The 2011 Budget was clearly focused on getting our financial house in order. I think everyone accepts that pain was inevitable and we are all happy to grin and bear it if the pain is distributed equitably.
However in some instances the budget fails in this regard.
A classic example is in relation to the new Fund Threshold of €2.3m. On first glance this appears equitable. It applies to all benefits whether public sector or private sector or whether defined benefit or defined contribution.However the devil as they say is in the detail.
For private sector workers with defined contribution benefits it is easy enough to apply the cap – the capital value of their fund is whatever it is worth at the relevant time. For public sector workers things are slightly more complicated. Because their benefits aren’t funded in advance their entitlements are generally expressed in income rather than capital terms. Thus a public servant retiring on a salary of €200,000 will typically have an entitlement to a pension of €100,000 per annum increasing in line with earnings.
What is the equivalent fund value?
The government takes a simple approach and simply says multiply the benefit by 20. Thus the official value of this benefit is €2m and the limit isn’t breached.
However this approach undervalues the cost of the benefit.
Under the funding table published by the Revenue in relation to private sector workers a factor of 32.4 applies to a male age 60 with an entitlement to a spouses benefit. This would generate a value of €3.24m for the public servants pension.
In practice however the Revenue table is only designed to capture normal private sector benefits. In particular it doesn’t have the ability to capture a pension benefit that has the potential to increase in the future in line with earnings. In practice this is a much more expensive benefit and would result in a conversion factor of 40.
Thus the market value of this public servants pension is €4m.
This may seem like an incidental matter. However the overall value of this concession to this civil servant is €697,000.
When all other tax breaks are being closed down it may seem strange to see the government creating a new one. But then the only people that will benefit from this are senior civil servants and government Ministers.
“the call of duty”
ReplyDeleteA level of indignation is palpable in Aidan’s posting. It made me reflect on an idiom which was used by Minister Lenihan in his Budget speech perhaps to justify this apparent and deepening inequality between conditions in the public and private sector. He lauded the work, “above and beyond the call of duty” of the civil service. Alan Dukes used the same phrase to justify bonus payments to a number of Anglo staff last year. It made me reflect that this (immeasurable) parameter of “the call of duty” has become an irreproachable concept to argue the unarguable. What are the boundaries of the ‘call of duty’? Is it at all possible to act beyond the call of duty – surely, you act because you feel duty-bound, in some shape or form? Or, is the pledge of the civil service or Anglo executives governed by parameters more honourable than those which distinguish the work put in by private sector employees which (ultimately) ensures that their employer company survives - and pays its taxes and keeps people in employment? I am afraid that politicians haven’t seen that the reference to ‘the call of duty’ is yet another example of a way of thinking which does not exist among people not employed in the public sector. There is now only one type of work; the type which has to be done.