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Public sector pensions make up quarter of pension money owed to households

10/02/2021 Posted by IAPF | Comments(0)

PUBLIC sector pensions make up a quarter of the pension money owed to households in the State.

New figures show that total liability of public sector defined benefit schemes amounted to just short of €150bn in 2018.

This is 25pc of the total pensions liability in the State, according to the Central Statistics Office.

Defined benefit pension still exist in the public sector, but are disappearing from the private sector as they are so expensive to fund.

Often regarded as the Rolls-Royce of pensions, defined benefit pension payments are based on salary and offer a guaranteed amount.

A public servant with a full 40 years of service will retire on an annual pension equivalent to half of their salary and a tax-free lump sum of one-and-a-half times their annual pay.

The statisticians have calculated the amount of money owed to households by private employers and the Government on all occupational pension schemes, the so-called liabilities of these schemes.

The CSO said the total liabilities of occupational pension schemes in Ireland were estimated at 186pc of Gross Domestic Product (GDP).

The total liability equated to a staggering €607.9bn, when the State pension, private sector pensions and public sector pensions are added together.

State pension schemes liabilities amounted to €359.2bn.

Private pension schemes equated to 21pc of the total liability at €99bn.

CSO statistician Ciara O’Shea said: “As in many countries, a significant portion of the liability relates to government managed schemes which totalled €508.8bn, or 156pc of GDP at the end of 2018. “Just over two-thirds (€359.2bn) of the government managed schemes’ liabilities relate to the State pensions, defined as the State Pension (Contributory), the Widow's, Widower's or Surviving Civil Partner's (Contributory) Pension, and the Invalidity Pension which are pension schemes available within the Social Insurance Fund.”

She said the remainder, at €149.6bn, relates to public service defined benefit occupational pension schemes.

Private occupational pension schemes liabilities were estimated to be €99.1bn at the end of 2018 and equate to 21pc of the total.

Ms O’Shea said Ireland’s pension liability is low in comparison to some European countries, illustrating the relatively young population.

Jerry Moriarty of the Irish Association of Pension Funds said it was important to remember that private sector pensions schemes have assets as well as liabilities.

“According to the Central Bank’s latest statistics in June 2020, these assets totalled €118bn. It seems strange to classify the liabilities as money owed to households without acknowledging that these liabilities are backed up by the pension savings of those households.”

Public policy lead with Chartered Accountants Ireland Cróna Clohisey said that estimates of pension liabilities from 2018 are further evidence of the scale of the pensions challenge facing Ireland.

“Earlier this week, it was announced that the introduction of auto-enrolment, to address the sole reliance by 40pc of workers in the private sector on the state pension to fund their retirement, would not be implemented until at least 2023.

“Today, the Pensions Commission launched a four-week public consultation process on the future of State pensions, to ensure that it can be funded into the future.”

She said it was not surprising that auto-enrolment has been put on hold, and said the lack of private pension funding isn’t going to be solved without significant action by the Government.

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