Charlie Weston
Public servants are only ones left with decent pensions
TRADITIONAL pension schemes in the private sector are in meltdown.
When Irish Life decides to close down its defined benefit scheme you know the writing is on the wall for what was a mainstay of private pension provision.
Irish Life is the largest provider of private pensions in the State. The decision to close its defined benefit scheme for its staff is all the more extraordinary as it is €150m in surplus.
The move is symptomatic of the rush by companies to abandon defined benefit schemes, which used to guarantee a decent pension.
Just 10 years ago around 270,000 workers in the private sector were covered by defined benefit schemes.
These promise a pension which is two-thirds of final salary at retirement for those who have 40 years’ service.
Today just over 100,000 private sector workers are covered by a defined benefit scheme, and the numbers are falling fast. That means 160,000 people have seen their employer stop making contributions into a defined benefit scheme.
Staff have been moved to defined contribution schemes where the pension depends on the amount of money invested, the length of time contributions are made, and the performance of the funds in the plan. Companies are running scared from defined benefit schemes. They blame the high costs of funding these at a time of low interest rates and the costs due to people living longer.
Intel, Independent News & Media, Pfizer, Aer Lingus, and the Dublin Airport Authority are among companies closing defined benefit schemes. Staff are set to lose out heavily, but at least they still have some form of pension. Only 35pc of private sector workers have an occupational pension.
Contrast that with the situation in the public sector.
There are 360,000 active members of public sector pension schemes, according to figures from the Irish Association of Pension Funds. This number is up 90,000 in the last 10 years.
Public sector pensions are generally calculated as half of
salary with full service, with one-and-a-half times final salary in a tax-free lump sum.
Some 85pc of public sector workers have this deal.
The generosity of public sector pensions means those who have them are “widely rich”, according to Danny McCoy of Ibec.
No wonder Public Expenditure Minister Paschal Donohoe has said repeatedly the value of pensions should be considered as part of remuneration.
The way we are heading public servants will be the only ones left with decent retirement schemes.
The pity is that many of them do not appreciate the incredible value of their pensions.
Charlie Weston is a trustee of the INM pension scheme, but writes in his capacity as a journalist