€100m from public service pensions

PENSION:THE GOVERNMENT will clawback €100 million from people who have retired from the public service as part of the National Recovery Plan.

The figure amounts to roughly 4 per cent of the annual cost of public service pensions in 2011. The measure will require legislation which the Government said yesterday would be passed before the end of the year.

Public service pensioners with income below €12,000 per annum will see no change. However, there will be cuts in pension above that level: 6 per cent on income between €12,001 and €24,000; 9 per cent on anything above €24,001 and €60,000 and 12 per cent on sums higher than that.

“Given current budgetary constraints, the Government considers that it is appropriate that some retired public servants make a contribution to the required adjustment,” the report states.

People retiring during the “grace period”, where pensions are calculated on the basis of salary before the recently imposed cuts in public sector pay, will also be subject to the clawback. That grace period has now been extended for a second time – to the end of February 2012.

“As those retiring after this date are subject to the pay reduction of 7 per cent, on average . . it would not be appropriate to also apply the pension reduction to this group,” the report states.

Public services workers will also be affected by cuts in relief on pension contributions that will be phased in over the next four years. This will ultimately see tax relief curtailed to the standard income tax rate (20 per cent).

At present workers paying tax at the higher 41 per cent rate can claim relief at this level. Relief from PRSI and the health levy will also disappear.

The plan also confirms the Government’s intention to put in place a new pension scheme that will apply to anyone joining the public service from next year.

Among other things, it will calculate pensions on the basis of career earnings rather than final salary. It will also index pension increases to the consumer price index rather than matching increases in pay to working public servants.

The minimum pension age for new entrants will be 66 – rising to 67 in 2021 and 68 in 2028. Public service workers will, in any event, have to retire at the age of 70.

The Government has said there will be no change apart from the clawback, for now, in the pension entitlements of those already in the public sector or retired from it.

This will be revisited in negotiations scheduled for next spring but any move to inflation-linked indexing for all public service pensioners will not be introduced during the lifetime of the Croke Park agreement.