New pensions for public sector

Significant changes in public sector pensions are contained in new legislation published today by Minister for Public Expenditure…

Significant changes in public sector pensions are contained in new legislation published today by Minister for Public Expenditure and Reform Brendan Howlin.

The legislation provides for a single pension scheme for all new entrants to the public service that will significantly reduce costs to the taxpayer, according to Mr Howlin.

Under the Public Service Pensions (Single Scheme) and Remuneration Bill 2011, new entrants' pension will be based on an average of career earnings rather than their final salary at retirement, as at present.

Mr Howlin said this was a fairer approach to pension of most benefit to lower grades in the public service.

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Further savings will be made from raising the minimum public service age from 65 to 66, the social welfare State pension age, and then to 67 and 68.

A maximum retirement age of 70 is also being proposed; at present there is no maximum retirement age for most new entrants.

Significant savings are also expected to accrue from a change in the earnings-linking of pensions. It is planned post-retirement pension increases will be linked to consumer prices not pay. Over the past 20 years, the link to pay is estimated to have resulted in increases twice as large as those which would have applied if pensions were linked to the consumer price index.

The changes proposed in the Bill will not result in immediate savings, but by the middle of the century it is estimated that the new scheme will reduce annual expenditure by about 35 per cent or €1,800 million.

The provisions do not affect the pensions of existing public servants. Under the Croke Park agreement, it was agreed there would be no change in current arrangements on pension indexation arrangements for existing public servants.

Mr Howlin said there was a clear need for reform of public service pensions. "The new scheme will be fairer particularly to those on low and moderate earnings. Above all, the public service will be better able to manage the costs associated with the demographic and other changes which are coming."

Paul Cullen

Paul Cullen

Paul Cullen is a former heath editor of The Irish Times.