Minister for Finance Brian Cowen was asked in a written Dáil question last week to estimate the cost of the deferred pension liabilities of those working in the public service. How much would it cost in current money terms to finance their pensions? The answer was €45 billion, and rising. A decade ago the cost was €25 billion.
For the taxpayers who must pay the bill, this future liability is now bigger than the national debt, which stands at €37 billion, but falling. Public service pensions, which are unfunded, are paid for out of general tax revenue. And the pension benefits that public service workers enjoy are far superior to those of their private sector counterparts. For public service pensions are indexed to current public service pay rates.
Over the last six years the cost of private sector pension provision has soared. Employers have doubled their contribution rates to try and reduce the deficits in company pension schemes, but with mixed success. Employees too have had to pay more; in some cases, making higher contributions for reduced retirement benefits. Nevertheless, a national survey of private sector companies with defined benefit, or final salary, schemes has shown that one-third would fail the statutory solvency test the Pension Board operates. Mercer, in its survey taken last year, also found that 40 per cent of defined benefit schemes are no longer open to new employees. And by 2009, it suggests the figure could reach two-thirds. The final salary scheme, long regarded as the gold standard pension, may well remain the norm in the public service, and be open to all. In the private sector, however, it is becoming the exception. Quite simply, it has become unaffordable.
The increased disparity between the costs and benefits of private and public service pensions is striking. But even more striking is the lack of political and public concern about both the cost and inequity of the respective pension systems, and their current funding. At present half the workforce has made no private pension provision at all and, at 65, will have to rely on an inadequate social welfare pension.
The pension crisis is generally seen as affecting only the private sector, even though the €45 billion deficit in funding public service pensions represents a far larger black hole. However, because public service pensions are unfunded, they are neither subject to review nor sanction by the Pensions Board. Private sector companies, on the other hand, record pension deficits as liabilities in their annual accounts. The escalating cost of public service pensions surfaces, it seems, only rarely in the overall national pensions debate. Indeed over the last five years it has barely merited a question in the Oireachtas.
In 2001, the then minister for finance, Charlie McCreevy, established the National Pension Reserve Fund to help pre-fund the cost of social welfare and public service pensions. The fund now amounts to €21 billion. That financial transfer amounts to a levy on all. It is time now to hold a public debate on pensions.