Savings option on public service pensions

Wed, Jun 4, 2014, 17:26

It was always the elephant in the room of the public sector pay and pensions bill. Inevitably, sooner or later, the Government would come for the pensions indexation. A move to indexation on the basis of the cost of living index rather than current rates of pay will save €16 billion on a total liability otherwise of some €98 billion, according to a confidential internal memo produced by the Department of Public Expenditure reported in yesterday’s Irish Times. Mind you, that’s over 70 years, but still a massive potential saving.

That is irresistible to a Government counting every penny, and not least because taking it from the largely defenceless, and politically unpopular, “privileged” public service pensioners can be sold as redressing glaring anomalies with private sector workers. It’s a bit like taking candy from a baby.

Public servants, we will be told, are alone in having pensions whose value is linked to the salary of the person now occupying their retirement grade, irrespective of how fast the pay for that grade has overtaken inflation (new rules apply for new entrants). As public servants generally over time improve their relative position in terms of pay, their retired colleagues, unlike their private sector counterparts, share in their good fortune.

All well and good, admirable indeed in theory, but the cost is becoming prohibitive. If after 2016 pensions increase in line with pay, then, as a share of GDP, total expenditure on public sector pensions is expected to increase by nearly a fifth, from 2.2 per cent– €3 .5 billion last year – to 2.6 per cent, by 2025. And, as time goes by and the gap between the CPI and wage increases broadens, the potential saving become even larger.

What’s more, public servants, unlike the vast majority of private sector workers, retain their defined benefit scheme. Another glaring injustice, we will be told. But a glaring injustice to one is a benchmark of decent working conditions to be aspired to by others, and to be defended.

The emergence of these figures is the first salvo in what will be a difficult renegotiation of the expiring Haddington Road agreement in 2016. Unions have already signalled that any sign of growth in the economy will result in pay claims, and they will certainly look to recoup for their members a share in any savings made by the employers in the pensions bill.

Nor will they take kindly to further erosion of their pensions . The combined effect of public service cutbacks to date, according to the Alliance of Retired Public Servants, is that the Government’s emergency powers on pay have already been used to reduce all public service pensions above €12,000 per annum by between 8 per cent and 28 per cent. They bitterly resent the characterisation of the 140,000 public service pensioners as “fat cats”, pointing to the reality that less than 0.1 per cent have pensions over €100,000, while the average pension is of the order of €20,000. Anomalies there may be, but by no means a s generous as some would have us believe.