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Sunday Times, Money Comment - 8 December, 2013

Posted by Jill Kerby on December 08 2013 @ 09:00

Taxpayer face high price for settling ESB pension row

 

Will they, or won’t they strike?  In exactly seven days the ESB worker’s strike threat bluff will be called we’ll either be sitting in the dark…or not.

But whether the power stays on or goes off, it isn’t going to change the nature of the ESB’s complex defined benefit pension scheme:  just like every other DB scheme in this country it cannot provide a 100% risk free income to all its current and future qualifying pensioners, unless the Irish taxpayer is compelled to back-stop the risk.

Defined benefit pension models, here and in every other (mostly English speaking) country where they exist are in deficit or have failed mainly because their members are living too long.

Modern era salary and service related or state pensions were created when workers only lived a few years post-retirement and annual remuneration was comparatively much lower.

Today, these schemes, which carry the risk of longevity, market performance volatility and high fees and charges that reward armies of administrators, fund managers, trustees and regulators, just can’t carry the load. 

The real scandal is that the likes of the ESB, Aer Lingus, AIB, Waterford Crystal (whose scheme failed) and so many others were ever permitted – the the regulators - to accumulate such huge deficits.

As the ESB unions rightly argue, it isn’t the company executives, administrators, or regulators who will suffer if their scheme status quo is not maintained and they are forced to accept the defined contribution model (like every other DB scheme eventually).

Nevertheless, the company is adamant that after 2018 if will not bail out the scheme again should it fall back into deficit, which it is not at the moment. The deal the unions helped negotiate back in 2010 which involved a €590 cash injection and lower pension benefits, plus three years of excellent fund performance means that no pensioner’s present or future is at risk until then when the scheme will have to stand on its own merits.

Last year a typical ESB workers’ earnings were in the region of €78,900 (including pension contributions) and their two thirds pensions, about €45,000, say industry sources.

Given that fewer than half of all private sector workers in defined contribution schemes will be lucky to get an occupational and state pension of €15,000-€17,000 a year, it beggars belief that the ESB unions are considering a nation-wide walk out.

But it would be an even greater travesty if the rest of us end up guaranteeing those €45,000 pensions if they are nationalised as the quid pro quo for the ESB workers not pulling the plug next week.

Why is Twitter Inc worth nearly $24 billion? This company has no earnings. Some analysts are finding it hard to find $50 million of quantifiable value.

As companies like Twitter and others see their share values soar, ‘mom and pop investors’ as they are known in the United States appear to be shifting money out of negative yielding deposits and into stocks and shares.

Listening to Irish people talk about investing is like being on a permanent feedback loop.  Our attachment is more to property as our investment poison of choice, especially as we see prices rising.  The higher the better, as the mini-price bubble in Dublin is showing.

Instead of ignoring the background noise produced by estate agents or brokers about how well their markets are doing, the mom and pop investor, forgets how badly it turned out the last time, and instead return to flock-of-sheep mode and follows the one out in front, bleating the loudest about how it’s time to follow the money back into the market.

In a devastating newsletter to his clients just after last months Twitter flotation, John Gilbert, chief investment officer of investment company GR-NEAM, whose biggest shareholder is Warren Buffett, wrote that “it should be obvious to everybody by now that [the Twitter] stock market largesse is made in Washington” care of the Federal Reserve whose loose monetary policies “induce investors to behave foolishly. He includes Asian emerging economies among them.

Twitter, Gilbert wrote,” is the lottery winner of the moment” but “following such a crowd is an excellent hedge against ever being financially independent.”

 

My Christmas gift buying list is getting smaller every year as the children dear to me turn into adults, and now qualify for home baking instead of toys.

Meanwhile, my husband and I have acknowledged, as have many friends and family, that there really isn’t anything that either of us need or even want anymore, such is the combination of luck and privilege we share as citizens of a country, no matter how economically battered, in the comparatively prosperous western world.

After recent revelations here about how donations are being spent to featherbed the wages and pensions of certain charities’ executives, you might want to pick your charity with extra care this Christmas.

Once upon a time charities were run by philanthropists and volunteers who didn’t get remunerated. The welfare state then took over and ‘charity’ became a social entitlement. Big charities seem to have adopted a similar model, convincing us that the good works they eventually do with our money couldn’t happen unless their chief executives and professional, full time staff are well paid and pensioned.

I already object to a penny of my taxes, via state development aid going either directly or indirectly to pay for the Paris shopping trips of the wives of kleptocratic African dictators or to fill their Swiss bank accounts.

So that’s why our family prefer to keep our voluntary donations local and project based. This Christmas we will give to the likes of the Capuchin Day Centre in Dublin, the RNLI and Mountain Rescue, and Dogs Trust.

Whatever we give them of course…won’t be enough.

 

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