September Live Register

The September Live Register figures show a decline of 5,400 on a seasonally adjusted basis. The seasonally adjusted unemployment rate declined from 13.8 percent in August to 13.7 percent in September. The average unemployment rate for the third quarter was 13.73 percent compared with 13.2 percent in the second quarter.

The DB Pensions Crisis

The Irish Times carries an important op-ed by Michael Walsh of Mercer on the crisis in the defined-benefit pension system.  Compared to the fiscal, banking and employment crises, the DB pensions crisis is largely below the radar — but still hugely important.  

The focus of the article is on the need for policies to ease pressures on sponsoring businesses, and to prevent the more radical response of winding up existing schemes.  Of course, the proposals have potentially huge implications for a key component of the wealth of many Irish workers.  Unfortunately – but perhaps inevitably in an 850 word article – the actual reforms being proposed are less than clear.  I hope the diverse readership of this blog can provide some clarifications and perspective. 

There are two proposals:

First:

The Society of Actuaries and the Irish Association of Pension Funds have put a proposal to government to address this issue. It would involve insurers being allowed to sell, and pension schemes being allowed to buy, a new kind of annuity. These so-called sovereign annuities would be directly linked to Irish government bonds. They would therefore be much cheaper than conventional annuities. This would increase the chances that pension schemes can continue to operate and make good current funding deficits over time.

How exactly would these sovereign annuities work?  That they lead to cheaper annuities immediately suggests a reduction in the present discounted value of the expected benefit stream – that is, a loss in wealth. 

And second:

Our proposal at Mercer is that pension schemes that wind up be permitted to pay lump sums to pensioners instead of buying annuities. The lump sum would be the capital value of the person’s pension calculated on a prescribed basis. The calculation would allow for current life expectancy and expected future mortality improvements together with a specified long-term rate of interest or a rate linked to average euro-zone bond yields. Pensioners could then put the money in an Approved Retirement Fund from which income could be drawn down. Alternatively, they could use the money to buy an annuity, although if this is done at the current time it would likely be for a lower amount than their previous income from the pension scheme.

The proposal as written comes across as relatively painless.  But as Michael says, the devil is in the details.   What exactly is the “prescribed basis”?   Again, there is a presumption that any reduction is the contingent liability of the sponsor is also a reduction in the contingent asset of the member.

Michael Walsh may well be right that, all things considered, such reforms are warranted.  But the stakes for many individuals are such that a public debate is crucial, notwithstanding the complexity of the issues involved. 

O’Toole on Lenihan on Economists and the Media

I had decided last weekend to ignore Brian Lenihan’s comments about Irish economists being a cosy cartel unwilling to debate each other. We’d been here before: Recall Lenihan’s “national mediocrity” moment in which he implied that pro-NAMA academic economists were too scared of people like me come out and admit their views in public. And frankly, I’m more inclined to believe the Minister is engaged in PR spin with this kind of thing rather than expressing his true opinion.

However, I must point towards Fintan O’Toole’s discussion of Lenihan’s speech because whatever about being accused of being part of our national mediocrity or being part of a cosy cartel aimed at suppressing debate, I do feel compelled to clarify that I do not work for Trinity College Dublin but for Ireland’s leading Economics department, the UCD School of Economics. 😉

After the floods = before the floods

Last winter saw some of the most dramatic floods in Ireland’s history. The rainy season is about to start. Will we see half the country under water again? We don’t know what the weather will be like. We do know, however, that everything else is much the same as last year.

It takes time to build or reinforce flood defenses. Monies have been allocated to the OPW to do that, and we’ll see the results in years to come. Other matters should take less time, but our dear leaders have been otherwise occupied.

An Oireachtas committee concluded that too many agencies were part-responsible for flood management. They still are. The same committee argue that a single minister should be in charge in case of an emergency. He is still not. Last winter, it was not clear who should call in the army and when. It still is not.

One of last year’s problems was that there was no early warning system. There is still no national one at either floodmaps or flooding, and the county councils do not seem to have put anything in place either. Hydrometric data are still incomplete and out of date. Last year, ESB filled up its reservoirs just before the rainy season. Did they do so again? The latest data I could find on the river Lee are from 2008, and do not cover the reservoirs.

The ESB is still in charge of these reservoirs. In last year’s panic over potential dam failure, the dam operators did not warn the people in Cork. Do the authorities now have automatic access to data on water levels and releases? If they do, they have kept silent about it.

So, Ireland is still as vulnerable to flooding as it was a year ago. Let’s hope it won’t rain as much.

Trading and Investing in a Smart Economy

The government’s latest strategy document is Trading and Investing in a Smart Economy. Apparently, the strategy is going to create 150,000 jobs directly and a similar number indirectly. Sounds good, though how exactly it’s going to achieve that was a bit unclear to me. Admittedly, my persual of the document was a bit brief as I’m suffering from glossy strategy brochure burnout.