THE GOVERNMENT’S legislative proposal to reform public service pensions is long overdue, but remains incomplete. The measure will establish a single pension scheme for new public service employees. This will change how the pensions of new entrants are calculated and also, over time, raise the pensionable age from 65 to 68. By mid-century, the Government estimates its reforms will save a third of the public service pension bill – or €1.8 billion. Without the changes, the pension bill by then would (in 2010 terms) reach about €5 billion. In the short term, however, the revenue savings from these reforms will be minimal as the changes mainly affect new entrants to the public service. And with a freeze on recruitment in place, the few who will join the public service soon are unlikely to be drawing their pension before 2050.
The new pension scheme arises from a commitment under the EU-IMF Programme of Financial Support. Change should have come much sooner. In recent years the cost of public service pension provision has soared, boosted by a recent surge in the number of retirees. Since 2006, the number of public service pensioners has risen by 40 per cent. This year, the pensions bill will reach €2.9 billion – a doubling in just five years. The major increase in the cost of pensions is attributable to a number of factors: not least to those who, since 2009, have taken early retirement in response to attractive financial incentives. But as the Department for Public Expenditure has noted, post-retirement pension increases have up to now been extremely generous. Over the past 20 years, pension increases for retirees – which are linked to public service earnings – were twice what they would have been if linked instead to consumer prices. Public service pensions indexed to earnings are available in few other countries and in current circumstances they cannot be justified here.
The biggest change will mean that the pensions of new entrants will be based on career average earnings rather than on their final salary at retirement – a benefit other public service workers will keep. It means new entrants, who will also be subject to a 10 per cent cut in pay rates on taking up employment, will have inferior pension benefits to current public service employees. The latter will also continue to enjoy far better pensions than those now available in the private sector, where three out of four defined benefit schemes are in deficit and many of these are struggling to survive.
Under the Croke Park agreement, which runs to 2014, the Government may have felt it impossible to alter the pension arrangements of existing public service employees, but it should address the issue when the agreement expires. The logic of the pension reform proposed requires a balanced sharing of the burden of adjustment. That should involve spreading the burden to include existing public servants. The Government should make it clear it intends to do so. Without such a commitment, these reforms will prove both inadequate and inequitable.