Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I apologise to the Chairman and members for not being exactly on time.

The superannuation and retired allowances Vote provides primarily for pensions and lump sum payments for civil servants and pension payments for dependants. It is a Vote that is particularly difficult to estimate as the majority of persons covered by the Vote may, once they reach the age of 60 years, exercise an option to retire at any stage before reaching their compulsory retirement age of 65 years. Eligible persons may opt to retire even earlier than 60 years under the terms of cost neutral early retirement.

Persons are also, I am glad to say, generally living longer and therefore in on-going receipt of a pension for a longer post retirement period, which we all welcome.

The 2012 gross Estimate for Vote 12 the subject of the Supplementary Estimate, was just over €500 million. This was based on existing pensions in payments; figures received from Departments on their projected retirement numbers for 2012 plus contingency and provision for scheme leavers in 2012 as follows: some 18,636 pensions in payment at the end of December 2011; some 1,400 officers estimated to retire in 2012; and 600 pensions leaving the payroll in 2012. There will be a net estimated increase of 800 on the pension payroll by the end of 2012, or an estimated total of 19,436 pensions in payment at the end of December 2012.

In terms of the estimated numbers retiring in 2012, we had regard to the level of retirements anticipated to take place prior to 29 February 2012 as persons availed of the final months of the grace period whereby their retirement benefits would be calculated with reference to their salaries at 31 December 2009, that is before the introduction of the pay reductions imposed with effect from 1 January 2010 under the provisions of the Financial Emergency Measures in the Public Interest (No. 2) Act 2009.

Having regard to the foregoing it is to be noted that the 2012 gross Estimate of just over €500 million for Vote 12 was set at 16% higher than the 2011 outturn of €432 million. However, despite best efforts in estimation, including the provision of a significant contingency over the numbers provided by Departments in late 2011 as to their estimations of retirements in 2012, it has transpired that the level of retirements in 2012 has significantly exceeded estimation and therefore is now in the region of 20,000 pensions in payment, over 560 in excess of the original 2012 net full end of year estimate of 19,436. The numbers who retired were greater and as a consequence we need an additional €25 million to add to the subhead for the purposes of payment to the end of 2012.

The higher than anticipated numbers retiring has an impact on the A1 subhead of the Vote from which pensions are paid but, most important, on the A4 subhead from which most once-off lump sum payments are made. On 22 November more than €134 million had been expended from subhead A4, where the 2012 Estimate had been €116 million. The reason we are seeking this Supplementary Estimate is because of the greater than expected amount under subhead A4, which is the lump sum subhead in the Vote.

In this context the estimated allocation of just over €500 million gross, published in the Revised Estimates for Public Service 2012 and voted by the House on 21 June 2012, will be exceeded when the December payments of entitlements to retired civil servants and dependants are made to the end of the year. It is estimated that gross expenditure for 2012 may be in the region of €522 million, that is comprised of the €85 million we have expended to date in addition to €32 million for the provision for the remaining two pay period in 2012 and another €5 million which is the anticipated additional lump sum payments.

It is however considered prudent to provide for a sum in excess of €22 million in the event that Departments have underestimated the level of lump sum payments payable before the end of December. In this context, to ensure that the required funding is voted before the excess costs associated with the additional retirements accrue to the Vote, a Supplementary Estimate of €25 million is being sought.

I appreciate that members may ask why the Supplementary Estimate is taking place this late in the year when it would have been known for a number of months that the assumption on which the original Estimate for 2012 had been predicated upon were no longer valid. Seeking a Supplementary Estimate too early in the year, for example in September or October, runs the risk of either under or over-estimating the additional sum required due to the nature of the Vote. It is not a case of seeking a Supplementary Estimate to provide funding to bridge the gap between an actual net increase at a particular point in time during the year over the original full year estimated increase as such a snapshot net increase will fluctuate, either up or down, over the remainder of the year due to a combination of the level of further retirements and the number of deaths.
As an example of the volatility of the Vote, it is to be noted that some 300 new pensions, some of which would be reduced spouses' and children's benefits arising from the death of the pension scheme member, have been put into payment since August. When a former civil servant passes away, his or her spouse is entitled to half of his or her pension, that is effectively a new pension for the purposes of the Vote and that of course is taken care of as well.

As expenditure on this Vote is particularly influenced by the numbers of persons who exercise an option to retire before reaching compulsory retirement age, it would have been difficult to estimate the numbers who might choose to exercise such an option over say a four-month period between September and December of this year. It is therefore only towards the end of the year that a more accurate assessment may be made and an appropriate level of additional funding sought. Even at this late stage, absolute accuracy is not possible as, for example, persons may only now be actively considering whether to retire before the end of the year.

It also must be recognised that while additional funding is being requested for the Vote in 2012, the fact that more people than anticipated have opted to retire this year will have a positive impact on the drive to reduce numbers. I acknowledge that one-off costs are involved when people retire, particularly relating to the payment of lump sums in the year of retirement, but it is clear that when more people retire, the Government makes savings in its pay bill. When the pension lump sum has been paid in the year of retirement, the continuing pension cost is at most 50% of the original pay cost, and even less if the person in question has less than 40 years' reckonable service. It is also to be noted that people retiring after 29 January next - this is referred to as the grace period - will receive pensions based on their current pay level; that is, the reduced level.

I will be happy to answer any questions that members of the committee might have. I appreciate the opportunity the committee has given me in bringing this Supplementary Estimate before it today.