Pension timebomb putting workers on collision course

A pension expert in Cork has warned that private and public sector workers could be on a pension collision course if the underfunding timebomb is not defused to deal with people living longer and struggling companies’ finances.

“Wars have been fought on lesser issues”, said Nick Charalambous, a senior wealth advisor with Quintas Wealth Management in Blackpool.

"The issue is a huge one for those who work in the private sector, not for the state. The fact is that the pension schemes in most companies here, big and small, are bankrupt.”

As a result of the pension shortfall in the private sector, estimated by reports at 80 per cent of companies, many workers paying into schemes are running the risk of receiving less than they intended and even not receiving any pension when they retire, unless steps are taken by the companies involved.  

Defined Benefit (DB) pension schemes are so called because the benefit the retiring person gets is defined in advance. In most cases, someone who worked for a company for 30 years would get half of their salary as an annual pension.  So if you were earning €60,000, your pension would be €30,000 a year. 

According to Quintas, many individuals will end up with half of what they are expecting after 30 plus years of either being signed up to a defined benefit scheme or a defined contribution scheme.

“A lot of companies have sharply reduced what their DB schemes will be paying out,” said Mr Charalambous.

“It's hard to get statistics on this, but many of them are going to end up with around half what they were expecting, and in the worst cases, they will end up with nothing, or almost nothing. And that after paying into their pension schemes all their working lives!”

Mr Charalambous insisted that state workers may have been able to justify the situation in the past but that the fact was public pension contributions were "way behind the increased contributions of private sector companies." 

“It's a deeply unfair, almost unbelievable situation.”

The black hole in the DB schemes in private companies could lead to a higher proportion of individuals relying solely on the state pension of approximately €12,000 after working for decades on the expectation that they would be receiving a supplementary pension to state benefit.

Refuted

However the claim that private and public pension workers are on a collision course was refuted by the General Secretary of the Civil Public and Services Union (CPSU) which represents lower paid public service workers.

“We are concerned about the perception that there is a divide between lower paid public sector workers and private workers,” said Eoin Ronayne, General Secretary of the Union.

“The real problem is that people don’t know what they are talking about where they think everyone in the civil service is walking out with a Rolls Royce pension. The reality is that the members of my union leave with only €5,000 extra than the state contributory pension a year.”

“They could pay in €200,000 over the course of working in the public service but if they were to live 20 years after retirement they would only get approximately €100,000 back.”

The Government has imposed a deadline of the end of the year for companies with a deficit in their DB schemes, and that haven’t closed, to come up with a plan to relieve the black-hole within 10 years.

“The test being used to determine the deficit of the schemes in operation is overly stringent,” said Loughlin Deegan of IBEC.

“We have an artificial deadline and artificial funding plan for what is a major crisis at the moment.”