independent

Thursday 24 April 2014

High-paid insiders grab lion's share of diminishing spoils

Scarce resources should be fairly allocated, but the State has a poor history in this regard, writes Eddie Hobbs

Pictured outside Dail Eireann for a day long seminar on mounting twin problems of drugs and criminality was Barry Galvin Retired Cork Chief State Solicitor and Nora Owen Former Minister for Justice.
 Pic Steve Humphreys
17th January 2014.
Nora Owen: Feels entitled to her generous pension. Photo: Steve Humphreys

Area 51 was only acknowledged by the CIA as late as 2005. What happens there is top secret. There's more known about Area 51 and reverse engineering of crashed alien technology, than about public sector pension schemes – judging by the news management involving Government ministers on the exit deal for former CRC chief Paul Kiely.

That the PAC appears to have been misled and that payments were funnelled to the departing CEO from charitable donations is pretty low even by the standards of governance and disclosures in this country, but the size of the extra loot, €740k, pales in comparison to the plunder of future generations of taxpayer donations, overseen by successive Cabinets.

Reconstructing Mr Kiely's exit package – which came in three parts, €268k towards his pension fund, €200k tax-free pension cash, and a taxable lump sum of €273k – points to the replacement of half Mr Kiely's public salary and not the replacement of the extra €136k coming from charitable donations.

In the world of establishment elite remuneration, tracking top-hat benefits for a salary of €240,000 like Mr Kiely's would cost about 20 times; that's a fund of just under €5m. The chances that such a fund was only short 5 per cent of its target after the meltdown we've seen in asset values, just doesn't look right. Until the detail of Mr Kiely's contract emerges we're left guessing, but don't be surprised if his pension is more in the range of €50k to €70k a year, much lower than the pensions enjoyed by many of the officeholders now attacking the CRC.

The Irish Medical Organisation (IMO) did have reason to blush. The cost of replacing two-thirds of its former CEO's half a million salary was set to cost a staggering €20m until nice Mr McNiece settled for €9.7m. Quite how the liabilities guaranteed to Mr McNeice never appeared on the IMO's financial accounts has yet to be explained.

Neither has the State any high ground from which to wag its finger – at least not when you grasp its own record in plundering scarce resources. Negotiating behind closed doors at GAA Headquarters during a national emergency, the State engineered a remarkable early retirement scheme that, in the sweep of a pen, eradicated pension rules that apply to everyone else. A 51-year-old civil servant on €100k who took the Incentivised Early Retirement Scheme got an increase in his pension, valued in the open market at six times pay: €600k.

Nobody knows the precise drain on future taxpayer donations because, well, it's top secret. The last attempt to calculate the burden of the pension debt was in 2009 when it stood at €116bn, about 70 per cent of current GDP. Ten years earlier it stood at €25bn. Somewhere there's a civil servant tasked with filling in forms for the EU Commission reporting on the scale and shape of these huge hovering off balance sheet liabilities, but it looks like the ship is remaining in Hangar 51 until the mandarins decide that it's safe to let it land.

What we do know is that the tax system was rigged at the same time, towards the end of 2010, to halve the tax exposure of top earners retiring in the public sector. This scam was accomplished by assigning a notional fund value to pensions by multiplying them by 20, instead of by 40, closer to the market cost – that's how much it would cost a private sector worker to buy a joint life pension escalating each year by inflation or, better still, by future salary grade increases negotiated by public sector union chiefs whose own pensions mimic senior civil servant grades.

The tax loophole meant retiring ministers and other top earners could avoid the worst effects of super tax over the threshold, which shot down from €5m to €2.3m on the strategic date of December 7, 2010. It has since fallen to €2m.

That contributed to the unseemly rush into early retirement. Government ministers like Dermot Ahern, aged just 55, were among the first out of the blocks. You couldn't dream up a better deal: a pension of close to €130 grand a year or about 37 times the average private sector pension bought by workers in the same year with their paltry savings – and no nasty pension wealth tax.

Today there are two public sector pensioners for every five working, and the total tax take from the public salary roll just about matches current pension payouts. The model is unsustainable regardless of future tax hikes because of longer life expectancies. The money simply won't be there to finance retirements of 20 years plus from working lives of 40 years. It's unsolvable without radical reform, sharing and solidarity – much easier for ageing, high-paid insiders to grab the lion's share of shrinking resources, which explains the cynical social engineering of Ireland's apartheid pension's model, capped with the ongoing plunder of private sector pension savings.

In October 2012 TV3's Midweek presenter Nora Owen berated me for an article I wrote about how insider power in Ireland really works. I responded by asking the former minister on air to confirm if her pension was around 70 grand a year – for nine years of Dail service, three as a Government minister. Nora bluntly told me that she was 'entitled to it', three words that keep coming up.

What people really mean by being 'entitled to it' is that it's a property right and hence protected under Section 43 of the Constitution, as jaded a defence as it's untrue. Section 43, while acknowledging the right to private ownership, 'may as the occasion requires delimit by law the exercise of the said rights with a view to reconciling their exercise with the exigencies of the common good'. There are three words you rarely hear in the debate: the common good.

Property rights have been set aside many times, outweighed by the common good – for example, statutory powers to investigate the control of companies, etc.

A balance needs to be found in distributing scarce resources as between public and private, as between longer life expectancies and what the economy can bear, but the past week was a depressing reminder of just how far has to be travelled before an informed conversation begins.

Irish Independent

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