Business Irish

Tuesday 25 June 2019

Your binman's pension: better than yours

Gold-plated public sector pensions weigh down the State and stop us moving towards growth, writes Louise McBride

Pensions apartheid is alive and well in Ireland. The gap between public and private sector pensions has become so wide here that a binman can get twice the pension of the average private sector worker. That's if the private sector worker gets any pension at all.

While most public servants have a pension, as much as three-quarters of those working in the private sector don't, according to Jerry Moriarty, director of policy with the Irish Association of Pension Funds (IAPF).

"The chances of getting the same pension in the private sector as you will in the public sector are slim to none," says Moriarty. "In fact, only between a quarter and a third of private sector workers have any sort of a pension for their retirement."

Those private sector workers who do have pensions can expect to retire on an average pension of €6,000 a year, according to Standard Life. At €30,000 a year, the average garda gets about five times that pension after full service, according to research by the Sunday Independent.

Judges and hospital consultants have some of the beefiest public sector pensions going. The average pension for a hospital consultant is up to €101,524 a year -- 17 times what Standard Life says is the average private pension.

A judge in the Supreme Court can shuffle off and sit on a park bench with an annual pension of €128,936 after 15 years' sitting on that august and learned legal bench.

The cost of buying public sector pensions on the open market is phenomenal. A teacher can expect a pension of up to €33,333 after 40 years' service, according to the Department of Education.

Using an industry pension tool, the Sunday Independent found that it would cost about €1.3m to buy that pension on the open market. It could cost about €3.9m to buy a hospital consultant's pension.

The public service pension bill came to a staggering €2.23bn last year. When you add in the cost of providing those pensions, the total bill could be almost €8bn a year.

In 2009, the public service pension bill came to €2.3bn but the "real cost" of providing those pensions was about €7.7bn a year, according to the report published by Colm McCarthy's An Bord Snip Nua about two years ago.

The report expressed "concern" about the cost implications of public sector pensions. It urged the Government to take measures to reduce the public sector pensions pay bill -- including raising the minimum public service pension age and increasing pension contributions from staff.

A public sector pensions bill of €8bn a year is utterly unfathomable, given the massive debt this country is grappling with.

Government debt came to a staggering €148bn last year and is expected to increase to €173bn by the end of this year. This country has several tough Budgets ahead of it. Finance Minister Michael Noonan has already indicated that we could be facing €4bn of cuts in this December's Budget.

Irish taxpayers have already been hit with a raft of hefty tax hikes over the last few years. More are on the cards. Stealth taxes are also being dished out. Within a few months, Irish households will be hit with the forerunner to the dreaded property tax. Water charges will follow in a few years.

Yet if the Government were to cut a billion or two off its annual €8bn public sector pensions bill, it would be half way to the €4bn savings target for this year's Budget.

Like private sector workers with a pension, most public sector workers pay some of their salary towards their pension. However, the big difference between public and private sector pensions is security.

"Public servants enjoy significantly better pension terms than most of their counterparts in the private sector -- both in terms of the benefits of their pension schemes and greater security," said the Department of Finance in its analysis of State pay and pensions in June 2010.

One of the reasons public servants have more secure pensions is because most of their pensions are in defined benefit schemes, which guarantee to pay a certain amount of their salary on retirement -- and which are not hampered by funding problems.

"Most public sector workers get defined benefit pension schemes, which means they will retire on half of their salary after full service -- as well as getting a pension lump sum equivalent to one-and-a-half times their salary," says Moriarty.

"Half of the workers in the private sector who have pensions, however, have defined contribution pensions, so they don't have the same level of certainty."

With defined contribution, the pension you get at retirement depends on how much you (and your employers if they choose to do so) have paid into the pension scheme -- and how well that money has been invested.

Many private sector workers are therefore at the mercy of the stock markets -- hardly a safe place to be these days.

Even those private sector workers with defined benefit schemes might not get any pension at all -- because many of these private schemes are running out of money.

"Nine out of 10 of defined benefit schemes in the private sector are under water," says Ian Mitchell, a pensions consultant for Deloitte.

'People in the private sector are getting paltry pensions because private sector industries have mishandled their money. . .'

Defined benefit pension schemes in the public sector don't have the same funding problems as those in the private sector. "Public sector pensions operate on a pay-as-you-go basis and get money out of general government expenditure," says Moriarty.

Public sector unions argue that its workers have swallowed significant cuts to their pensions on the back of the 7 per cent pensions levy -- and recent public sector wage cuts of about 14 per pent.

"Public sector workers have earned their pensions," says Fergus Whelan, pensions spokesman with Ictu.

"People in the private sector are getting paltry pensions because private sector industries have mishandled their money -- but that's not an argument for taking pensions off public sector workers."

Sheila Nunan, general secretary of Into, agrees. "Every cent paid in actually gets paid out in pension payments. The system uses the existing payroll infrastructure and thus is virtually free of administration costs."

This is not simply an argument about private versus public sector. Despite the recent pensions levy, the State is still drowning in a public sector pensions bill that could be as high as €8bn a year.

This bankrupt country simply cannot afford that bill -- particularly if it comes at the expense of hard-pressed taxpayers who are already sick to the teeth of cutbacks.

A bill like that will make it harder for us to shift the mountain of debt that will hold back economic growth for years. And it can't be justified when three-quarters of the workforce are left high and dry with their pensions.

Sunday Indo Business

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