Minister Howlin Publishes the Public Services Pensions (Single Scheme) and Remuneration Bill 2011
The Minister for Public Expenditure and Reform, Brendan Howlin T.D., today published the Public Service Pensions (Single Scheme) and Remuneration Bill 2011.
Minister Howlin said that “The new single scheme is a far-reaching transformation of the public service pension system. It makes clear the Government’s strong commitment to major public service reform. The Bill’s main purpose is to provide for a new single pension scheme for all new entrants to the public service which will significantly reduce costs to the taxpayer. It provides for a new approach which will modernise and standardise pension arrangements throughout the public service.
This new scheme places Ireland at the fore-front of public service pension reform in Europe. Apart from the Exchequer savings which will be realised, we will be making sure that the public service uses this opportunity to stream-line pension administration and secure further savings.”
This is a significant change from the current position where the pension is based on ‘final salary’ at retirement. The Minister said that “this is a fairer approach to pensions; your pension reflects your career average earnings as opposed to your final salary.”
The provisions do not affect the pensions of existing public servants. Under the Public Service Agreement 2010-2014 (the Croke Park agreement), it was agreed that there will be no change in current arrangements for the indexation of pensions for current public service pensioners and serving public servants during the life of the agreement. Public service pensions for current pensioners has been reduced since the beginning of this year by about 4% on average and that from the end of February 2012 the pensions of those retiring from the public service would be based on reduced pay levels.
“This Government is determined to deal with issues in the long term interests of the country. There was a clear need for reform of public service pensions. Getting these decisions right now is crucial for both the taxpayer and for future public servants. The changes I am presenting in the Bill make public service pension arrangements simpler and more transparent. The new scheme will be fairer particularly to those on low and moderate earnings. Above all, the public service will be better able to manage the costs associated with the demographic and other changes which are coming.”
Ends
29 September 2011
NOTES FOR EDITORS
NEW SINGLE PUBLIC SERVICE PENSION SCHEME
The new single scheme will apply to all new entrants to the public service. 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 Oireachtas members and the Judiciary.
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.
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 [2010 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 with 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 – it is proposed that this be increased 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 index;
the reduction but not elimination of fast accrual terms – these generally apply to emergency services groups such as the Gardai, members of the Permanent Defences Force and Firefighters (as well as office-holders, the Judiciary and Oireachtas members), the uniformed services will retain their early retirement age which reflects operational needs;
for the President, Oireachtas members, the Judiciary and the Attorney General and others who earn accelerated pension benefits at present, the new scheme acknowledges their special circumstances by providing for a doubled rate of accrual together with a doubled rate of contribution (13%) for all new entrants to these offices. It is proposed that the President continues to receive a pension on retirement from the office. Anyone who is or was an Oireachtas member prior to the enactment of the Bill retains those benefits and scheme membership if there is a break in their Oireachtas tenure;
Apart from the special cases mentioned above, the terms of the new single scheme apply equally to all public servants. There are no special terms of any kind for new entrants appointed to senior positions in the civil or public service – the career average system applies in the same way no matter what the grade. The Government will be considering what additional terms, if any, might be appropriate for such senior-level appointments, but these will not be related to pensions.
New entrants under the scheme will be subject to the pension levy.
The measure is one of the structural reform proposals agreed with the EU/IMF under the Programme of Assistance.
