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Thursday, June 21, 2012

Irish Inequality: Lavish public staff pensions and decimated private ones

Ireland is among countries where private sector workers face huge falls in pensions income. In the period 2001-10 in the 34 mainly OECD developed countries, real (inflation adjusted) pension fund performance was a paltry 0.1% yearly on average. Where public pensions are relatively low and private pensions voluntary, such as Germany, Ireland, Korea, Japan and the United States, large segments of the population can expect major falls in income upon retirement.

Meanwhile, Irish politicians who have one of the world's best pension schemes, linked to earnings, are presiding over the accelerated death of defined benefit (where there is a guaranteed payout related to earnings) schemes for the minority of private sector workers who have an occupational pension.

The Irish Pensions Board says that 80% of Irish defined benefit schemes are in deficit and it has set new minimum funding standard (MFS) rules which require pension schemes to have enough assets in place to secure pensioner liabilities and other accrued benefits if the scheme were to be wound up.

In 2010, Irish pension funds still held average equity allocations of 50% compared with Netherlands pension funds, which held an average equity allocation of 26% and in Switzerland 30%.

In the UK, average allocations to domestic and non domestic equities fell by 4% (from 47% to 43%) in 2011. In Ireland the current average allocation to equities is 44%, down 6% from last year and down over 20% since 2008 (Finfacts Premium).

Irish pension fund returns May 2012

Meanwhile, the Irish Government has a 40-year plan to reform public pensions that are unfunded but the annual cash cost is heading for  €3bn. Read more here.

This week, John McManus, business editor of The Irish Times wrote on plans to hoover up private pension funds that will increase the risks for funds that will struggle to produce returns in teh coming decade.

The following was my comment:

Ireland is among countries where private sector workers face huge falls in pensions income. In the period 2001-10 in the 34 mainly OECD developed countries, real (inflation adjusted) pension fund performance was a paltry 0.1% yearly. Meanwhile, Irish politicians who have one of the world's best pension schemes, linked to earnings, are presiding over the accelerated death of defined benefit (where there is a guaranteed payout related to earnings) schemes for the minority of private sector workers who have an occupational pension.

It has been official policy to keep employer social security low but the politicians have feathered their own pensions nest well and those of public sector staff.

In 2010, Irish pension funds still held average equity allocations of 50% compared with Netherlands pension funds, which held an average equity allocation of 26% and in Switzerland 30%.

Almost 2 weeks after HSBC Bank revealed huge losses on subprime mortgages in the US, Irish bank shares hit an all-time record on Feb 21, 2007. How many well-paid fund managers bet with others savings that the

The Irish free lunch fairytale was going to continue?

Responsibility for semi-State and university pensions was assumed directly under the Financial Measures (Misc. Provisions) Bill which was rushed through the Dáil in just three days in 2009. The National Pensions Reserve Fund is now responsible for these funds and the deficit in the funds exceeded €1bn according to a 2010 response to a  Dáil question by the then Minister for Finance, Brian Lenihan.

The university deficits amounted to about €630m led by Trinity College at €315m.

While the majority of Irish private sector workers have no occupational pensions and those who do face the prospect of meagre payouts, it has been an exception in universities for both academic and non-academic staff  to retire without additional pensions years allocated.

This is an expensive perk and of course coming from the public treasury, there wasn't much to worry about.

In  a report, the Comptroller & Auditor General said additional years had become a feature of pension awards in universities. By way of example, in UCD 78% of staff retiring between October 2007 and September 2008 had years added to their service for pension purposes.

Similar provisions apply in other universities - - Trinity College stated that since 1972, on the basis of custom and practice the award of added years has become a legitimate de facto entitlement under its Master Pension Scheme and that Scheme members were advised that they had been granted added years.

How can a civil servant in a bankrupt state retire at the age of 57 with a lump sum payment of €428,011, a special top-up of €142,670 (for senior civil servants who retire early) and an annual pension of €142,670?

Brian Cowen, former taoiseach, retired at 51 and his ministerial and TD's pensions gives him about €150,000 per year. Cowen also received a tax-free pension lump sum of around €150,000 (three times the value of his TD's pension) and a termination lump sum of around €16,000.

The net cash cost of public pensions (after an employee's normal deductions) was €876m in 2001; €1.4bn in 2006; €2.0bn in 2009 and €2.3bn in 2011 and will rise to €2.7bn in 2015.

I was recently informed that the Irish unit of Atlas Copco, a Swedish multinational, was winding up its existing pension scheme and cutting benefits. I worked in AC for 12 years. The group is in fine shape but it suits under Irish law to claim poverty and screw potential pensioners like me.

So private sector workers who are lucky to have pensions, take a hit while the shortfall in university pensions is borne by the taxpayer and of course that has coincided with academics calling for the burning of bondholders and maybe consequently also some private sector pensions.

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