All we are trying to say on page 1 is that we have been at this for almost nine years. Our background is that we are teachers with expertise in the area. Mr. O'Riordain and I are the two specialists. Mr. O'Riordan is a former school headmaster and knows every regulation about pensions. I am a financial analyst. I have done a lot of work for the Government and sat on boards. When I retired he brought me into this group in the Teachers Union of Ireland which was running a pension information service and a helpline.
My job was to do comparisons between the two main choices public servants have when they want to buy gaps in service. The two options were the superannuation scheme where one can buy this notional service and the other was the AVCs, a well-known recognised commercial product. I have given members a history of AVCs but I will not go into that. AVCs were very necessary in the public service. They were really good for topping up a pension but from the point of view of hard value for cash if one was buying service, one would be better off to opt for the safe defined benefit Government option, which is one of the best in Europe. It provided for wage inflation after retirement but that is a little fuzzy now. It had all of these attributes and it was very safe.
If one was to look at the safe alternative, AVCs, one was talking about a safe return of 1% while operational costs, APR, were anything from 2% to 3%. If one wanted a safe return on one's pension investment, one would get about 1%. If one followed the Government way, one would get 8%, all guaranteed and safe. Our conclusion was that if it was based on service alone, one should be going for the public service option, but if one wanted other things such as to ensure one's spouse was looked after, it was different. Most importantly, one might not be able to afford to buy the full pension which was very dear - about €1 million for a lifetime pension and perhaps up to €500,000 with five, ten or 20 years missing but generally around the €100,000 mark. It is big money. If a person said he or she was ten years short but could afford to buy only seven, we would tell him or her to have the best of both worlds - go for seven years of the Government option and buy a three-year gratuity through the AVC instrument which is very flexible. They can go together side by side to the benefit of the employee or consumer.
In the 1980s the unions came to a commercial arrangement with some of those involved in the pension finance sector, under which they would put their brand on these AVCs. It was a good idea. They persuaded the Department of Finance to adopt the system and it was working. If we had been around and doing the figures at the time, we would have said it was great. We would be telling people to use an AVC to receive a top-up and avail of the Government option for a good, old-fashioned, solid defined benefit pension. The formula was simple, even if some of the calculations were complex. What went wrong was that when it was being set up, the Department of Finance did not want to get involved. It told the unions to run it like a sports club or something similar. It would offer them the deduction facility and they were to appoint the trustees and pick the companies to provide it. It stated it would prepare and sign the trust deeds. Only the employer can make pensions legitimate. Every public service employer signs the trust deeds; their names are at the bottom. The unions said that was great.
We were very active, as we are all past officers and some of us were founder members of the TUI. We were well used to this. However, I do not think a lot of research was done. The Department more or less gave a free hand to the people who had approached it. There were two major providers which I will not name for protocol reasons, but the story has been covered in the media, including "Prime Time", and has been a cover story in Business and Finance. If the committee asks me, I will name them. There were two major providers and the TUI was dealing with one of them. What seems to have happened in every public service union, almost without exception - there may be one or two exceptions - is that the union secretary decided that the union was not in that business and asked about trustees and the providers said, “Do not worry - we will find a trustee.” Trustees are expensive and the providers also offered to pay them. They told the unions they did not have to worry about it, that they should just put them in touch with their members and that is what happened. When the companies got in touch with the union members, not only did they begin to sell the AVC top-up options which we recommended and still recommend, but they also began to sell them in substitution for the Government option. What happened then was that 90% of public servants, for the purposes of bridging service gaps, were taking the safe 1% option instead of the safe 8% option. The “Prime Time” programme got this figure from the Department of Finance; it is a matter of public record. I have the transcripts which I can give to anybody. That was what emerged.
The theme of my talks was pension optimisation - how to get the best value for oneself and public servants out of the options available. I was putting up figures and telling people, for example, that if they spent £80,000 on an AVC choice for notional service, they would receive the equivalent of about £160,000 worth of value. Depending on the proportion of a person's salary involved, he or she would receive about £160,000 by way of the public service pension.
