Not really property related and potentially has been discussed already (although couldn’t find it)?
The consortium of banks (mostly Irish led by AIB + BOI) have told the Independent News & Media to raise +40m in new equity to get a decent write down, OR don’t raise new equity and the banks will take c. 70% of the equity (roughly).
In both cases however, a condition of the two offers is that the IN&M pension fund deficit is largely wiped (as it exceeds the market capitalisation of the company). If this is not done, the banks reserve all right to foreclose.
Great pals in the boom - Irish Banks and the cheerleading Media (esp. print media) - pals no more it seems
They are going to implement a Section 50 order which I think the Trustees confirmed in Sept 2013.
It will take +110m out of it which I think should bring the deficit to c. 70m (net of the rebound in markets).
Problem with Section 50 is that it is permanent.
I would have thought that the members would get a bigger chunk of IN&M in exchange during the re-structuring.
I think they are getting less than 5% (a part of which goes to past senior execs).
I believe the banks are taking another 10-11% of the equity as part of the re-structure.
Even more ironic - they are probably having a pint somewhere with Eugene Sheedy, Patrick Neary and John Hurley
Although given that the above three all retired on full pension + benefits, I would suspect that they are buying
Jaysis. My relation who paid into the fund for decades was definitely not management level so he will screwed. He took early retirement (via redundancy when his department effectively closed) so is still a year or two off receiving payments.
I think there was an offer in the summer to accept a big (c.50%) cut. Or else…
Fairly sure most of those who got the letter grudgingly accepted. Newspaper articles saying they’d get 15% if the fund was wound up played a part.
There was a question about whether a plan to move the payment date back another year (to 67?) would apply to those who are are, say, 64 and out on early retirement. There may even have been some kind of offer to start payments at 66 at a certain level or wait until 67 but get a higher monthly payment. My feeling would be to take as much as you can get as early as you can get it.
It shows how valuable the public service pensions are.
The Government now require them to make a contribution to the ongoing cost (finally).
However, there will be no Section 50 orders on Bertie’s pension (or any other pubilc servant for that matter).
The IN&M pensioners will get 50% (or worse now) of expected (as will all other DB or DC equivalents in Ireland).
Their public service colleagues will get 100% of what they expected (with inflationary increases + other increments later).
I can’t see the ESB taking any of the crap that IN&M (or even the BOI / AIB staff took).
When you strip it all back, it shows how valuable a public service income stream is vs. other private sector equivalents.
Having your long-term compensation hardwired to that of the Cabinet (earnings + pension) is proving to be a smart choice.
I worked out that based on a typical 40 year career earnings profile (9% per year nominal gains), nominal pension fund growth of 8%, and annuity rate of 5%, you’d need to contribute 30% of gross salary per year to a DC scheme to end up with a retirement income of 50% final salary.
I would put that at the minumum rate.
Say a PS earns 60k per annum and gets 1/60th per annum for service on salary at retirement (ignore lump sum issues)
Discount rate that should be applied to this slice of annual pension build up is almost cancelled out by future salary earnings
60k x 1/60 is 1k in todays money of pension at retirement but based on final salary at retirement
final salary will have increased vs. current at retirement by inflation and historically significantly more (increments etc.)
therefore, it is not unreasonable to assume that the discount rate of this 1/60 is offset by the salary inflation rate
a 5% discount rate would be offset by 2-3% in inflation and another 1-2% in increments / promotions / other bonuses etc.
this 1/60 will earn a pension which is index-linked, also linked to non-retired salary (the norm), and has spouses pension
the capital value of this pension is c. 25-35x the pension paid (depending) - you can check on Irish Life’s website
(note this is well above the multiple that is allowed in the private sector under new revenue rules)
part 1 + part 2
therefore each 1/60 slice holds its value in nominal terms and is worth 25-35x at retirement
therefore each year a public servant works, they earn c 40-60% of their gross earnings in pension benefits
I have run this calculation by friends of mine in th epublic service and they never believe me at first
Remember that Bertie fixed it that pensioners got increases in line with salary inflation of the live members (much higher than inflation and further boosted by Benchmarking). I know retired Gards and Teachers etc. who despite getting say 30/60th of their final salary in pension 10 years ago, they are now getting in excess of their final salary (despite deflation in the system). That is why in the long term, the above calculations will err to the +60% of gross earnings.
Most Public Service schemes I have seen get 1/80th per year of service, with the Lump sum in addition. So you get 50% pension if you retire with 40 years’ service.
Typical private sector schemes you get 1/60th per year of service. So if you retire with 40 years’ service you get 2/3rd. However, most people then opt to commute for the maximum tax free lump sum, which gives them a tax free lump sum of 1.5 x final salary and a pension of 50% of final salary.
Well, “typical” private sector DB schemes are never going to pay out the defined benefit to younger members, so their relevance to public sector DB schemes is somewhat questionable.
Of course it could be (and is) argued that the public sector shouldn’t be punished for the private sector’s mismanagement of their own schemes, but large skills-adjusted remuneration differences between private and public sector do not make for a long term success (hence the justification for benchmarking, which I agree with if it’s applied in both directions).
Also people seem to be missing the fact that many of these funds are based on ‘final salary’ (or average of the last 3 years) rather than CARE (care average related earnings) which is only being introduced when a S50 application is required. Lucky those who got out with final salary during the bubble era. There needs to be a special tax/levy on such legacy pensions. That’s where the funds should come from not from a DC levy.
This old indo article will also help re just how valuable public service pensions are (40%-60% of salary per annum)
Remember this was written in 2009 when rates were higher so things have gotten more expensive
i.e. the above version is the 1/80+lump sum (vs. the equivalent 1/60 no lump sum). the pension would need about 650,000 to buy in todays market plus the lump sum brings to over 700k. so the above servant would have earned c. 1,300,000 in salary over his lifetime (average for 40 years), which means their benefits equate to 55% of career earnings (some bonus!)
i.e. the above pension would cost about 3.7m today plus lump sum brings to over 4m. if their salary rose in a straight line, they would have earned over 5m in gross salary during their career. Obviously someone who rises to the top would have a steeper rise in salary at the end and thus they probably earned about 4m in total salary during their career … which is equal to the value of their pension (a bonus equal to 100% of gross salary per annum)
In an era of ultra low rates and very low inflation, the public service pensions are extraordinarily generous. private DB pensions which are funded have in a way ‘naturally’ taken the hit by finding their schemes are insolvent (because of low rates) and thus private sector benefits are being reduced by 50% (and much more) to bring the annual cost closer to c 20% of salary. As unfunded plans, the public sector pensions are not reduced and therefore carry on un-adjusted.