ANALYSIS:Irish public service pensions are considered among the most generous in the EU, writes HARRY McGEE
THE CUTS in pay borne by public service employees in last December’s budget were the first reductions imposed since 1933, an uninterrupted period stretching over three-quarters of a century.
For State pensioners the record has been an ever better one. Public service pensions have never been reduced since the foundation of State.
Indeed, Government attempts to tamper with the benefits of people of pensionable age have nosedived badly in the past. Ernest Blythe, the minister for finance in the fledgling Free State, tried unsuccessfully to cut the old-age pension by a shilling, gaining notoriety from which he never fully escaped. Two years ago, the Government’s attempt to introduce a means test for over-70s medical cards was withdrawn amid angry street protests by pensioners.
Irish public service pensions (PSPs) are considered among the most generous in the EU. Upon retirement, an employee is entitled to a tax-free lump sum of one and a half times salary, and a pension of half the final salary. There are some minor changes for those who joined the service after 1995 but the net payments are more or less the same.
Public servants can retire at 60 if they have acquired 40 years’ service. In some senior civil service positions and in other agencies, notably the Garda Síochána and the Prison Service, employees can retire on full pension at as young as 50.
It is at the top end that the PSP regime seems hardest to justify and most open to the charge of being “gold-plated”. One former senior civil servant has an annual pension of €155,000 per annum and received a tax-free lump sum of €465,000 upon retirement. A further 10 people receive more than €135,000 per annum and 100 others receive €95,000.
Another aspect that has given rise to contention is that the pension is linked to the grades of existing employees. On every occasion a pay award is made in the public service, pensions will increase by the same percentage. The increases awarded to public sector employees in benchmarking over the past decade have also proved to be bonanza for pensioners over the past decade. Pay parity for pensions has never been applied in the private sector.
But pensions have been linked to current public service employees only on the way up. When the coin has been flipped this cohort has remained inured from the Government’s austerity measures since 2008. Neither the pension levy in 2008 nor the cuts in pay in last December’s budget were imposed on public service pensioners.
Indeed, a Government source pointed out that they have been net beneficiaries, as the effects of deflation have resulted in a real increase in income. Its detractors describe the PSP as “gold-plated” and unsustainable for the Irish economy in the long-run.
Indeed, various reports (including a Green Paper) have warned that its drain on the exchequer may become unsustainable by the middle of this century. The overall bill has increased by 65 per cent in five years, from €1.35 billion in 2005 to an estimated €2.235 billion this year. That jump has been exacerbated since 2009 when there was a large uptake of the Incentivised Scheme for Early Retirement. There were 95,122 in 2009 and will be an estimated 103,413 by the end of 2010.
With the number of pensioners increasing, the sums needed to service the public service bill in the future are staggering. Last year, in a special report, the Comptroller and Auditor General estimated that overall State liability for public sector pensions at €108 billion (that’s the pension liability to cover existing pensions and the future pensions of serving employees). The National Pension Reserve Fund (funded by a universal 1 per cent income levy) was established specifically to cover these rising PSP costs.
While public sector staff were subjected to the pension levy and to salary cuts in the past two years, neither cut affected future pensions. Following the Croke Park deal in May, the Government confirmed it would not review the PSP system until 2014, in essence kicking the issue to touch.