Monday 18 December 2017

Thomas Molloy: What Ogle doesn't mention is the €591m the ESB is going to pump into pensions

Thomas Molloy

Thomas Molloy

PENSIONS are notoriously difficult to understand -- and other people's pensions tend to be boring to boot.

But it is worth understanding the ESB pension row as the company's staff threaten to plunge us into darkness.

As usual, both sides are telling a version of the truth -- but both are gilding the lily.

Brendan Ogle, secretary of the ESB group of unions, is technically correct when he says that the ESB's pension would only pay out €13 a week if the pension scheme were wound up tomorrow.

That sounds awful, but the reality is that there is no question of the pension fund being wound up.

In fact, unlike almost every other pension fund, the law does not allow for a wind-up at present without a ministerial order. Mr Ogle is also correct when he says the pension scheme has a €1.6bn deficit when measured by the minimum funding standard.

But the ESB is also correct when it suggests that this measurement does not really make sense when applied to the ESB's pension. In fact, both the unions and the ESB would like this standard to be set aside, although their motives differ.

Crucially, Mr Ogle's argument fails completely to take account of the fact that the ESB has agreed to put €591m of the ESB's money into the pension fund over the next decade to beef it up. That's a lot of money that could otherwise have gone to the Exchequer to fund public services.

The real question is not what would happen in some hypothetical situation, but what is likely to happen over the next few decades as ESB workers retire.

The unsatisfactory answer is that this depends on a host of unknowns such as the performance of investments -- like the bonds which are the mainstay of many pension funds.

Like almost all other funds, the ESB has investments in bonds and other shares. Those investments have risen 18pc last year and roughly the same this year. It has been calculated that another few good years and the €591m from the ESB will be enough to wipe out the fund's deficit.

Still, as the advertisements for financial services like to say, past performance tells you nothing about future performance.

What we do know for sure is that an announcement from the Government last week means those who retire will get at least €12,000 a year from a defined benefit scheme whatever happens.

That's not a bad pension although it is hardly a princely sum either.

There is no doubt that ESB workers, like workers almost everywhere else outside the civil service, are suffering.

A 2010 deal between unions and management in the ESB saw employees taking some pain.

Benefits were frozen and staff agreed that future workers would get pensions based on their earnings over their careers rather than their end salary.

As most of us enjoy bigger salaries in old age, this meant that most workers agreed to a lower pension.

A curiosity about the ESB pension scheme (which was set up in the middle of World War II) is that it is a mixture between a defined benefit scheme and a defined contribution scheme.

The ESB and the staff together are liable for the payments to those who retire.

At present, workers pay in 8pc of salaries while the company pays 16pc.

The ESB's main argument against Mr Ogle is a strong one: that the pension scheme is working and in balance. The fund can meet all liabilities as they fall due.

This is by most measures a reasonable way of looking at things.

Most of us ask ourselves the same question every month. Can we balance our accounts? Can we meet any payments that we owe?

Very few of us ask ourselves what we would be worth if we were forced to sell everything.

Many of us would probably not like the answer, but then the question does not really make much sense.

Irish Independent

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