It is time for private sector to take 5% pay cut

Count Dooku

http://www.independent.ie/business/personal-finance/everyone-will-have-to-pay-for-their-pensions-2085378.html

ONE million workers who have not made any provision for their retirement incomes will be forced to pay into a pension scheme, the Irish Independent has learned.

The new system, which will be announced tomorrow by the Government, will mean all those who are in a job but not in a pension will have to join one.

In practical terms, such a move could mean workers effectively taking a pay cut of 5pc, as this is the likely contribution that would have to be made to a mandatory pension.

Because public sector is already paying pension levy, it means that only private sector will be hit
Pension levy is not an argument for PS workers anymore

Jip

It's not a pay cut, it's a contribution to ones future income.

Count Dooku

Jip wrote: »

It's not a pay cut, it's a contribution to ones future income.

In this case pension levy is not a pay cut as well
This is my point

Ayankabroad

Major difference being that with this 5% levy private sector workers still have no guarenteed pension amount at retirement age.

Fat_Fingers

This is going to be interesting. I spoke to few friends and they said sure no problem but to balance first thing they are going to do is cancel heath insurance.

Riskymove

Count Dooku wrote: »

In this case pension levy is not a pay cut as well
This is my point

many people, and the Indo as well in this case, describe the levy as "an effective pay cut of X%" and so on

we all know its not the same as a cut in gross pay, but it is an enforced reduction in your net pay.

With regard to the proposed plan, we need to know the full details of what these private sector workers will get for their 5% tbh in order to make a comparison between the the two schemes

PeakOutput

Fat_Fingers wrote: »

This is going to be interesting. I spoke to few friends and they said sure no problem but to balance first thing they are going to do is cancel heath insurance.

that really dosnt make any sense


its only people who are not part of a pension scheme and therefore in theory would be relying on the state to provide it for them when they retire, am i right?

if thats the case then i think its fair enough they have the choice to join one were they choose the conditions etc or they can join the goverment one sounds fair

Stark

Compulsory pension scheme. Is that not PRSI?

meditraitor

I would pay 5%, even 10% for PS pension.... what a givaway.

This is different though, its 5% towards a pension that will reduce the money required by the state pension(doesnt happen now, but will).

Jip

Riskymove wrote: »

With regard to the proposed plan, we need to know the full details of what these private sector workers will get for their 5% tbh in order to make a comparison between the the two schemes

Absolutely, if it was the equivalent to the current public sector one I think most people in the private sector would happily take one, including those already with a defined contribution one which is most likely worthless at the moment.

However that's not going to happen.

seamus

PeakOutput wrote: »

its only people who are not part of a pension scheme and therefore in theory would be relying on the state to provide it for them when they retire, am i right?

Not entirely. Everyone is entitled to the state pension when they retire. So private pension schemes take account of that fact. So if you're planning to have €500/week when you retire, the private pension scheme will structure your money in such a way that the private scheme will give you €270/week when you retire and the other €230 comes from the state.

So *everyone* who retires is relying on the state when they retire, and not just those who have no private pension.

However it's perfectly clear that those with private pensions have less reliance on their state pension than those who have the state pension and nothing else - as the latter group will make more claims for other social benefits. So it makes sense for the government to push people into having additional income support outside of the state pension when they retire

if thats the case then i think its fair enough they have the choice to join one were they choose the conditions etc or they can join the goverment one sounds fair

My primary concern is that this has to be a ringfenced scheme, separate from the PRSI fund, possibly operated by a private company. Otherwise you have some people paying 9% for a €230/week pension, whereas those with a private pension are only paying their 4% PRSI for their state pension.
Which would effectively make lower-paid people less well off both before and after retirement.

Stark

Jib wrote:

Absolutely, if it was the equivalent to the current public sector one I think most people in the private sector would happily take one, including those already with a defined contribution one which is most likely worthless at the moment.

However that's not going to happen.

It'll be defined contribution I reckon. Most defined contribution pension schemes have recovered a good bit these days, the situation is nowhere near as bad as it was last year. Of course, if you cashed in your pension last year or tried moving your non performing equitiies, then you were fecked. If you're close to retirement, you should be looking at moving pension funds into bonds and cash, which won't generate much return but have a low risk of losing value suddenly.

I wonder how they'll manage all this. Managing a defined contribution scheme is tricky business. I certainly wouldn't trust the Government or a single company selected by the Government to manage my pension.

Riskymove

seamus wrote: »

Everyone is entitled to the state pension when they retire.

no they are not

So private pension schemes take account of that fact. So if you're planning to have €500/week when you retire, the private pension scheme will structure your money in such a way that the private scheme will give you €270/week when you retire and the other €230 comes from the state.

Most private pensions schemes allow people to get their pension and the state pension, not have one offset aginst the other

only paying their 4% PRSI for their state pension.

PRSI rates differ, some pay up to 10 or 11 %

Count Dooku

Riskymove wrote: »

many people, and the Indo as well in this case, describe the levy as "an effective pay cut of X%" and so on

They were not first, who called pension levy pay cut. PS unions did it first year ago

BTW, public sector again in privileged position
Person in private sector on 20K will have to pay 5%, while somebody with exactly the same income in public sector is paying only 4%

msg11

I cannot find much information on this, and am totally confussed! I am a part time worker in the private sector on 20 hours a week.

Do I have to pay?

Whats the % ?

Whats going to happen when I want to move from company a to company b, do I lose all the pension?

I really don't need a pension right now, considering I am 20, can I opt out of this?

Thanks.

seamus

Riskymove wrote: »

no they are not

For all intents and purposes, they are. There are very few people who cannot claim a state pension, and no Irish resident of pensionable age is ever left without means to survive.

Most private pensions schemes allow people to get their pension and the state pension, not have one offset aginst the other

Exactly, that's what I'm saying.

PRSI rates differ, some pay up to 10 or 11 %

Yes they do, but that doesn't change my point.

Riskymove

Count Dooku wrote: »

They were not first, who called pension levy pay cut. PS unions did it first year ago

good for them, what do they win for being first?

does that mena Indo copies Union rethoric? could be a chnage in editorial policy?:rolleyes:

BTW, public sector again in privileged position
Person in private sector on 20K will have to pay 5%, while somebody with exactly the same income in public sector is paying only 4%

in the public sector the 4% (pension levy i assume) is on top of the other previously exisiting 6.5% so its over 10%

seamus

msg11 wrote: »

I cannot find much information on this, and am totally confussed! I am a part time worker in the private sector on 20 hours a week.

Do I have to pay?

Whats the % ?

Whats going to happen when I want to move from company a to company b, do I lose all the pension?

I really don't need a pension right now, considering I am 20, can I opt out of this?

Thanks.

Nothing has been announced as yet.

It would appear that yes, you will have to pay regardless of age, and it will be 5% of your gross salary (after levy, but before PAYE).

Moving company will not affect your pension.

bladespin

Not a pay cut from what I'd see a cut as, have a pension already (like a lot of people) so I have no problem with this, they'd want to get rid of PRSI though, can't see a reason to have it now, they've cut everything it entitled the payer to.

Stark

Apparently PRSI, income levies and health levies are being replaced by a "universal social contribution" next year. From what I can tell, for people who currently pay PRSI/levies, it will work out as a lower contribution, but it will be paid by more people.

changes

I was paying for my pension before the pension levy. Now i believe i am over paying.

My grade will finish on a pension of 18K, take the 11.5K (state pension everyone gets). So i am paying 6.5% over 40 yrs (before pension levy) for the other 6.5K.

What exactly am i paying another 4% pension levy for then??

I'm being ripped off, am i subsidising the higher paid PS/CS pensions???

Jip

Stark wrote: »

I wonder how they'll manage all this. Managing a defined contribution scheme is tricky business. I certainly wouldn't trust the Government or a single company selected by the Government to manage my pension.

I would imagine they may allow a person to select a pension product from all the current reputable providers, possibly tweaking it somehow with regards the various fees and charges now that it will be mandatory. They could create a new basic one such as they did when creating the various SSIA saving products ?

I also expect the state then to pretty much leave the tax relief on pension contributions as they are, or possibly even them out between the two different rates, rather than remove it altogether.

Riskymove

[

QUOTE=changes;64716873]

What exactly am i paying another 4% pension levy for then??

a lower pension than you would have got previously

I'm being ripped off, am i subsidising the higher paid PS/CS pensions???

basically yes

BrownianMotion

changes wrote: »

I'm was paying for my pension before the pension levy. Now i believe i am over paying.

My grade will finish on a pension of 18K, take the 11.5K (state pension everyone gets). So i am paying 6.5% over 40 yrs (before pension levy) for the other 6.5K.

What exactly am i paying another 4% pension levy for then??

I'm being ripped off, am i subsidising the higher paid PS/CS pensions???

Not quite as clear-cut as that. You probably weren't paying enough to subsidise the State pension in the first place.

This is the case for many people out there, public and private. They don't contribute enough to pay for the benefits they expect to receive. It is only the higher paid in the private sector who actually pay for their pension.

So no you aren't being ripped off.

ei.sdraob

the injustice of it all!

we should all (in the private sector) go on strike and hold the country ransom

oh wait

zootroid

I would be in favour of a superannuation fund, the system they have in Australia. Employers are required by law to make a contribution based on a percentage of your salary (9% I think), which you can contribute to if you want. The fund is managed by a third party. I would like to see this compulsory for all employees, whether public or private sector. If this were to happen, I would like to see the defined benefit scheme phased out for public sector employees.

Probably will never happen though.......

Riskymove

BrownianMotion wrote: »

Not quite as clear-cut as that. You probably weren't paying enough to subsidise the State pension in the first place.

Class A PRSI is 8.5-10.75%

I would think that such a level for 40 or more years would cover €11.5k a year

the_syco

Started to put 7.8% of my monthly pay cheque into a Personal Retirement Savings Account (PRSA) recently. I'm late 20's now, so hoping that this will go nicely into my retirement.

In saying that, unlike the PS, my job isn't guaranteed. I wonder how many people will be back to minimum wage level when the levy is brought in? Or should I say: I wonder how many people will the the dole as the better option?

Stark

Riskymove wrote: »

Class A PRSI is 8.5-10.75%

I would think that such a level for 40 or more years would cover €11.5k a year

Employee PRSI is 4%. The rest is health levy, which tends to get lumped under "PRSI" in a person's payslip. About half the workforce doesn't pay employee PRSI at all but will still get the contributory pension when they retire.

dvpower

msg11 wrote: »

I cannot find much information on this, and am totally confussed! I am a part time worker in the private sector on 20 hours a week.

Do I have to pay?

Yes. But I did hear some talk that it would be a 'soft mandatory'; you would be automatically enrolled, but you could then choose to opt out.

msg11 wrote: »

Whats the % ?

They seem to be suggesting 5% (the net cost may be less because of tax relief on contributions)

msg11 wrote: »

Whats going to happen when I want to move from company a to company b, do I lose all the pension?

No. It would most likely be invested with a private pension company. Your own company would have nothing to do with it, other than making the deductions. You would carry it with you.

msg11 wrote: »

I really don't need a pension right now, considering I am 20, can I opt out of this?

None of us need a pension right now. But every Euro invested at age 20 is worth a hell of a lot more than a Euro invested at age 40.
(see above re opting out)

BrownianMotion

Riskymove wrote: »

Class A PRSI is 8.5-10.75%

I would think that such a level for 40 or more years would cover €11.5k a year

Unfortunately for most people it does not even come close.

johnnyskeleton

Ayankabroad wrote: »

Major difference being that with this 5% levy private sector workers still have no guarenteed pension amount at retirement age.

The real major difference, in fairness to the public sector, is that this scheme only affects those who are not currently paying for a pension but leaves those who are untouched.

Many public sector workers were paying into pension schemes e.g. teachers, gardai etc, before the pension levy came in. Hence such uproar.

K-9

Stark wrote: »

Employee PRSI is 4%. The rest is health levy, which tends to get lumped under "PRSI" in a person's payslip. About half the workforce doesn't pay employee PRSI at all but will still get the contributory pension when they retire.

The limit I think is about €500 per week. Do 50% of the workforce earn less than that?

nesf

changes wrote: »

I was paying for my pension before the pension levy. Now i believe i am over paying.

My grade will finish on a pension of 18K, take the 11.5K (state pension everyone gets). So i am paying 6.5% over 40 yrs (before pension levy) for the other 6.5K.

What exactly am i paying another 4% pension levy for then??

I'm being ripped off, am i subsidising the higher paid PS/CS pensions???

No. You need to work it out from the final pay level not your current one. i.e. in 20 years time the contributions you made today are going to be worth feck all after inflation has worn away all their value. This is what separates defined benefit from defined contribution pensions and why the PS pension is still a good deal in its current form.

Stark

The worrying aspect of this is the following:

"The State contribution will equal 33% tax relief – the delivery mechanism for this to be decided;". This is taken from the press release at http://www.welfare.ie/EN/Press/PressReleases/2010/Pages/pr030310.aspx. There are longer documents at www.pensionsgreenpaper.ie but they say pretty much the same thing, that the 20% and 41% marginal reliefs are being dropped in favour of a 2% State contribution that works out to the equivalent of a 33% relief. Now the 33% thing is no surprise, but from the looks of it, those of us already paying into a pension scheme are going to see a significant net pay drop once this is introduced, in exchange for a larger pension fund when we retire...

Riskymove

Stark wrote: »

Now the 33% thing is no surprise, but from the looks of it, those of us already paying into a pension scheme are going to see a significant net pay drop once this is introduced, ...

including public servants!

Stark

From what I've read of the framework paper, public service pensions are a separate category to the auto-enrollment pensions and current occupational and voluntary pensions. Any changes there are to be announced at a future date pending negotiations with the unions. The 33%/State contribution thing is listed directly next to the private sector categories.

Riskymove

Stark wrote: »

From what I've read of the green paper, changes to pension arrangements for public servants have yet to be introduced, pending negotiations with unions.

that's true to a point .....but its unlikely that public servants on the higher tax rate will be allowed to continue to get relief on the levy at that rate if others are going to get 33%


with regard to mpensions arrangements..it seems clear enought that the 2 items mentioned so far (i.e. the break with pay awards and the intorduction of average wage for pension for new entrants) is pretty much in bar the shouting

PeakOutput

Stark wrote: »

"The State contribution will equal 33% tax relief

im not sure you ahve understood this right or maybe i am wrong bt

from my understanding at the moment you get tax relief on your contributions to a pension in line with the tax band you are in so if you are in the lower tax band thats the percentage relief you get and if you are in the higher tax band ie 41% or whatever thats the relief you get

they are changing this so that everyone gets 33% relief which will encourage the lower earners to contribute more and wont give as much back to people who can 'afford' it

if im wrong please correct me

Sand Wedge

If tax relief is taken away at marginal relief i.e. 41% and replaced with 33.3% relief, then public sector pension contributions would be hit with this also.

PeakOutput

also i think the amount that the goverment contribute ie the one euro they put in for every two you put in is seperate to that relief as well

Stark

Well what it appears to be is that instead of changing the tax system to shoehorn in this new 33% rate, they're instead giving you the equivalent value of a tax refund in the form of a pension contribution. So you put in €4, your employer puts in €2 and the State gives you 33% of the value of your contribution, ie: the €2 State contribution.

There's a lot of repetition in the document, but I think this paragraph says it clearest:

Tax relief for contributions to existing occupational and personal pension
arrangements currently based on a contributor‟s marginal rate of tax will be replaced
with a State contribution equal to 33 per cent tax relief.

Later in the document, slightly different wording but same idea:

The Renewed Programme for Government commits the Government to introducing
tax relief of 33 per cent on pension contributions to replace the current rates of 20 per
cent and 41 per cent. So that the auto-enrolment scheme is in line with that
commitment, the total contribution will be 8 per cent (within a band of earnings) with
4 per cent being paid by the employee; 2 per cent being paid by the State and 2 per
cent being paid by the employer 12. This State contribution equal to tax relief at 33 per
cent will replace the current system of marginal tax relief for pension contributions.

Nowhere in the document does it say you'll get the State contribution and tax relief.

Riskymove

Stark wrote: »

Nowhere in the document does it say you'll get the State contribution and tax relief.

ok, so this scheme is being devised in a way that the effective result is 33%...but

The Renewed Programme for Government commits the Government to introducing tax relief of 33 per cent on pension contributions to replace the current rates of 20 per cent and 41 per cent

I take this to mean they will change the relief generally for everyone else paying into a scheme (private sector) or paying the levy (public sector)

this will mean an increase in net pay for those on the 20% and a decrease for those on 41%??

Stark

Well the jist of it is that anyone currently paying 41% tax is going to be down money, anyone paying 20% or less is going to be up money. Though they won't see that money until they retire, they won't see it in their take home pay. With this standard relief business, we're getting into the territory of people below the tax threshold paying negative tax!

Riskymove

Stark wrote: »

Well the jist of it is that anyone currently paying 41% tax is going to be down money, anyone paying 20% or less is going to be up money. Though they won't see that money until they retire, they won't see it in their take home pay.

thats in relation to people in this new scheme right?

not those already with a pension plan

Stark

Applies to both people being enrolled into the new scheme and people with existing private sector pension schemes. No indication yet as to how they'll work the standardised reliefs for people with public sector pensions.

j1974

Jip wrote: »

It's not a pay cut, it's a contribution to ones future income.

Oh yah, well I'm sure "one" might consider the thousands who trusted the governments and accountants with their money only to retire with F*ck all in their pensions last year. Well if "one" feels stupidly confident in the govenment, then best of luck to "one"

Riskymove

Stark wrote: »

Applies to both people being enrolled into the new scheme and people with existing private sector pension schemes. No indication yet as to how they'll work the standardised reliefs for people with public sector pensions.

so, even for those with a pension plan, they will lose tax relief but gain a 2% government contribution...is that it?

Stark

Riskymove wrote: »

so, even for those with a pension plan, they will lose tax relief but gain a 2% government contribution...is that it?

Yup, that's it.

Riskymove

Stark wrote: »

Yup, that's it.

well if thats the case it could be bad news for public servants

they could have tax relief removed altogether on the levy...either that or have a 33% relief introduced for them only!!

of course they could go further and remove the levy and have it integrated into some wider new type of contribution

Jip

j1974 wrote: »

Oh yah, well I'm sure "one" might consider the thousands who trusted the governments and accountants with their money only to retire with F*ck all in their pensions last year. Well if "one" feels stupidly confident in the govenment, then best of luck to "one"

You need to brush up on your reading, the government didn't loose money from peoples private pensions, money was lost due to the stock market crash. And accountants don't invest your pension money, you have to look at fund managers for that.

Whereas if you are fortunate you have a public service pension, supplied by the government, you haven't lost anything. The money may not be there to pay for it but your pension hasn't been affected, contradicting who you actually have the problem with.