The Sunday Times - Money Comment 29/11/09

Posted by Jill Kerby on November 29 2009 @ 12:49

One of Marianne Finucane’s guests on her radio programme last weekend was a civil servant who made an interesting point about why there is such a sense of grievance on the part of public servants about the 7% gross pension levy that was imposed on them this year:  in his own case, his 13% gross salary contribution into his pension is now “greater than the size of my mortgage”. Others will substitute ‘child care’ for mortgage. 

He made point that private sector workers know all too well - that private pensions are very expensive, not to mention risky, which is why only about 50% actually have one.  

So here’s a suggestion that might help get us over the great pension levy hump:  allow civil and public sector workers an opt-out clause if they feel that the burden of a 13% pension contribution for a guaranteed, 50% final salary defined benefit pension at retirement is too high.  

Those workers who cannot afford a pension and a mortgage or child-care during the high spending years when their families are young, should be allowed to join at a later age when their incomes are not under such pressure. 

I thought Ryanair boss, Michael O’Leary’s recent suggestion that public sector pensions should be immediately converted into defined contribution ones rather than defined benefit (which include hugely valuable service and salary guarantees) was also interesting, but of course this could only happen for future contributions.  

The current total public sector pension liability going stands at €100 billion and all benefits are paid out the current tax take – that is, the Pay As You Go system.   This means that aside from what’s left in the National Pension Reserve Fund - €16 billion?  €18 billion? – there is no other pool of cash under investment to pay this massive commitment. 

I’ve been undergoing a major review of my own pension that is, thankfully, nearly over.  

I know exactly how that civil servant on Marian Finucane’s show feels:  pensions are bloody expensive, especially when you’re funding them entirely on your own, as I have since 1987.  And if you want one that’s going to deliver a comfortable retirement for yourself and your spouse, you have to forego quite a lot of spending – on big mortgages, holiday homes and lovely, new cars and furniture.   

It’s been a sacrifice I’ve been willing to make – I don’t want to be old and poor, not in this country -  but my commitment has certainly been shaken by the hammering my funds have taken this past year.

As the national debt soars just to meet the state payroll and unemployment benefits, everyone who is struggling to meet their day-to-day expenses, whether they work in the public or private sector should have the right to choose whether they can afford to make pension contributions. 

But only if they’re clear – like the rest of us are - about what it means if they opt not to. 


I too oppose cuts to the child benefit payment in next month’s Budget. 

Except, unlike all the women’s and child advocacy groups that have come together to lobby the Minister for Finance, I think the entire €2.5 billion boondoggle should be abolished, to be replaced with a means-tested payment to those parents and children living in poverty, on unemployment benefit and very low incomes to ensure none of these children go hungry, naked, without shelter or an education. 

Where the lobbyists and I digress is that I think this country is bust and they don’t. We are in the early days of an economic depression, and only for the financial IV tube that the European Central Bank has rigged up for us, we’d be queuing behind Iceland and Latvia at the IMF court of bankruptcy.

Some day, hopefully only a decade or two from now, when we have a properly functioning economy of hard working, self-reliant, vibrant, export-earning citizens, the state will be in a position to return to the old, fairer system of allowing parents of children to claim some tax credits for the cost of raising each child, who in turn, someday, will be a net contributor of tax to the state. 

Under my proposal the loss of €535 a month for a family with three children will of course be a hard blow if they don’t have a financial cushion of savings and low debt to fall back upon.  It means no more family holidays, no second car (or maybe any car) or other luxuries. Basic things like children’s clothes will have to be passed between siblings, mended or sourced from other family members, friends, from Penny’s or charity shops. Feeding everyone - conveniently – might be a thing of the past (but no one will starve.) It will be very tough if you’ve been living from paycheque and benefit payment to paycheque and benefit payment every month.  You will have to work harder, smarter.

But if €2 billion can be saved, it will be an extra €2 billion that your children won’t still be paying for…when they have children of their own. 


Last week my colleague Brian Carey in his Agenda column wondered why the state, in the form of the Department of Health “is still involved in [the health insurance] market.” He was referring to our exclusive page one story about how the VHI is seeking, for their own benefit, to have the health insurance levy doubled from €160 to €320 for every adult and from €58 to €116 for every child.  They need this money, they say, to offset their loss-leading older members, a legacy of their decades as the monopoly provider of health insurance. 

The only credible reason I’ve ever heard from a former VHI insider, is that the VHI is, and always has been the private little empire of the civil servants who control it from the Department of Health. 

Of course this incompetent government shouldn’t be in the health insurance business: in the UK and the Netherlands where at least 32 and 14 private medical insurance companies operate, not a single one lets a civil servant near them. 

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