merrion street

A (Leas) Ceann Comhairle

I welcome this opportunity to contribute on behalf of the Government to what has been an interesting debate.

Popular misconceptions

Pensions are an important public policy issue and it is useful for the Dáil to debate the issues. However, I think this debate has shown that there are misconceptions about public service pensions in particular and the steps the Government has been taking to limit the cost to the taxpayer.

The first misconception is that public service pensioners are all on massive pensions.

The truth is that only around 1% of public service pensioners are in receipt of a pension in excess of €60,000 and only a few hundred have a pension in excess of €100,000. The fact is that about one third of civil service pensioners have a pension of €10,000 a year or less, around half have a pension of €20,000 a year or less.

The second misconception is that public service pensioners, former teachers, nurses and civil servants, represent an

The 2009 report by the C&AG is often used to make this point as it estimated an overall public service pension liability of some €116 billion.

This figure has to be properly understood.

It is an actuarial assessment of accrued pension liabilities for existing staff which will be paid over many years.

Above all, it must be stressed that this 2009 estimate assumed that there would be a real increase in public service pay over the long term. It is quite clear that very a different assumption would have to be made if the assessment were to be carried out today.

The estimate also makes assumptions about the indexation of pensions which need to be re-examined. The actuarial exercise indexed pensions to pay – if this was not done and it was assumed that pensions would instead track the consumer price index over the long run, the figure could fall to about €80 billion.

In the light of these and other considerations, I understand the Comptroller and Auditor General will be re-doing this exercise. I am sure that a very different picture will emerge, especially when account is taken of the new single public service pension scheme for new entrants which I introduced this year.

The third misconception is that

The position is that significant contributions are paid – generally 5% for main scheme benefits and 1.5% for spouses and childrens’ benefits for all staff in place since 1995 and for many others also.

In addition, as all here will know, public servants pay a pension-related deduction (PRD) which saves some €950 million annually. If the PRD is taken together with the pension contributions, current public servants make a significant input of well over 50% of today’s annual public service pension outgo, which itself amounts to about €2.9 billion.

A further misconception is that public service pensioners have not taken a cut to their pensions and only private sector pensioners have seen reductions.

The fact is that public service pensioners have had their pensions cut.

Unlike many private sector pensioners, public service pensioners have been subject to the financial emergency measures legislation which imposed significant reductions of up to 12% on public service pensions in payment.

Last year, arising from my concern about large public service pensions, I amended the legislation to increase the reduction on pension amounts over €100,000 to 20% on top of all other taxes and reductions.

The next misconception

oPay cuts, including those made by this Government, operate progressively with higher earners taking the largest cut which means that reductions in pensions will also be progressive. While the average reduction arising from the pay reductions will be around 7% this extends to in excess of 20% for the highest earners, of whom officer holders are clearly one part.

oFor those pensioners who are in receipt of pensions calculated before the pay reductions, the public service pension reduction applies a progressive reduction with rates of up to 20% for those with the highest pensions.

oThe new Single Pension Scheme Act will calculate future pensions on the basis of career average earnings not final earnings – this too will have a progressive impact – protecting pensions for lower paid workers and flattening pensions for those at the upper earnings end.

The final misconception I want to deal with is the idea that we here in the Oireachtas have a general or unfettered power to pass laws that would effectively confiscate property.

I believe we in this House understand well, despite the rhetoric, that the Oireachtas legislates within the Constitution and that legal issues concerning property rights are important in this context.

Reflecting constitutional rights and general public policy, the Financial Emergency Measures Acts reduce, in a proportionate and progressive way, public service expenditure.

The preambles to the FEMPI legislation clearly establish the measures in the context of the financial emergency pertaining. There are also significant safeguards built into each statute, including an annual review and report, which must be laid before the Oireachtas in June each year, as well as provision for me as Minister to examine cases for full or partial exemption if considered fair and reasonable in all the circumstances.

It is broadly accepted that further public service pension cuts could only be justified in the broad public interest. They would therefore have to make a meaningful contribution to the fiscal adjustment and would likely have to be designed in a similar fashion to the existing reduction.

Any move to introduce, for example, a 100% rate of pension reduction would immediately run up against the likelihood of the courts finding that such a restriction in property rights, however it may be felt justified by the exigencies of the common good or the latest media report, amounts to an unjust attack by the State on the rights of individuals.

Fianna Fáil counter-motion

Let me also deal in brief with some of the points made in the counter motion put down by Fianna Fáil.

I believe the 0.6% pension levy introduced by Minister Noonan to be a fair and proportionate imposition on funds which have benefitted from generous tax exemptions over the years.

The fact is that this revenue has been very important and has supported the Jobs Initiative which is working, slowly but surely. Deputies must acknowledge that, under this Government, unemployment has been stabilised.

Removing the levy would have a negative impact on the Exchequer as the funds would have to be found elsewhere. Putting forward a proposal to spend money without saying how they will deal with the resultant shortfall is yet another example of the Deputies opposite still having failed to learn basic lessons.

To conclude, I am happy to take this opportunity to challenge some common misunderstandings about public service pensions and to present the facts. The facts show that neither I nor the Government has any difficulty in defending its fair and careful handling of this important policy area.

In this spirit, I urge Deputies to support the Government’s counter motion.

Thank you.