Business Pensions

Saturday 3 December 2016

State's mega pension bill

Published 05/06/2016 | 02:30

Future governments could face pensions bill running into hundreds of billions of euro Photo: PA
Future governments could face pensions bill running into hundreds of billions of euro Photo: PA

Future governments are facing a pensions bill running into hundreds of billions of euro over the next four decades.

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The private sector has been criticised for insufficient funding of pension funds. But at least there were pension funds.

By contrast, most governments (including our own) operate on a pay-as-you-go system, where the present generation of workers pay for the pensions of the previous generation through their taxes in the hope that the next generation will do the same for them - a sort of inter-generational Ponzi scheme.

Pay-as-you-go only works if there is a steadily expanding population of younger people. When an ageing population reverses the demographic balance, it breaks down.

Most of the semi-states have stand-alone pension funds, but pensions for the rest of the public sector (civil servants, teachers, guards etc) are funded by pay-as-you go. In 2012 the Department of Public Expenditure estimated the present value of public-sector occupational pension liabilities at €98bn - a figure that would on its own increase the national debt by almost 50pc.

It gets worse. With two-thirds of all private-sector workers relying on the State pension, there is also a huge liability for contributory and non-contributory State pensions. Already the retirement age for state pensions has been raised, to 68 from 2028. With the number of older people set to grow exponentially, stand by for further rises in the retirement age.

Sunday Indo Business

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