Pension Squeeze

Farmer Pudsey

According to the pension Board 38,000 fewer people are member of pension funds at the start of this year compared to 2010. 100K people who have pensions are no longer making contributions to them and another 100K people have reduced their contribution. As most of these pensioners are private sector pensioners is there a pension deficit issue begining in the private sector.

If longterm the government start to cut real value of the OAP by not indexing it to inflation are we looking at a longterm poverty trap for older private sector workers. It can be seen from this that workers are puting off starting a pension and the longer they leave this the greater the shortfall in pension will be.

Has the pension Industry a crucial role in this as there failure to reduce costs and there failure over the longer term to even retain the capital value in pension funds of the money put in by workers has discouraged workers from investing in pensions.

Has the government by it failure to regulate pension funds and it failure to allow people who invest in pension access to part of the money in time's of economic hardship/finiancal hardship been a huge contributator. Also is there insistance on only allowing people to invest in approved pension funds ( workers can not set up there own ) where the costs are excessive contributing to the problem.

Finally will this issue also cause a longterm problem with public service pensions as government may well have to look as the growing cost of public service pensions and the non avaibility of private sector pensions

Gumbo

Everybody gets the state pension, private and public, we know that. But imo the Government should have some sort of opt in fund to increase your state pension.

Godge

kceire wrote: »

Everybody gets the state pension, private and public, we know that. But imo the Government should have some sort of opt in fund to increase your state pension.

Not everybody gets the state pension, there are many public sector workers who are not eligible and never will be eiligible for the state pension.

Gumbo

Godge wrote: »

Not everybody gets the state pension, there are many public sector workers who are not eligible and never will be eiligible for the state pension.

But arent their PS pension adjusted to take account of that?

Godge

kceire wrote: »

But arent their PS pension adjusted to take account of that?

Only for those recruited after 1995.

Nody

kceire wrote: »

Everybody gets the state pension, private and public, we know that. But imo the Government should have some sort of opt in fund to increase your state pension.

Why? Seriously, why? If you want a higher pension you can save for it privately. By putting it under the government you're only trying to move the responsibility around to an organization which has a very bad track record of not only generating profit, planning ahead but also make it available to be raided by various governments through out the time.

The simple fact is people will need to work longer for less pension; welcome to the new reality basically; you'll have to work more years then your parents and get less money and security for it because the older generations where not properly accounted for. The pensions have been, and are, not sustainable at current levels at current ages. The biggest mistake done was to make them unlimited (i.e. if you live 5 or 40 years after retirement don't make a difference) rather then limited (you get 20 years and after that your on your own) to ensure that an increasing of average years lived after retirement don't fall on the government to fund it...

Gumbo

Godge wrote: »

Only for those recruited after 1995.

I was recruited in 2009 and the COAP is incorporated into my PS pension, i get what your saying that we technically dont get a COAP, but in reality its already inthere in our PS pension.

Manach

Given the Government tax levy imposed on private pension savings, why give the State even more of ones money.

spank_inferno

What if....

We remove all tax relief on private pension contributions.
->
Then use that money to increase the state pension for all.

- No more rich people getting 40% tax relief vs poorer peoples 20% vs those who cannot afford a pension contribution of any kind.

- A higher public pension for all.

- Those that wish to save for their retirement in a private fund are still free to do so.

Geuze

I agree with your proposal.

Though I would pay a lot more tax.

murphaph

In Germany your state pension is linked to your pension contributions over your entire working life (not potentially just 10 years of it like in Ireland).

Occasionally they send out a letter that says "if you keep contributing at the current rate (and allowing for inflation) you'll receive x Euro on retirement per month.

If you pay nothing in at all, you'd only be eligible for social money (370 per month, plus flat paid for (basic)) and nothing else and you'd be means tested for that.

In Ireland you can get 230 PER WEEK (996 a calendar month) just by working app. 10 years before you retire. To put this in context, my girlfriend received her advisory letter last week and if she keeps working until statutory retirement age without interruption (she's 28 now and has been working full time for 4 years) she'll be eligible for 964 pcm, so less than in Ireland and for many many many more years contributions (and the contributions are higher).

The current rate of state pension is wholly unsustainable. Both retirement age has to go up and a much stronger link has to be made to your contributions. The non-contributory pension is almost as much as the contributory FFS.

Geuze

murphaph wrote: »

In Ireland you can get 230 PER WEEK (996 a calendar month) just by working app. 10 years before you retire. To put this in context, my girlfriend received her advisory letter last week and if she keeps working until statutory retirement age without interruption (she's 28 now and has been working full time for 4 years) she'll be eligible for 964 pcm, so less than in Ireland and for many many many more years contributions (and the contributions are higher).

The current rate of state pension is wholly unsustainable. Both retirement age has to go up and a much stronger link has to be made to your contributions. The non-contributory pension is almost as much as the contributory FFS.

It's technically true that 10 years of conts can get you a full CSP in Irl.

But the average rule would catch a lot of people here.

Although it is possible to start work aged 55, work until 65, and get a full CSP, yes.

You'll be glad to hear that Irl pland to move to a Total Conts approach, not the current average method. So a better link between conts and benefits.

On the other hand, you won't be happy to hear that the IMF suggest cutting the CSP by 11 pw down to the 219 pw non-con SP.

spank_inferno

That German situation is pretty remarkable (and yet entirely sensible).

From other posters comparing our SW system to Germany's, our German friends must scratch their heads as to why they should be bailing out us!

Geuze

Germany has social insurance, where benefits are more closer tied to contributions.

murphaph

Geuze wrote: »

Germany has social insurance, where benefits are more closer tied to contributions.

Indeed. Ireland has social insurance in name only.

I can see each month on my payslip the following deductions:
-Income tax (fully progressive sliding scale, no tax bands, tax free allowance is 8k after that, tax is due)
-Unemployment Insurance (fixed percentage of gross pay)
-Health Insurance (15.9% of gross pay, employer pays little over half, I pay the rest)
-Pension Contribution (fixed percentage, can't remember what it is)

In Ireland PRSI is not really an insurance payment at all (it once was though!).

We should return PRSI to being a proper social insurance payment and benefits, including pension should be linked to it directly.

The basic problem in Ireland in the last 20 years is that the standard of living expectations have outstripped what is affordable. People need to understand that, but obviously don't want to hear it.

antoobrien

spank_inferno wrote: »

What if....

We remove all tax relief on private pension contributions.
->
Then use that money to increase the state pension for all.

- No more rich people getting 40% tax relief vs poorer peoples 20% vs those who cannot afford a pension contribution of any kind.

- A higher public pension for all.

- Those that wish to save for their retirement in a private fund are still free to do so.

No - the current system incentivizes those in the 30k-60k bracket to put money into pensions as it will reduce their PAYE bill (I should know I fall into this bracket).

When this is reduced to the standard rate (which is planned over the next few years) it means that a pension is being taxed twice, once when initially earned (some of which is at 41%) and a second time when it's released (in 30 odd years). That will make me seriously think about putting any money into a pension.

creedp

murphaph wrote: »

In Ireland you can get 230 PER WEEK (996 a calendar month) just by working app. 10 years before you retire. To put this in context, my girlfriend received her advisory letter last week and if she keeps working until statutory retirement age without interruption (she's 28 now and has been working full time for 4 years) she'll be eligible for 964 pcm, so less than in Ireland and for many many many more years contributions (and the contributions are higher).

You're comparing extreme example here though .. the reality is in Ireland if you work for 40 years and contribute the state pension scheme for the entire 40 years .. lo and behold you are entitled to €230 pw or €996 pcm whichever you prefer which is remarkably similar to the German scheme for the same, same, same no. of years. On the other side of the equation are the very wealth German pensioners who have taken a particular interest in buying up half the west coast of Ireland - I have regularly listened to locals complain that they can't buy houses along certain parts of the west coast as they are outpriced by German pensioners. Glad to hear not all German pensioners are on the breadline.

The non-contributory pension is another issue altogether and should be considered separately. Given the extreme reaction to any suggestion of reducing OAP benefits, I would consider it a brave person to stand up and implement a significant cut to this pension - easy enough to do on the keyboard though.

murphaph

creedp wrote: »

You're comparing extreme example here though .. the reality is in Ireland if you work for 40 years and contribute the state pension scheme for the entire 40 years .. lo and behold you are entitled to €230 pw or €996 pcm whichever you prefer which is remarkably similar to the German scheme for the same, same, same no. of years.

I used the extreme example for this very reason. An Irish worker working from 20 years of age gets the exact same pension as someone starting work at 56 odd and retiring at statutory retirement age. The amount paid in bears no resemblance to the pension paid out. They need to implement the German model asap. 230 a week could be considered realistic if someone has made "full on" contributions for 40 years+

Also please note that the German worker will contribute more towards their pension than the Irish one, even if both work for 40+ years.

creedp wrote: »

On the other side of the equation are the very wealth German pensioners who have taken a particular interest in buying up half the west coast of Ireland - I have regularly listened to locals complain that they can't buy houses along certain parts of the west coast as they are outpriced by German pensioners. Glad to hear not all German pensioners are on the breadline.

Germany is a country of 80 million people. There are bound to be a fair few wealthy older people in that cohort. The fact that Ireland is attractive to them (somethimes I wonder why but anyway) doesn't change any of the facts I've presented here. The Irish state pension system is broken and in need of some serious reform.

creedp wrote: »

The non-contributory pension is another issue altogether and should be considered separately. Given the extreme reaction to any suggestion of reducing OAP benefits, I would consider it a brave person to stand up and implement a significant cut to this pension - easy enough to do on the keyboard though.

It's not a separate issue really. If you don't contribute at all you should get no more than a subsistence payment unless you were disabled etc. Nobody can really claim that they couldn't contribute at all in 45 odd years! If you contribute only a little, you should get a little more than subsistence. If you contribute for all your working life, you should get a comfortable pension that you can survive "well" on.

mikemac1

Some public servants paid into their pension, got married and then were forced to resign

Ancient history at this stage but then again, maybe not.

The people who had to resign in the seventies won't be far off pension age soon enough

Just a matter of time before a court case for hundred of millions is launched

Probably for another thread

Sorry, bit offtopic

murphaph

mikemac1 wrote: »

Some public servants paid into their pension, got married and then were forced to resign

Ancient history at this stage but then again, maybe not.

The people who had to resign in the seventies won't be far off pension age soon enough

Just a matter of time before a court case for hundred of millions is launched

Probably for another thread

Sorry, bit offtopic

Anyone forced to resign because of discriminating law should receive the benefit of the doubt tbh. Anything else would be unfair on them. It wasn't just public servants, my mother was "encouraged" out of Semperit in the early 70's as well. It would have been the norm then, though no woman should suffer because of what was a grossly unfair policy even by the standards of the day.

Pension reform will take years, decades to deliver tangible results in the balance sheet. In the short term we simply have to reduce all pensions and work towards a fairer system over time.

amen

We remove all tax relief on private pension contributions.

even better lets remove all ps/cs/private pension differences and make everyone the same.

the reality is in Ireland if you work for 40 years

Not true. I'll have been working and paying tax for 50 years before I get a state pension. The first 4 I was a student and I paid Tax, the next 46 (hopefully) as a full time employee. Only 37 years to go....

Scortho

creedp wrote: »

On the other side of the equation are the very wealth German pensioners who have taken a particular interest in buying up half the west coast of Ireland - I have regularly listened to locals complain that they can't buy houses along certain parts of the west coast as they are outpriced by German pensioners. Glad to hear not all German pensioners are on the breadline.

Id be genuinely interested to know what part of the west coast has a booming property market!

Farmer Pudsey

Most of you are not dealing with my orginal post also most of you fail to understand the new OAP pension regulations or the old regulations.

Under the old regualtions you got a partial contributary OAP after 10 years contributations (500 stamps/credits) less than 50%, then there was a greater % after 15 years (750 stamps) you nearly got the full pension with 1000 stamps and after 1250 stamps you qualified for the last topup.

The new system is base on averages, depending on at what age you start work and at what age you finish they then average the number of stamps/credits to see what level of pension you qualify for. this will mean that workers who are self employed and not able to find work may be unable to put up credits and also people who leave the country for a period will have a greatly reduced pension.

Due to this private pensions will become important and from what we see at present people cannot afford to contribute into them. When you consider the difference that will develop between public service and private pensions what will happen. As there is no public service pension fund which will the government pioritise if pressure come on public finiances in twenty years time.

lmimmfn

people dont have money any longer for luxuries like pension contributions or private healthcare. Also as was said 0.6% of your private pension is being raped every year anyway so why bother( might not sound like much but compounded over 40 years, it will be quite significant. )

The whole thing is about to explode, young families opting out of health insurance because they cant afford it, but its an absolute requirement to balance the older generation using private healthcare, so the remaining younf families contributing get their costs increased further to more people leave.

The private pension system in ireland is in the exact same situation now, young people will opt out emptying the kitty for the older generation, leaving everyone to scramble for the state pension which will be vastly reduced( in terms of allowances and benefits ) compared to what it is currently.

Both medical insurance and pensions are a timebomb in this country now, but the government will kick the can down the road and hope for the best. Tbh its probably best that its going to fall apart in the next few years simply because younger generation are dealing with tax increases, fuel increases( car + heating ), electricity increases, interest rate increases on mortgages, public transport increases, medical expenses/pharmacy expenses, the list goes on and on and on, while pensioners( especially those with private + state pensions ) are largely unaffected, free travel, mortgage paid, fuel allowance( for heating, but little fuel used on transport as they dont have to get to/from work ), medical card, free phone rental, etc. etc.

We have a complete society imbalance at the moment, if you have a family you have to pay childcare costs + clothing etc, coupled with large fuel bills to get to/from work( for myself if i was using 5 day childcare it would be 800euro per month childcare + 300euro per month petrol + 280euro for the mrs public travel expenses, thats 1380euro excluding mortgage costs excluding mortgage that pensioners wouldnt have to pay ).

Problem is workers wont protest because we're too busy working to keep our jobs.

Sleepy

David McWilliams made an interesting point on this in "The Generation Game" prior to the collapse: For many of us under the age of 40, the closest thing we have to a pension will be any inheritance that's left to us.

Whilst once upon a time most Irish parents would have been leaving their children the family home at the least, with the more youthful outlook of that generation in general (demonstrated perfectly by the rise of SKI holidays, cosmetic surgery/procedures etc.) I think anyone who'd been counting on such an inheritance to help them out in their retirement might be in for an unpleasant surprise when the will is being read out...

creedp

Sleepy wrote: »

Whilst once upon a time most Irish parents would have been leaving their children the family home at the least, with the more youthful outlook of that generation in general (demonstrated perfectly by the rise of SKI holidays, cosmetic surgery/procedures etc.) I think anyone who'd been counting on such an inheritance to help them out in their retirement might be in for an unpleasant surprise when the will is being read out...

This is one of the reasons why many young people protest against cuts for pensioners .. they are looking fwd to the windfall. Of course if we become Europeans clones and rent instead of buy then our future offspring won't have that incentive and will cut parents loose a lot earlier!! Although many young people on this site and others are hugely critical of the current generation who buy houses and have to pay inflated mortgages payments back over 20-30 years, I'm sure they won't say no when the family home becomes available as a result of the efforts of the last generation. Let's start the campaign to exempt pensioners from the property tax!!

creedp

lmimmfn wrote: »

people dont have money any longer for luxuries like pension contributions or private healthcare. Also as was said 0.6% of your private pension is being raped every year anyway so why bother( might not sound like much but compounded over 40 years, it will be quite significant. )

The whole thing is about to explode, young families opting out of health insurance because they cant afford it, but its an absolute requirement to balance the older generation using private healthcare, so the remaining younf families contributing get their costs increased further to more people leave.

The private pension system in ireland is in the exact same situation now, young people will opt out emptying the kitty for the older generation, leaving everyone to scramble for the state pension which will be vastly reduced( in terms of allowances and benefits ) compared to what it is currently.

Both medical insurance and pensions are a timebomb in this country now, but the government will kick the can down the road and hope for the best. Tbh its probably best that its going to fall apart in the next few years simply because younger generation are dealing with tax increases, fuel increases( car + heating ), electricity increases, interest rate increases on mortgages, public transport increases, medical expenses/pharmacy expenses, the list goes on and on and on, while pensioners( especially those with private + state pensions ) are largely unaffected, free travel, mortgage paid, fuel allowance( for heating, but little fuel used on transport as they dont have to get to/from work ), medical card, free phone rental, etc. etc.

We have a complete society imbalance at the moment, if you have a family you have to pay childcare costs + clothing etc, coupled with large fuel bills to get to/from work( for myself if i was using 5 day childcare it would be 800euro per month childcare + 300euro per month petrol + 280euro for the mrs public travel expenses, thats 1380euro excluding mortgage costs excluding mortgage that pensioners wouldnt have to pay ).

Problem is workers wont protest because we're too busy working to keep our jobs.

In relation to private healthcare the real timebomb is the fact that people feel they need to have private health insurance to access publicv healthcare .. only in Ireland could such a fcuked up situation arise. As to the value of compounding 0.6% over 40 years - what is the compounded value of tax relief over 40 years? Instead of paying into a pension you could put money in a bank and maybe earn a couple of miserable % post DIRT per year or what about investing in property and getting screwed with property taxes, upkeep and repair costs, having to deal with being labelled some kind if societal pariah, etc, etc, or maybe investing in the stock market and losing your shirt! In many ways investing in a pension is a relatively attractive option.

I do absolutely agree with the generation divide point being made and you make it well. Today's generation are being screwed by the last generation and make no apologies for it as they justify it because they paid high income tax and interest rates in the 80's. So there you are what comes around goes around .. this generation should just build up [intergenerational] debts which they can offload on their children, just like the last generation has done to its children. Oh I forgot we have already or the Govt has done it on our behalf by lumbering us with debt that will take generations to repay.

srsly78

Farmer Pudsey wrote: »

The new system is base on averages, depending on at what age you start work and at what age you finish they then average the number of stamps/credits to see what level of pension you qualify for. this will mean that workers who are self employed and not able to find work may be unable to put up credits and also people who leave the country for a period will have a greatly reduced pension.

Not necessarily true. Many countries have bilateral arrangements concerning the transfer of pensions.

_Kaiser_

So, someone break this down for me then...

I'm in my late 30's and have a pension from my first "real" job in the private sector worth (I think) about 20k when I left. I then did 4.5 years in the public sector and paid into that every month too.

Now I'm with another private company and will soon be eligible again to join the pension scheme.. but reading some of the stuff above it may not be worth my while bothering?

Like lmimmfn said in a very good post above, I fall into the 30-60k pay bracket, but have enough to pay in rent, bills, debts I had from the "good times" (no mortgage thankfully but still stuff that needs to be paid back anyway) and of course food as well as the occasional "luxury"/discretionary buy that Private Health cover (which I've never had/needed) and Pension contributions are something I'd have to think about these days especially with rising fuel costs, and more levys/taxes and charges every month it seems - there won't be any windfall or houses for me to inherit either.

So what do I do? Start putting cash under the bed or is it worth joining a scheme that it looks like will have the goalposts changed soon enough anyway?

srsly78

You should definitely pay some into a private pension fund if you pay higher rate tax. Simple example: say you pay 5000 into pension, you might then get a 2k+ back from the taxman.

The only question is how much to put in, gotta do maths to figure this out. Once you use up any tax relief available it suddenly doesn't look so attractive.

OMD

srsly78 wrote: »

You should definitely pay some into a private pension fund if you pay higher rate tax. Simple example: say you pay 5000 into pension, you might then get a 2k+ back from the taxman.

The only question is how much to put in, gotta do maths to figure this out. Once you use up any tax relief available it suddenly doesn't look so attractive.

Not quite as simple as you make out. Yes you get tax relief on the money you put in but you may have to pay income tax on the money you take out. At present if you are a top rate tax payer it should work out. Get tax relief on money you put in a top rate of tax, only pay basic rate on money at the far end and in addition you get a tax free allowance in some if this pension and a tax free lump sum. In 30 years time will there still be a tax free lump sum? Doubt it.

GCU Flexible Demeanour

http://www.independent.ie/national-news/dont-trust-workers-on-pensions-warns-expert-3243046.html

WORKERS are too ill-informed to take responsibility for their own pensions, a leading academic has claimed.

Professor Alan Barrett told a conference there was a need for the Government to be involved as the area was too complex for ordinary consumers.

Is there not a more fundamental issue here – which is that there is no level of collective saving that can secure a sufficient income to enable mass retirements at high standards of living. Every pension scheme is a Ponzi at some level; the only question is at what point in the future the chickens come home to roost.


Plus, as an aside, lots of money in pension funds means lots of demand for stable income-producing assets; thus almost guaranteeing that those assets will be overpriced and thus be unable to provide the desired income at reasonable cost.

The “experts” are letting us down. Following their advice on this will only lead us to throwing good money after bad, by being forced to contribute to some fund, all in search of this pension illusion.

I mean, the concept of defined contribution should be setting off alarm bells. “Give me all your money, but don’t expect me to tell you what pension you’ll end up with. Incidently, I’m an expert and you’re not competent to decide on these things.”

dvpower

spank_inferno wrote: »

What if....

We remove all tax relief on private pension contributions.
->
Then use that money to increase the state pension for all.

- No more rich people getting 40% tax relief vs poorer peoples 20% vs those who cannot afford a pension contribution of any kind.

- A higher public pension for all.

- Those that wish to save for their retirement in a private fund are still free to do so.

Good idea - If they stopped taxing annuity income the same way as earned income.