The Government is seeking to generate savings of €309 million on the public service pay and pensions bill for next year.
It wants the savings to come about as a result of reductions in the numbers of staff employed, greater efficiencies in the way services are delivered under the Croke Park agreement and reforms to pension arrangements.
The Government wants to see a reduction of €100 million – or about four per cent overall - in the cost of public service pensions next year.
As outlined last month in its four–year plan, the Government has set a target of reducing the numbers on the public service payroll from 308,000 this year to under 301,000 at the end of 2011.
By the end of next year, the number of staff in the Civil Service will be reduced to 36,200 – down from 37,350 this year.
Staffing levels in local authorities will be set at 30,750 - the level last seen in 2001 while Garda manpower will be brought back to the 2007 level of 13,500.
As part of its Budget measures the Government has set a maximum salary of €250,000 for all persons employed in the public sector, although it acknowledges that there are contractual difficulties in this being applied to some existing personnel in State agencies.
Higher-earning public servants will also be hit by PRSI changes announced by the Government in the Budget. Modified PSRI rates will be increased to four per cent for those on incomes of more than €75,036.
The Government has also introduced a 10 per cent pay reduction for all new staff recruited to the public service.
In addition all new entrants will start at the first point of the salary scale. Minister for Finance Brian Lenihan said that while recruitment would be limited over the next number of years, this measure would “ensure a medium-term reduction in the overall cost of public service pay.”
In his budget speech, Mr Lenihan insisted the Government was sticking to the Croke Park deal on public service pay and reform. There are no cuts in pay or compulsory redundancies, nor are there any changes in pension arrangements for service staff.
However, Mr Lenihan signalled that for the Government to continue with the Croke Park agreement in the future, the promised reductions in costs associated with the deal must materialise.
“Despite the economic constraints, the Government has abided by the Croke Park agreement on pay, compulsory redundancies and on pension terms. Public servants, their unions and their managers for their part must abide by their commitments to pursue flexibilities and reforms in every part and level of the public service. We have made commitments to a continued reduction in the cost of the public service. If the Government is to be held to its side of the Agreement, those reductions must be delivered.”
Those who will be affected by changes to public service pensions are mainly retired staff and new entrants.
Those receiving public service pensions above €12,000 a year will see it reduced by an average of 4 per cent. Those on a pension below €12,000 a year, which is roughly equivalent to the value of the social welfare pension, will be exempted from the new cuts.
These cuts in public service pension payments will be implemented on a graduated basis. Figures produced by the Department of Finance show that while those receiving a pension of €15,000 will face a cut of 1.2 per cent or €180, those on a pension of €30,000 will see a reduction of 4.2 per cent or €1,260 while those on a pension of €80,000 will experience cuts of eight per cent or €6,360 per year.
Mr Lenihan said that the cost of providing public service pensions had increased significantly in recent years. He said that pensioner numbers had grown from 76,000 in 2006 to about 103,500 in 2010, an increase of 36 per cent, while expenditure has risen by 56 per cent from €1,433 million to €2,235 million in the same period.
“Public service pensioners have so far been unaffected by the reductions imposed on serving staff. The Government considers it appropriate that those pensioners who can afford to should now share the burden of adjustment.”
As flagged first in last year’s budget, there are to be changes in pension arrangements for new staff in the public service from the start of next year.
These will see public service pensions for future staff linked to career average pay rather than final salary. People will also retire later and pension increases in retirement will be set in relation to the consumer price index rather than increases in pay for serving public servants as at present.
The Government is also to extend the grace period, under which salary levels that were in place prior to the pay cuts introduced over the last year or so are used to calculate pension entitlements, to the end of February 2012.
The Minister said that this was “to prevent a log jam of public service retirements in 2011 and to spread the extra pension lump sum costs over a more manageable period in both 2011 and 2012”.
“But I want to make clear that public servants or office holders retiring during the grace period will be subject to the pension reduction I am introducing today”.