution of National Lottery funds.

Letter published in the Sunday Business Post on 21st October 2007.

David Clerkin's piece on pensions (12th March) has highlighted inequities in public and private sector pension arrangements and in the role of the National Pension Reserve Fund.  Tax payers, predominantly in the private sector, are contributing over �2 billion a year in taxes to pensions. Unfortunately, this is not for their own pensions. About half their contributions go to pay "gold-plated" pensions of public servants and politicians, and the balance goes into the National Pension Reserve Fund. 

The following suggestions would put some fairness into national pension arrangements and help resolve the looming pensions crisis:

1. The next round of benchmarking should take full account of the cost of public sector pensions. In addition, the public sector should progressively introduce self-funded schemes for all its employees.
   
   
2. State organisations with pension deficits, amounting to a billion euro, should be required to sort these out internally and not be baled out by the taxpayer and by raising prices to consumers.
   
   
3. The role of the National Pension Reserve Fund should be clarified as regards the expected distribution between public sector and social welfare pensions. This should take account of the fact that the vast bulk of the payments into the Fund effectively come from private sector workers notwithstanding that the main beneficiaries will be the public sector. Indeed, a fundamental reassessment of this organisation should be conducted on the grounds that the State effectively borrows over a billion euro year to invest in this Fund while it has a deficit in infrastructural funding which is being addressed via expensive and inefficient public-private partnerships.
   
   
4. As TDs and Ministers are amongst the best paid and, probably, best pensioned in the world, they should fund their own pensions over and above a single basic scheme. The sums involved are not large but there is a principle involved and a lead should be given.

This prescription is likely to be painful but, as everyone knows, it is better to start pension planning earlier rather than later. So, before introducing mandatory pensions, the Government should create an equitable starting point.

Letter published in the Sunday Business Post on 19th March 2006.

The Minister's concern about the poor uptake of pensions should be seen in the context that all workers are already contributing over 20% of their income tax to pensions. Unfortunately, it is not always for their own pensions. About half their contributions pay the "gold-plated" pensions of public servants and politicians, and the balance is hoovered up by the National Pension Reserve Fund. This assessment takes no account of tax relief granted to the wealthy self employed to create massive pension funds used for estate planning.

The following suggestions would put fairness into national pension arrangements and help resolve the looming pensions crisis:

1. The next round of benchmarking should take full account of the cost and value of public sector pensions. This means that staff should be given the option of maintaining current pension rights with salary reductions to cover the full cost of entitlements, or of holding current salary levels and funding their own pensions on a discretionary basis. In addition, the State should progressively introduce self-funded schemes for all its employees.
2. There should be a cap of, say, a million euro on the value of tax-deductable contributions to a pension fund for any individual.
3. State organisations with pension deficits, amounting to a billion euro, should be required to sort these out internally and not be baled out by the taxpayer and by raising prices to consumers.
4. The role of the National Pension Reserve Fund should be clarified as regards the expected distributions between public sector and social welfare pensions. Indeed, a fundamental reassessment of this organisation should be conducted in the context of our surging population and given that invests over a billion euro a year aboard while the State has a deficit in infrastructural funding.
5. As TDs and Ministers are amongst the best paid and, probably best pensioned, in the world, they should fund their own pensions over and above a basic scheme. The sums involved are not large but there is a principle involved and a lead to be given.

This prescription is likely to be painful but, as everyone knows, it is better to start pension planning earlier rather than later. So, before introducing mandatory pensions, the Government should create an equitable starting point.