Paul Kehoe (Wexford, Fine Gael) | Oireachtas source

I thank the committee for the opportunity to present for its consideration the 2016 Supplementary Estimates on Vote 35 and 36. Vote 35 is the Army Pensions Vote and Vote 36 is the Defence Vote. I will commence with a short statement setting out the background to these Supplementary Estimates. For 2016, a Supplementary Estimate is required to address the net shortfall of €11 million arising from the Army Pensions Vote and a technical Supplementary Estimate is required within the Defence Vote to facilitate payments under the naval vessel replacement programme. At the outset, I should explain that the Supplementary Estimates sought are on an Exchequer neutral basis and all additional funding requirements will be met from within the Defence sector envelope for 2016.

I will start with the Army Pension Vote which makes provision for the retired pay, pensions, allowances and gratuities payable to or in respect of members of the Defence Forces. In 2016, the Estimate provides a net sum of €218.5 million for the Army Pension Vote. However, net outturn this year is expected to be €229.5 million, leaving a shortfall of €11 million. This amount will be funded by the savings on the Defence Vote. Subhead A2 is the largest subhead of the Army Pension Vote. It covers expenditure on all superannuation benefits for former members of the permanent Defence Forces, PDF, and their dependants. It accounts for over 95% of all military pensions expenditure including gratuities. It is also demand driven and non-discriminatory. The original provision of €214.3 million for subhead A2 will be sufficient to meet all requirements for the year. The shortfall on this subhead is estimated at €10.8 million.

I will outline the main reasons for the shortfall in subhead A2. In other public services areas most people leave at a standard retirement age, which can generally be predicted well in advance. However, the PDF is atypical. The vast majority of military personnel who retire on pension do so voluntarily, that is, at a time of their own choosing. For example, during 2015, some 80% of enlisted personnel who retired on pension did so voluntarily, that is before their compulsory retirement age. The position for 2016 is very similar. This situation is a product of availability - for operational and manpower policy reasons - of the early payment of pension benefits immediately on retirement after relatively short periods of service and regardless of age. Forecasting of Defence Forces pensions expenditure is very difficult from year to year. While up to 270 new retirees on pension were anticipated for 2016 as a whole, current indications are for actual numbers of some 320 by year-end. There is also the ongoing impact on military pension payments of the high numbers of retirements on pension in recent years. During the years 2010 to date, over 2,600 military personnel retired with immediate pension and gratuity entitlements. In addition, many retirees qualified for the maximum retirement benefits, which also contributes to the ongoing increased costs. The number of Defence Forces pensioners has continued to rise during the past year and currently there are some 12,200 military pensioners of all categories. This is a net increase of about 1,200 since 2007. A shortfall also arises on subhead A3 of the Army Pensions Vote. This covers the cost of military disability pensions, disablement lump sums and related dependants’ pensions. It accounts for some 4% of all military pensions expenditure. The original provision of €8.5 million for this subhead will not be enough to meet the full costs arising during the year. A shortfall of €400,000 is expected. This shortfall is due to greater than expected expenditure in respect of new disability pensions and disablement lump sum awards over the course of 2016. The combined shortfall of €11.2 million on subheads A2 and A3 will be partly offset by expected savings of €200,000 on subheads A4, A5 and A6 of the Army Pensions Vote.

The purpose of the Supplementary Estimate for Vote 35 is to seek additional funding of €10.8 million for subhead A2; seek additional funding of €400,000 for subhead A3; and reallocate savings of €200,000 on subheads A4, A5 and A6 into subhead A2. As I indicated to the committee on 30 June 2016, it has been my intention to seek extra funding for military pensions as part of the overall future budgetary negotiations. As announced in budget 2017, the gross allocation for Army Pensions will increase by €6 million to €230 million next year. The military pensions funding envelope for 2018 will be addressed next year as part of the ongoing engagement with the Minister for Public Expenditure and Reform, Deputy Paschal Donohoe, and his officials.

I will now turn to Vote 36 - Defence. A technical Supplementary Estimate involving a transfer between subheads within the Vote is required to facilitate payments under the naval vessels replacement programme. Earlier this year, an order was placed for a fourth offshore patrol vessel for the naval service. This continues the commitment underpinned by the 2015 White Paper on defence to continue the modernisation of the Naval Service fleet. This order has been placed under the existing contract which has already delivered three vessels, the LÉ Samuel Beckettin 2014, the LÉ James Joycein 2015 and the LÉ William Butler Yeatsearlier this year, at a cost of €199.4 million. The fourth vessel will be delivered in 2018.

The 2016 Estimate provides a gross sum of some €682 million for the Defence Vote. Payments relating to the purchase of ships are made from the Naval Service subhead A11. The original 2016 allocation for this subhead was €33 million. However, due to increased commitments under the naval vessel replacement programme and some additional maintenance required on the other ships, the projected outturn on this subhead is now €61 million.

An adjustment within the Vote of €28 million is, therefore, required. Offsetting savings will be met from the pay and allowances subheads in Vote 36 as follows: €23 million on subhead A3, Permanent Defence Force pay; and €5 million on subhead A7, civilian employees pay.

The three ships already delivered under this programme are now in operational use and have added significant value to the operational effectiveness and capabilities of our Naval Service fleet. For example, Operation Pontus, which commenced in 2015 as a humanitarian search-and-rescue mission in the Mediterranean Sea, has been directly responsible for the rescue of more than 15,300 people to date. Both the LE Samuel Beckettand the LE James Joycehave participated in this operation. The commitment to modernising the fleet, together with the professionalism and commitment of Naval Service personnel, has made a substantial contribution to this operation. It highlights the ongoing importance, impact and value of the vessel replacement programme. The acquisition of modern new ships under the naval vessel replacement programme, combined with a continuous process of refurbishment and repair, will ensure the operational capability is maintained and that the Naval Service is fully equipped to carry out its assigned roles. Along with continued investment in Defence Forces equipment and infrastructure, the overall funding will ensure that the Defence Forces are equipped to fulfil the roles set by Government.

Again, I thank the committee for the opportunity to present these Supplementary Estimates. I commend them to the committee and I will be pleased to answer whatever questions may arise.