Permenant health insurance (PHI) is the correct term.
Permenant health insurance (PHI) is the correct term.
You state that I do not engage with the intricacies but you provide no supporting information or cite any references. I always provide supporting details and provide references to any information used.
The comment about PRSI is irrelevant. We all pay PRSI. As someone who is self-employed, I get to pay an additional 2% of PRSI and get nothing.
Take the pre-1995 civil servant as the example. This provides a view on the costs, benefits and structures of such a pension: cspensions.gov.ie/faq1.pdf.
This is an example of someone who is at the maximum of the Higher Executive Officer grade earning €57,000 and who has been at that maximum for the last 10 years and who is retiring after 40 years at aged 65. I assume they live to 80 - that is, receive a pension for 15 years and their spouse lives to 85 - that is, receives a half pension for an additional five years.
The estimated amount of €690,000 required to buy such a pension is inaccurate because:
• It does not take into account the fees (typically around 2%) that would apply when an annuity was being bought
• It does not take into account the increases in the post-retirement pension caused by it being linked to the current salary of the grade at which they retired
• It does not take into account any payments made to the spouse after the pensioner’s death
The details on increases from the document quoted above are:
However, let us assume that the €690,000 fund amount is correct. The average rate of contribution to accumulate this fund, assuming your growth rate of 2%, is around 35.5%.
The actual amount required to fund such a pension is probably over €800,000 and again assuming your growth rate of 2%, the required contribution rate would be around 34.5%.
Year Salary Contribution Fund 1 €5,000 €1,722.50 €1,738.38 2 €6,733 €2,319.63 €4,114.16 3 €8,467 €2,916.77 €7,140.10 4 €10,200 €3,513.90 €10,829.19 5 €11,933 €4,111.03 €15,194.70 6 €13,667 €4,708.17 €20,250.16 7 €15,400 €5,305.30 €26,009.37 8 €17,133 €5,902.43 €32,486.39 9 €18,867 €6,499.57 €39,695.60 10 €20,600 €7,096.70 €47,651.63 11 €22,333 €7,693.83 €56,369.41 12 €24,067 €8,290.97 €65,864.19 13 €25,800 €8,888.10 €76,151.51 14 €27,533 €9,485.23 €87,247.20 15 €29,267 €10,082.37 €99,167.45 16 €31,000 €10,679.50 €111,928.74 17 €32,733 €11,276.63 €125,547.89 18 €34,467 €11,873.77 €140,042.07 19 €36,200 €12,470.90 €155,428.76 20 €37,933 €13,068.03 €171,725.83 21 €39,667 €13,665.17 €188,951.48 22 €41,400 €14,262.30 €207,124.27 23 €43,133 €14,859.43 €226,263.16 24 €44,867 €15,456.57 €246,387.47 25 €46,600 €16,053.70 €267,516.90 26 €48,333 €16,650.83 €289,671.55 27 €50,067 €17,247.97 €312,871.94 28 €51,800 €17,845.10 €337,138.97 29 €53,533 €18,442.23 €362,493.98 30 €55,267 €19,039.37 €388,958.73 31 €57,000 €19,636.50 €416,555.40 32 €57,000 €19,636.50 €444,704.02 33 €57,000 €19,636.50 €473,415.60 34 €57,000 €19,636.50 €502,701.42 35 €57,000 €19,636.50 €532,572.95 36 €57,000 €19,636.50 €563,041.92 37 €57,000 €19,636.50 €594,120.26 38 €57,000 €19,636.50 €625,820.17 39 €57,000 €19,636.50 €658,154.08 40 €57,000 €19,636.50 €691,134.67 Retirement and Lump Sum of €85,500 41 €28,500 €605,634.67 42 €29,640 €576,419.52 43 €30,826 €546,035.77 44 €32,059 €514,436.66 45 €33,341 €481,573.60 46 €34,675 €447,396.01 47 €36,062 €411,851.31 48 €37,504 €374,884.83 49 €39,004 €336,439.69 50 €40,564 €296,456.75 51 €42,187 €254,874.48 52 €43,874 €211,628.93 53 €45,629 €166,653.55 54 €47,455 €119,879.16 55 €49,353 €71,233.79 Pensioner Dies and Spouse Receives Half Pension 56 €24,676 €20,642.61 57 €25,663 -€4,652.98 58 €26,690 -€30,960.39 59 €27,758 -€58,320.11 60 €28,868 -€86,774.21
This example is actually an underestimate because a male currently aged 65 will live to just over 83 and a female aged 65 will live to just under 86. So the projected pension peayments would be greater. See Irish Life Tables Number 16 cso.ie/en/releasesandpublica … 2010-2012/.
Public service pensions, excluding those of local authorities and the commercial semi-state cost around €3 billion a year.
Compare this with the entire annual pension payments for all pensions paid by the Department of Social Protection of just under €7 billion. This is paid to 576,682 recipients (welfare.ie/en/downloads/Stat … _V1.0.xlsx).
Almost all the public servants that will retire in the next 15 of more years will be in the pre-1995 category and so the unreformed public service pension bill will only continue to increase substantially.
@ CP - Why did you use the pre’95 category as an example when nobody has been allowed join this scheme in 22 years? Why not look at what’s been done to reduce the cost and look at a post 2013 joiner?
If you do use a pre’95 member, why not use rates of return that would have been earned on their investments over the past 20 or 30 years? (Skippy 3 mentions a real rate of return of 2% not a nominal rate of return of 2%). I see you also assume 4% increases on the pension in payment. Pension increases are at the discretion of the minister and the link to pay increases has been removed in recent years. It’s a big assumption to make that public sector pay is going to start going up at 4% p.a. and the link with pensions in payment will be restored.
Is what you meant to say here, that within next 15 years almost all the pre-1995 category members will have retired? As what’s written there as is, is completely untrue
Public Sector DB schemes are undervalued by public servants but the problem with your analysis is that it was so clearly shaped by your desire to prove this, it’s very easy to pick holes in it and remove any credibility it may have. It feeds the public sector belief that people are lying about the value of their remuneration (pay + bonus etc) to make scapegoats of them.
I’m a public servant and have two insights into current state of play for Pay and Pensions:
I was recently promoted from HEO to AP, with a 10K pay rise to 65K.
I only get 37% of that pay rise net in my hand: 41% IT, 10% USC/PRSI, 6.5% pension contribution, balance was pension levy.
I lost my flexi time privilege: Can no longer start 8 to 10am, leave anytime after 4pm so long as I’ve covered by 7.5 hours per day (excluding lunch). I still work over 7.5 hours per day, I now just forfeit it.
I lost my flexi leave privilege: Can no longer work up to 1.5 days overtime per month and get it back as time in lieu the following month. I still do overtime, I now just forfeit it.
I now manage a lot of staff. Job is more stressful. More high level meetings.
Not sure it’s worth it pay wise at the bottom of the scale but when I do get to the NMAX of 72K in 5 years, it gets better.
I always paid 6.5% of my gross salary for the pension. They then brought in the pension levy on top of that 7 years or so ago. I currently pay about 6K per year between the two.
I’ve worked out that if I retire at 65 with full 40 years service I’ll need to live beyond 73 to be in ‘profit’ on what I get vs paid in.
I see that as a good deal. I could earn more as in private sector but I choose the work/life balance and security.
My Canadian DB pension is generous but it’s not index-linked, let alone linked to increases in my pay grade. That’s a much less onerous proposition for the state if I live as long as Liam Cosgrave. Over the longer-term, PS DB pensions should all be converted to DC. They are unsustainable relics.
Your calculations are still misleading. You don’t seem to display any understanding of the difference between a real and a nominal rate of return. Approximating: (real rate of return)=(actual rate of return)-(inflation)
Also, You fail to take account of:
[.*The public service pension reduction * (https://circulars.gov.ie/pdf/circular/per/2015/18.pdf) This is basically a tax which is only levied on public service pensions. In effective terms it reduces the benefits of a PS pension. A PS pensioner receiving €30k pays €1260 per year for example
The PRD(aka pension levy) which again is a public-servant only tax. A PS worker on €100k pays €7,966 that a private sector worker does not, a full 8% of her income.
Until you factor this in your calculations are complete BS and overestimate the value of a PS pension.
For the record, here is what I would like the pension system for all employees (public and private) to look like:
Keep PRSI and keep the contributory state pension as an anti-poverty tool, but lower than its current amount, maybe €200 weekly.
Mandatory contributions from all employees of 5% of gross with matching compulsory contributions from government and employer. Stop obscuring the cost of state contributions through use of the tax system.
Big fund managed passively by the NTMA with very low fees. A letter every year to every contributor setting out what their retirement benefits are
Very high earners can continue to use private pension funds if they like, but with no tax relief.
Is there any way of costing this? Or working out what the payout would be? Big losers would be high earners, public and private, I imagine. It would mean a lot more tax money coming in from private sector high earners, there is a huge amount of tax foregone on pension contributions. What about non-contributory state pension? - it’s currently €225 a week or so. Is this basically the Australian system?
Bizarre to call tax relief (is it not really deferment?) a state ‘contribution’. So anything the state doesn’t take from me, they contributed to me?
Great to get these real-world figures and insight, thanks The Jackal.
If it is tax that others have to pay, yes.
Do you think Section 23 is just a returning to property owners of their own money?
Anyone can claim pension tax relief?
No, only those with pensions can.
Are you being deliberately obtuse?
There is no relief only deferral
So 25% tax free is a deferral
The way private sector pensions work is you and possibly your employer put away some of your income in a revenue approved scheme. You can’t access this money until you reach retirement age.
The income is deferred - literally.
The chances of someone putting income into such a scheme, where the income was deferred but the tax wasn’t are zero.
So the income is deferred and the tax is deferred. Or at least most of the tax - seemingly the government doesn’t understand deferred tax either and now charge PRSI and USC on this deferred income.
Tax relief is identical as far as I know on public (incl. PRD) and private contributions incidentally.
I don’t like the use of tax reliefs as public policy. It both hides the cost of things and also makes them very difficult for the public to see what they actually cost.
For pension contributions obviously I can see the logic of allowing tax relief on the grounds that it will be taxed eventually on drawdown.
The issue is that Ireland’s tax system is highly progressive. You will get far more relief during taxpaying years (particularly if you are on a high income) than you will ever pay back in tax when the pension is being drawn down - especially given the generous tax treatment of over-65s.
This is a very preciously-guarded tax privilege of high earners, however, and is unlikely to ever be touched.
What can I look forward to?
Lower income tax liability at 65, lower USC at 70. Household benefits package at 70 is not taxed either.
No DIRT either for over-65s.
If you gross less than 18k, or 36k married couple, there is no dirt.
The income cap for pension relief was reduced to 115k it used be something like 260k. Maximum fund size is also capped. And they now charge USC and PRSI on pension contributions - a problem particularly for newer entrants into pensions. And around 3% of funds were seized by the pension levy.
What the cap translates to is for a DC fund owner is a maximum pension income of around 50k regardless of salary. (Most DC fund owners will struggle to fund a 10k pension).
In the private DC sector there’s no point in dreaming of the “Bertie” or the “Neary” pension or even of the middle to high ranking civil servant pension. DC style versions of those cannot be funded via pension contributions regardless of salary. They’re only permitted for the ruling classes.