Those Darned Public Sector Pensions

Public sector pensions – is there any three-word formulation more likely to angry up the blood?  Not likely (except, maybe, ‘public sector pay’).  Mention public sector pensions in polite company and animal sounds will be heard.  We are constantly told that we can’t afford public sector pensions, they are a burden on the taxpayer (the private sector taxpayer, the public ones don’t count as they will become a burden when they retire), that they will in a few years sink the economy.  Listening to the debate, you’d think it was public sector pensioners that caused the fiscal and economic crisis, sank the banks and forced us into a bailout.

But a few facts that are emerging suggest otherwise (a few facts are always a healthy tonic to unsubstantiated assertions).  WorldByStorm over at Cedar Lounge Revolution pointed to the Sunday Business Post article based on documents obtained under the Freedom of Information legislation:

‘A quarter of public service pensioners receive a pension of only €5,000 annually, according to government documents [and]  almost half of all public service pensioners get a pension of about €10,000 or €11,000 annually.’

25 percent received a pension of only €5,000?  Almost half on €11,000 or less?  Can this be true?  And, if so, where does that leave the ‘public-sector-pensions-are-ruining-us-school’?

Well, yes, it can be true.  The latest Analysis of Exchequer Pay and Pensions Bill shows that the average public sector pension is €20,800 a year.  It should be noted that much of this includes payments for spouses.  Further, many recipients do not receive a social insurance top-up pension.

Of course, this doesn’t cost the state an average €20,800 per year.  Some of this will be returned via the tax system.  Further, the pension income is returned to the economy in spending, resulting in greater economic activity and consumption tax revenues. 

This doesn’t deter the great campaigners.  Eddie Hobbes on Prime Time railed against the cost public sector pensions.  He claimed he didn’t want to go after low and average income pensioners, only the ones at the top, However, when it was pointed out that cutting pensions at the top would save very little money, Hobbes avoided the question.   So much for the great campaigners against public sector pensions. 

I have not yet been able to find a full income distribution breakdown of public sector pensions (more time spent on the wonderful KildareStreet.com might elicit this).  However, I did find a breakdown for civil service pensions.  This doesn’t include health, education and local authorities.

• 45 percent of retired civil service employees receive a weekly pension of €385 or less (or an annual €20,000).  68 percent receive a pension of €577 per week or less.  

• On the other hand, only 4 percent receive pensions of over €50,000 and only 76 civil servants received a pension of over €100,000 (0.3 percent).

The average civil service pension is approximately €22,800 so this is probably a good proxy for the remainder of the public sector. 

So what would happen if we started taking a slash-hook to public sector pensions?  How much money would it save?  A series of cuts was put to the Minister:

• €12,000 or less:  exempt
• €12,000 - €24,000:  6 percent reduction
• €24,000 - €60,000:  9 percent reduction
• €60,000 - €80,000:  20 percent reduction
• €80,000 to €100,000:  50 percent reduction
• Over €100,000:  upwards of 100 percent reduction

How much would this save?  According to the Minister it would come to €10 million.  And, correctly, he further stated this would be reduced by lost taxation.  I was surprised at how small this amount is but one reason is that so many public sector workers have pensions of less than €11,000 (nearly half). 

So we get a lot of smoke on this issue but few facts.  We have people attacking public sector pensions but, in truth, they are attacking retired people on very small pensions.  We have unsubstantiated claims, and scare-mongering. 

Just what we’ve come to expect from what can be loosely called ‘the national debate over the economic crises’.

Comments

[6to5against]

Hi Michael,

Great to see you back.

How does the OAP fit into these calculations. I presume its included, but how then is anybody on a pension substantially less than 10k?

[Michael Taft]

6to5against - thanks for the welcome back. Most public sector workers are not eligible for OAP as they are on the modified pre-1995 rate. Those afterwards will be eligible for OAP but their will be an offset between their pensionable income and OAP. I have not come across data that breaks this down among current pensioners. Currently, public sector workers pay over 10 percent pension contribution (the regular contribution plus the pension levy) and the full PRSI rate.

[6to5against]

OK, do I have this right then:

Amongst the current crop of retirees, a very large number are in recipt of a pension that is sometimes considerably less than the contrib OAP.

But these do receive a top-up to the levels of the OAP (which is quite correctly not included in these figures.

Or, putting it another way, about 30% of current PS pensioners effectively receive no pension beyond the OAP.

And, given the link with final salaries, would it be a fair suggestion
that something similar might well apply into the future?

Or do I have it totally confused?

[Orla]

No - public sector pensions are NOT topped up to the State Contributory or Non-Contributory rate. I am a volunteer for St Vincent De Paul and recently visted a house where a retired Dublin City Council employee and his wife were living on a combined pension of €12,000. They were burning rags as they could not afford other fuel.

[bigred]

Orla,well posted. The Government onslaught, allied with media'sections,against the public service,allied with those PS Unions capitulation will further impoverise people and lead to'curtailment and diminished public services. Thus leading to a situation where by if'you can afford to buy a service OK,if not tough,sure its the market!

[6to5against]

Thanks Orla,

I'm a little shocked by that, and I thought I was beyond shock at this stage!

[tells.it.like.it.is]

Honestly, Michael, sometimes I wonder about you.

In particular, your inability to see the wood from the trees when presented with some juicy data, that seemingly reinforces your politics.

Let me explain what's obviously going on here.

In order to be eligible for a public service pension of only €5,000, the pensioner must necessarily have only completed a small number of years service.

They either came to the public sector late in their career, or left early for the private sector, or gave up work to raise a family, or worked part-time. In most cases, they would also benefit from the state pension, and/or an additional occupational pension either in their own right or as a result of their spouse's career.

For these statistics to mean *anything* in terms of value to the state, they should be expressed as whole-time equivalents.

Similarly for these statistics to mean *anything* in terms of supposed poverty levels, they would have to include pension income from other sources.

Really, I'm surprised that the above wasn't as obvious as the nose on your face.

Only marginally less surprised that you're quoting cedarlounge as some kind reliable source of economic analysis. The level of statistical literacy over there is, to put it mildly, on the low side.

[WorldbyStorm]

tells.it.like.it is, the CLR has never set itself up as experts in statistical literacy - ever.
Quite the opposite, if we’ve been open about a serious failing on our part and on the left generally it is that we’re not political economists. What we do though is examine political and economic issues as best we can.

I think it is entirely legitimate to contest the media perception as to 'average' PS pensions etc by drawing attention to figures gleaned by the SBP on foot of an FOI.

As regards your example of a €5k pension, well Michael had already outlined in his first three paragraphs that there would be caveats and that some would be receiving supplementary income whether from the state or other sources. But even at that if added to the state pension it would still hardly be a princely sum. And that too merely reinforces the point made. This debate is skewed and rather deliberately so.

But it's worth noting that you are the only person to introduce the issue of 'supposed poverty levels'. Neither I nor Michael mentioned poverty in relation to this issue at all.

[WorldbyStorm]

"never set itself up as experts"

commenting mobile, not good.

"never set ourselves up as experts..."