The Minister for Public Expenditure and Reform, Brendan Howlin TD, has signed the Public Service Pensions Single Scheme Commencement Order which commenced the Single Scheme for new entrants to the public service who join on or after 1 January 2013.
Minister Howlin said "The single scheme is a major and far-reaching reform of the public service pension system." He added that "The Single Scheme makes administration of pensions more efficient, it will reduce costs to the Exchequer. At the same time, it will ensure that public servants and their dependants continue to have a reasonable pension in retirement."
The provisions of the Single Scheme do not affect the pensions of existing public servants. The new Scheme is based on a career average system, has a higher pension age (initially 66 and subsequently linked to changes in the State pension age) and pension increases will, in future, be linked to CPI.
Under the career average system being introduced, public servants will each year accrue a specific amount towards their pension and lump sum. For most public servants this will be approximately 1/80th and 3/80ths respectively, inclusive of social welfare integration. As there will not be a fund, these "referable amounts" will be calculated and up-rated each year by reference to the CPI to inflation-proof them – the total accrued pension and lump sum amounts will be aggregated on retirement to produce the person’s pension and lump sum.
This is a significant change from the current position where the pension is based on ‘final salary’ at retirement. The Minister said that "this will be fairer for all staff. Pension schemes based on final salary are more beneficial to those who are promoted later in their careers, who often accumulate rapidly accelerated benefits in the final years of service. The result can be that individuals receive much larger benefits in retirement relative to their contributions over their careers."
Minister Howlin concluded by saying "This Government has already shown its determination to deal with issues in the long term interests of the country. There was a clear need for further reform of public service pensions. Getting these decisions right now is crucial for the future. I have made these changes to help make public service pension arrangements simpler and more transparent. The new scheme will be fairer particularly to those on low and moderate earnings and the costs will be more manageable. This is a very important and equitable initiative that will greatly assist in putting the ageing-related costs in the public service on a more sustainable long-term footing."
ENDS
NOTES FOR EDITORS
INTRODUCTION
The Single Scheme’s commencement date was 1 January 2013. The Scheme applies to all first-time entrants to the Public Service, as well as to former public servants returning to the public service after a break of more than 26 weeks. In certain circumstances, e.g. where the public servant was on secondment or approved leave or remains on the same contract of employment, the 26 week rule does not apply. The legislation giving effect to the Scheme is the
Public Service Pensions (Single Scheme and Other Provisions) Act 2012.The Scheme provides:
oA pension and retirement lump sum based on career-average pensionable remuneration.
oA facility for early retirement on medical grounds, subject to certain conditions.
oA facility for early retirement from age 55 on cost-neutral (actuarially reduced) basis.
oA death in service benefit of twice annual pensionable remuneration.
oPreservation of retirement benefits which are payable on application at the age a member would be eligible for the State Pension Contributory (SPC).
oA pension for spouses or civil partners and for eligible children.
oPension indexation in retirement based on CPI increases.
Service-based accrual of pension will be discontinued. Instead, members accumulate money amounts towards their pensions – this will be a theoretical sum calculated annually as a fixed percentage of pay and up-rated each year by reference to the CPI. These amounts will accumulate over the span of a career to produce the pension on retirement.
This includes the civil service, education sector, health sector, local authorities, Gardai, Defence Forces, Regulatory sector and non-commercial semi state bodies. It also includes Members of the Oireachtas including the President, the Judiciary, the Comptroller and Auditor General and qualifying and designated office holders, Prison Officers and Fire-fighters.
SAVINGS
Based on estimates carried out by the Department of Public Expenditure and Reform and which, it must be stressed, are highly sensitive to changes in the assumptions used, it is estimated that, by the middle years of the century, the annual expenditure on pension schemes would be about €5,000m pa [2012 terms] and that the new scheme will reduce this annual expenditure by about 35% or €1,800m.
It will take some time for large savings to arise, as few new workers will be entering the public service while the current moratorium on recruitment remains in place and those who are recruited will be in place for some years before they draw a pension.
NEW SCHEME
The main provisions of the new single scheme are:
·raising the minimum public service pension age - initially to 66 to bring it into line with the social welfare state pension age and it will then rise on a phased basis to 67 and 68
·setting a maximum retirement age of 70 – since 2004 for most new entrants to the public service there is no maximum retirement age
·moving to the calculation of pensions on the basis of "career average" earnings – this is a change from the current position where the pension is based on ‘final salary’; it is a fairer and more equitable system and one which is progressive in application in that it affects the pension paid to those who have high earnings especially in late career (e.g, a civil servant promoted to top management later in their career) more than the pension for those who may have a relatively ‘flat’ career progression (e.g. nurses, teachers);
·a change in the overall rate of pension contributions from staff – the contributions will remain broadly as applies at present (6.5%) but will be higher for certain ‘fast accrual’ occupations; modifying the earnings-linking of pensions – the new scheme provides for post-retirement pension increases to be linked to consumer prices not pay; the cost of retaining an earnings link is estimated over the past twenty years to have resulted in increases twice those which would have applied had post-retirement pensions been linked to the cost of goods in the form of the consumer price