Sometimes negotiations over public sector salaries seem incredibly choreographed. The last round of wage negotiations started with an offer of 5 percent over two years, but ended after a cooling off period at 6.5 percent.
The resulting deal, which is pretty good for public sector workers, sees low-paid workers earn up to 8 percent over two years when existing commitments are factored in. Others receive 7 pieces over two years or 3.5 pieces per year.
Government assumptions about the future cost of funding public sector pensions have tended to assume wage increases of 3.5 percent per year. Bang on the bottom line here.
One of the dangers for the government in negotiating new collective agreements is that they don’t really know at this point what will happen to the economy this winter, let alone three years from now.
She has no idea how much longer the corporate tax billions will roll. She has no idea if we’ll have enough electricity on the grid to keep the lights on.
Public sector workers are entitled to a raise, especially when inflation hits double digits. The long-term future cost is the great unknown. Today’s box office numbers may look healthy, but looking ahead is more like throwing darts while blindfolded.
When the government goes along with wage increases in the public sector, it’s not just agreeing to pay a certain amount of wages each year. It commits to paying pensions decades into the future.
The size of the public sector pension bill is really the elephant in the room. It’s also on the verge of increasing in size in the coming years. And what’s even more annoying is that the state pays these pensions out of current expenses.
It’s a bit like deciding to drive from Dublin to Warsaw. You can’t plan the trip financially if you don’t know the price of fuel along the way. Instead, you fill up in Dublin and find out what the price will cost you every step of the way.
The estimated long-term pension liability for public sector pensions has increased by 114 billion in recent years. However, part of this is also due to an aging public sector workforce and longer life expectancies.
The pension situation in the public sector has changed in the last 14 years since the crash. Public servants contribute an average of 6.5 percent a year to their pension, but the various schemes remain much better than what is typically offered in the private sector.
Many private sector companies have closed their defined benefit schemes because they have become prohibitively expensive. Public sector schemes provide that a person with a full 40 years of service will receive a pension equal to 50 percent of their salary and a tax-free flat rate of 1.5 years’ earnings.
Those who joined before 2013 received 50 percent of their last salary. After 2013, it transitioned to 50 percent of her average salary over the course of her career.
It is estimated that the long-term cost of public sector pensions would fall by around €23 billion if everyone took part in the latter deal.
Another expensive element is indexing the pension to inflation. Many government employees will see the value of their pension payments increase in the future due to rising inflation.
Annual gross public sector pension costs are projected to increase from €3.4 billion in 2017 to €5.3 billion in 2025. Contributions from workers themselves will offset some of this, but the net annual cost will still be around €3 billion a year.
As long as the state is committed to these very generous pension regulations, it should provide for their financing appropriately. There should be some sort of public sector pension fund that provides a return on investment and fences in money for this enormous bill.
The National Pension Reserve Fund was established in 1999 for this purpose. It was too ambitious with contributions of 1 percent of GDP per year. If it were maintained today, the state would set aside 4 billion euros annually to fund future pensions.
At least this fund provided good investment returns in its early days, but had to be looted to bail out the banks during the financial crisis.
There are real dangers in loosely comparing the public and private sectors. Private sector workers tend to read headlines about top officials’ wages and pensions and jump to conclusions that everyone in the public sector is overpaid.
Many government employees are paid low wages. And there is nothing wrong with the fact that the state should be a very good employer when it comes to conditions.
This deal is designed to help lower-paid public sector workers more, and it is true that many private sector workers have benefited from wage increases in recent years.
However, the structures surrounding employment in the public sector are still very different from those in the private sector. Pensions are part of that. Job security is another.
Nobody mentions public sector reform anymore. It is rarely discussed, but public services could certainly be provided better and more efficiently.
Strikingly, on the same day that a preliminary collective bargaining agreement is signed, companies are talking about power outages, excessive utility bills and the possibility of laying off workers if the situation escalates this winter.
Yes, the rules surrounding pensions have changed for many in the public sector. But there are still many people heading into public sector retirement who will benefit directly from those pay increases for the rest of their lives, even if they don’t work in the system much longer.
This is not value for money.
https://www.independent.ie/business/irish/public-sector-pensions-are-the-hidden-cost-of-new-pay-agreement-41952107.html Public sector pensions are the hidden costs of new collective agreements