Public Service Costs - The Elephant in the Room


#2004

There’s a stronger chance than “may” that the PRD will be reduced/removed. They’ve already moved the entry point to the PRD substantially over the last couple years. Clearly it is the mechanism of choice for pay “restoration”. Of course when we have another financial crisis the PRD will come back so perhaps it’s safer to pretend it’ll be around for 40 years.

Since there is tax relief for public pension deductions a comparison to tax approved revenue schemes would be more appropriate i.e one where you buy an annuity at retirement, that turns the 250k into an annual payment of around 10-12k - less depending on whether it continues to your spouse or if it’s index linked.

A 371k fund is useful but modest and would get you a 121k lump sum + 10 k annuity + whatever the PRSI pension would be. A fund to finance 120k plus 40k p.a plus index + plus spouse would be closer to 1m.

Ignoring wage inflation and pension fund growth is fine, but ignoring contrib pension “inflation” isn’t something private sector workers can do. Since it’s far more likely it will in real terms deflate or become partly means tested.

I assume the contrib pension will be 0 or negligible for my pension planning purposes. They’ve already made it zero for when I will be 65-68 - pretty hefty deflation already.

As some have pointed the introduction of career average pensions affecting private sector workers moving into the public sector will decrease the cost of pensions - but you’re looking at 2050+ before you’ll have most retirees on those pensions (you need to consider even in 30 to 40 years most of the then current retirees will still be on the final salary pension). I think it’s safe to predict we’ll have problems before 2050.


#2005

The PRD was a paycut, they chose this avenue because to introduce a pay cut across the board on gross pay would have affected the DB pensions of those nearing retirement because the DB is based on final earnings, if those earnings were lower, then the pensions would have been lower.

The introduction of the PRD did not enhance pensions and the reduction of this won’t make any difference to the pension either.

It is not a direct personal pension contribution.


#2006

My apologies, I was replying to the jackal’s post before yours, where in the calculation PRD is being used as a notional contribution to a notional fund. And also yes the PRD was a paycut and yes reducing it is a pay rise.

However are you saying for Jackal’s calculation that only 6.5% should be used?


#2007

When we talk of “personal” pensions then we have to use actual defined personal pension contributions and they are the 5% and the PRSI.

The 1.5% is for a spousal or child pension if he dies (presuming he is a he and hoping he lives a long and happy retirement).

Edit to add.

When I see comparisons to PS pensions it is normally based on the 50% so in this case it’s 40k and the comparison is a 40k private pension based on contributions to buy that actual pension.

In reality though, he is actually paying towards and receiving 28k and his PRSI is looking after the 12k, which every PRSI worker is entitled to for the same PRSI contributions.


#2008

The gap between the mandatory 65 year old retirement age and the payment of the contributory pension.

First time I’ve noticed this. It is quite significant. I presumed it was all rolled into your one fortnightly payment and paid from retirement date.

Also, most people end up at a final salary after years of promotion, etc. They don’t start out there. So a school principal retiring on 90k might have spent decades on the 25 pt teacher salary scale maxing around 60k. The payment contributions are not linear.

So somebody who gets say a 15k bump through promotion in the last 5 years of their career will enjoy an extra 7.5k in pension.

Anybody know anything about this buying back years concept? Is it madness?


#2009

So you’re saying that instead of a notional fund of 371k The Jackal should be using a notional fund of 161k? i.e based on 5% rather than 11.5%.


#2010

But it wouldn’t be either of those amounts because the pension contribution is based on the salary and he would not have started on 80k.

You would have to go through the salary scale of a teacher up to AP for x amount of years on x amount of salary.


#2011

You haven’t noticed the gap because it’s only starting to take affect to those who joined post 1995 and are retiring because they are 65 or if they have been IHR’ed. Because it is only 22 years since 1995, it has another 8 years to run for those who can retire with 30 years (prison officers for example) and 18 years for those retiring after 40 years service.

Everything was fine until they upped the State Pension age. That is when the gap emerged. Many thought that it would be rolled into the fortnightly payment, it won’t be.


#2012

That’s pretty much it.

Total contribution is not 40 years of payments associated with the top of the final scale.


#2013

But 12k of it will be based on PRSI contributions over the 40 years, which is the same for a private sector worker. Also, the average wage of a retiring PS worker is not 80k or anything close to it, it’s more like 50k and in that case then the actual “Public sector pension” is 13k and not 25k.

Plus of course the lump sum.


#2014

For sure.

It is not the outrageous deal it is made out to be at the lower salary levels.


#2015

irishtimes.com/news/most-pub … 0-1.889488

kildarestreet.com/wrans/?id=2015-04-21a.392

We have to assume that most of these are pre 1995. Post 1995 with a full 30 or 40 years service won’t start retiring (if they haven’t reached compulsory retirement age or ill health retired) until 2025 and 2035.


#2016

Fascinating stuff.

Many thanks.

I think that info ties in with other tables which pop up here from time to time about the percentage of tax units in each 10k segment.

There are less high earners than you would imagine, based on public discourse.


#2017

Indeed, however there is the possibility that The Jackal was making a justifiable simplification in order to give a rough figure that would be indicative.

Without the ability to see into the future it’s difficult to accurately include salaries, promotions and deductions for the next few decades, so ball park estimates are all you get with pensions. However an estimate is better than nothing.


#2018

@sorehead, I was reading back through the thread and came across this:

This is precisely what is happening now except there’s nothing in the post office for them because they are not 66, they are 65.

I posted a link where it was brought up in the Dail in 2015.


#2019

Surely this is cropping up a bit already for post 95 staff.

I’d imagine very few are aware of it.


#2020

It’s only cropping up periodically because any post 1995’s have either taken ill health retirement (and could be in receipt of an invalidity pension) or those who joined later in life and have to retire at 65.

The person in the link I posted was advised to “sign on the dole” and then apply for a supplementary pension - the Minister of the day appeared to think that they were refused the State element of the pension because of their PRSI contributions, not their complulsory retirement age.

Edit to add:

This is what he said:

But how can they receive it when it’s not payable for another year?


#2021

But post-2004 entrants don’t have compulsory retirement at 65, right?


#2022

There are 4 strands of pension:

Strand 1 - Pre 1995. Modified stamp no personal SW entitlement. Minimum Retirement Age (MRA) of 60. Compulsory retirement age 65.
Strand 2 - Post 1995 pre 2004. Full Class A Stamp. Full SW entitlement. Integrated Pension. MRA 60. Compulsory retirement age 65.
Strand 3 - Post 2004 pre 2013. Full Class A Stamp. Full SW entitlement. Integrated pension. MRA 65. No Compulsory retirement age.
Strand 4 - Post 2013. Full Class A Stamp. Full SW entitlement. Integrated pension. MRA linked to State Contributory Pension age. Compulsory retirement age 70.

Post 2004 saw their minimum retirement age increased from 60 to 65 (with the usual exceptions) with the compulsory retirement age of 65 lifted (for the most part, Prison Officers for example, must still retire at 60).

Edit to amend info as corrected by AWAAF


#2023

Strand 4 have the career averageing basis applied.