Tuesday, March 29, 2011

ECF - the Minister responds

At the outset I have to declare an interest here. As a member of Dublin South East Labour for many years, I know Ruairi Quinn personally. I have campaigned on his behalf on many issues and argued with him on all sorts of topics at constituency meetings. We have shared more than one pint over the years but you would never call us best friends or anything like that.

So when the Employment Control Framework was announced I sent him an email pointing out my concerns, a few links to blog posts from Stephen Kinsella, Ferdinand Von Prondzynski and Eoin O'Dell and suggested to him that it might be an issue to get on top of sooner rather than later. Now obviously he had only been appointed Minister for Education and Skills a few days before so I was not expecting a reply in any great hurry so I was pleasantly surprised to receive a letter from him on the issue.

Stretching to three pages, the letter is far too long to reproduce here, but it is fair to say that Minister Quinn is aware of the problems that the newly drawn up ECF may cause in the sector. He acknowledges that the sector delivered the required savings under the original ECF despite increasing student numbers and that there are now additional requirements on employing non-core staff. This he attributes to the rules set down by the EU/IMF deal. He finished off by saying that he is open to constructive suggestions as to how the ECF can be improved while staying within the financial constraints imposed upon the sector by the current financial situation.

So what's next for the ECF? The HEA released a "clarification" document last week that not only contradicted the new ECF document but contradicted itself in places. If the brains trust of the 3rd level sector can get its act together there is an opportunity to make changes to the ECF that benefit both the state and higher education in Ireland. But we have to act quick - damage is already being done to our international reputation and the longer this drags on the further our status will diminish.

One issue that I would like to see resolved it the issue of contract staff, especially in research. The ECF states that these staff are subject to it because they create a potential deferred pension cost to the state. But it is hard to see how this is the case - they already make a pension contribution, pay PRSI A1 stamp and pay the pension levy as well as the employer paying additional PRSI and pension contributions. This totals to at least 20% if not closer to 25% of their pensionable salary to get a pension of maybe 4/80ths of their salary less the state pension they would get due to their PRSI anyway. That means the net reward from their non-PRSI contributions is zero. Hardly seems like a fair system but then again, is any pension scheme really fair or are they all just Ponzis?

6 comments:

  1. What do you mean by "get a pension of maybe 4/80ths of their salary"? That hardly accrues per year since in 20 years you'd have 80/80ths. Also, fractions not written in their lowest terms upset me :)

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  2. All existing pension schemes in the public sector are defined benefit. You get 1/80th (1.25%) of your final salary per years service as your pension on retiring. Most contract research staff last 3-4 years in an institution. Due to the fixed term workers act a University would have to take them on as permanent or indefinite duration (that's what I am) but under the ECF that isn't allowed and so they are let go.

    Therefore on reaching age 65 (or 68 by the time I get there) the researcher will be entitled to a pension of 4/80ths (5%) of their final salary from their time in the University. Say their final salary was 60k (being very generous) then they get an occupational pension of 3k. Great!

    Except that they don't because the pension is co-ordinated with the old age pension that everyone who pays A1 PRSI contributions gets which is currently around 11k. So their pensionable salary is reduced by 22k to 38k and the pension works out at 1900 per annum. For this they have paid 6.5% direct contrib, the pension levy around 7.5% and an employer contribution of 10% putting a total of 57k in the pension pot.

    Letting it stew for the next 36 years at even 3% growth gets it to 165k. Surely that is more than enough to purchase the required 1900 annuity? Are they really going to live for 80 more years? But this is the massive "pensions liability" that new hires are going to generate according to the ECF.

    Sure the pension funds are screwed, the pre 1980 people paid nothing and the pre 1995 paid shag all. But new entrants are more than paying their way and yet these are the very people targeted by the ECF.

    It is also worth noting that the pension funds of the universities were liquidated by Brian Lenihan about 2 years ago to fill an urgent hole in the banks. Of course he managed to cash out at the bottom of the market. The quid-pro-quo for the cash then was that the liabilities would be underwritten by the state. Seems like yet another stupid move by Lenihan to me.

    This should have been another entire blog post rather than a comment :)

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  3. Are they going to be payed 1/80 of the salary printed on their last pay check or 1/80 of the salary of the that grade at the time they retire?

    Also 36 years is the extreme case. At the other extreme, someone can work from 61 to 65 and then immediately get their pension.

    Is 3% realistic? A good chunk of my pension went into a secure fund at 1% because at the time I was in a hurry due to tax deadlines and couldn't make a decision. I was very lucky. 6 months later, everything except the secure cash fund had gone down the crapper, with 40% losses on some of the funds. Sure in good times they also go up more than 3% but at least with my private pension provider (who takes 2% of all my contributions) there was no secure 3% fund when I looked.

    All that said, I'm a bit surprised that contractors get this at all.

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  4. Most research staff aren't on a formal pay scale so it is likely to be just the rate on the day they walk out the door. Those that are on a scale will stay at the same point on the scale.

    The 36 years is far more likely than the other as these are new staff, just finished PhDs. If you're still scrounging at Postdoc aged 60 you may have missed the boat a bit.

    The pension is a compulsory part of your contract. There is no option to opt out even if the maths show that you are mad to contribute. Typical of a Ponzi scheme I suppose.

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  5. I meant to say, even in the worst case, it does seem like there is little or no burden on the state here.

    So much money legislation is lazy and uncreative resulting in dead-zones and disincentives. E.g. stamp duty, because it happens in discrete bands, houses either sold at 379,999 or 400,000+ and various "if I work any more I'll lose more than I earn" traps.

    We have computers, there is no need any more for this sort of stuff, it's just the way things have always been done. Nobody is bothered fixing it. So anomalies occur all over.

    BTW, I'm curious about the compulsory pension. Midori has been on contracts for years as a secondary school teach but never with a pension.

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