Let’s Call the Bluff on Public Sector Pensions

30 November, 2009

Jill Kirby made a sensible suggestion in the Irish edition of the Sunday Times (29 November).  Since many public sector employees, or their representatives, are bemoaning the fact that they now have to contribute a material amount to their guaranteed, index-linked pensions, why not let them opt out for a period, or permanently, and avoid that allegedly burdensome imposition? 

Better still (and Jill Kirby didn’t go this far), why not offer anybody who opts out an employer (ie Government) contribution of say 10% of salary, on a defined contribution basis?  This would in fact be better than most private sector employers offer.  We might then see just how valuable the state pension is, for nobody in their right mind would opt out and accept this.

The greatest scandal is at the top of the overpaid public sector, where Government Ministers with ten years or more service are entitled to a pension of 60 per cent of their ministerial salary, payable from the age of 50.    A private sector worker would need to have a personal pension fund amounting to some €4.5 million to afford an annuity which would provide such a pension.  And in the private sector, the annual earnings limit for determining maximum tax-relievable contributions for pension purposes is €150,000; so a high-earning self-employed person would ultimately be taxed twice on a large chunk of income if he or she wanted to build up a pension pot remotely close to that which a Minister “earns”. 

We need our politicians’ pensions to be reformed even more than is currently proposed: they should be put onto a defined contribution basis immediately.  Maybe then they would have a bit more empathy with private sector workers.

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