Public sector pensions constitute one of the many areas that are going to cost the State more in the years ahead as the population ages. A significant expansion in the numbers employed in the public sector – now close to 390,000, almost 60,000 ahead of the final quarter of 2014 – is another key factor here.
An actuarial report published yesterday by Minister for Public Expenditure Paschal Donohoe estimated that the total public sector pensions liabilities rose to €175.7 billion in 2021 from €149.6 billion a few years earlier. There were no changes in benefits over the period, so the rise is due to ageing and rising numbers, as well as changed assumptions on future salary and inflation levels.
The liabilities will accrue over many years and remain affordable as a percentage of gross domestic product. That said, the amounts are substantial and the annual cost of around €4.5 billion remains well ahead of the annual contribution of public servants of €1.7 billion.
Ireland would be heading for greater financial pressures on public sector pensions had there not been successive reforms over the years, notably the 2013 introduction of the Single Scheme, which includes higher contribution levels for those hired after that date. This group also gets pension increases based on inflation, while earlier entrants benefit from pensions linked to pay increases, which – apart from the latest inflation surge – have generally been higher.
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The cost of this is significant. Were the earlier pensions to revert to being linked to inflation, the total outstanding pension liabilities of the State would fall by close to 20 per cent. This is a measure of the benefit to the earlier entrants – and no doubt the trade unions will be seeking a commitment to extend this in the current talks.
Private sector pensions, meanwhile, are now largely on a defined contributions basis, leaving employees exposed to the vagaries of the markets. And many remain reliant on inadequate State pensions. Even beyond the planned introduction of auto-enrolment, there is work to be done to ensure decent pension provision for all.
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