THE Irish Association of Investment Managers (IAIM), which represents most fund managers in Ireland, has warned that the current system of unfunded public service pensions is not sustainable and that public servants should part fund their pensions.

In its submission to the Commission on Public Service Pensions, the IAIM states that in 1995 alone, the cost of pensions in the non commercial public sector was £540 million.

"There has been no attempt by the State to operate an accrual based system, which would show the real cost of providing such pensions," says IAIM secretary general Ms Ann Fitzgerald. Spending on public service pension schemes, in constant salary terms, is estimated to increase by about 160 per cent, peaking at £1.4 billion in 30 years time, she adds.

"It is clear to the association that the State must find an appropriate halfway house between the full funding of public service pensions and continuing the present unfunded arrangements which will build an unsustainable liability for the future," states Ms Fitzgerald.

The IAIM proposes that an actuarial assessment should be made of the costs of providing pension benefits for existing public servants, and also proposes pension contributions paid by new public servants should be set at realistic levels, commensurate with the benefits they enjoy.

"In the association's view, a total (employer and employee) contribution of 20 per cent is necessary to fund a public sector pension at current benefit levels," says Ms Fitzgerald.

She adds that among the arguments in favour of a mixed funded and unfunded approach are that the burden of costs would be carried by the taxpayers who are benefiting from the public service and would be fairly spread between different generations of taxpayers.

The funded element would provide a stable incidence of cost and an increase in security arising from the accumulated portfolio of assets. There would also be proper identification of liabilities in relation to changes in public service pension schemes or early retirement programmes. A mixed funded approach would also facilitate the mobility of labour, an area which will be of increasing importance in the future, says the IAIM.

The Commission on Public Service Pension is due report in 1998.