Last week one of the main public-service union leaders warned his members that the Government was likely to bring up the issue of pensions in the forthcoming pay talks. However, Tom Geraghty, of the Public Service Executive Union, insisted that unions would resist measures resulting in a deterioration to members' pension entitlements.
Minister for Public Expenditure Paschal Donohoe last December flagged that the Government wanted the Public Service Pay Commission to take into account the rising value of public-service pensions.
A confidential Government technical paper on pensions, submitted to the commission, in essence seeks to make the case for such a move in greater detail. The report says the cost of paying pensions to retired public-service staff is now €3.3 billion.
It also argues that the differential between the cost to the State of providing pensions benefits for its employees compared with the amount private sector companies are putting aside for their staff has widened by some 50 per cent in the past decade – from about 12 per cent of salary in 2007 to 18 per cent now.
There have been some reforms to pension arrangements for State employees in recent years – most notably the introduction of a scheme for staff taken on after 2013, under which pensions are based on career averages rather than final salary, with benefits indexed in line with inflation.
However, the bulk of public-service staff have a defined-benefit pension arrangements, in which the amount to be paid is guaranteed and based on final salary while taking into account the pay rates of still-active personnel.
Defined contribution
Defined-benefit pension schemes are becoming increasingly rare in the private sector; nearly all remaining schemes are closed to new entrants and many have removed any provision for post-retirement pension increases.
Increasingly where private-sector pension schemes exist,they are based on defined-contribution arrangements on which payments levels are not guaranteed.
The Government’s technical report urges the commission to reflect the increased cost of providing retirement benefits in its forthcoming findings. Although it does not make specific recommendations for further changes, it does give some indication of the impact of some reforms – such as linking future pension increases to the consumer price index – if they were implemented.
The report says for public service staff on the pre-2013 pension scheme, the State would have to make a contribution of 29 per cent of pensionable salary to fund the benefits. However, this would fall to 25 per cent if pension increases were linked in future to the consumer price index.
The report shows that for staff in the revised 2013 scheme, the cost of the State’s contribution is on average on 9 per cent of pensionable salary. In the private sector the notional employer contribution rate is 11 per cent for pre-2013 staff and 7 per cent for post 2013.
Fast accrual
The Government report suggests that for hospital consultants, the largest group of high earners in the public service, the cost of providing pension benefits for those appointed before 2013 is 39 per cent of pensionable salary, whereas the figure is 14 per cent for those in the revised scheme.
The level of State contributions towards pensions for High Court judges and gardaí who have fast-accrual schemes – under which they secure benefits after a shorter period of time or can retire earlier than other groups – is significantly higher.
For gardaí appointed before 2013, the State contribution is about 53 per cent of pensionable salary, whereas for judges it is 71 per cent. For those appointed after 2013, these figures fall to 14 per cent and 39 per cent respectively.
However, unions are likely to argue that the Government report does not take account of the 2009 pension levy, under which staff contribute about 5 per cent of salary on average.