Paul Kehoe (Wexford, Fine Gael) | Oireachtas source

I thank the select committee for giving me the opportunity to present for its consideration the Supplementary Estimate for Vote 35 – Army Pensions.

I will commence with a short statement setting out the background to this Supplementary Estimate.

The Army pensions Vote makes provision for retired pay, pensions, allowances and gratuities payable to or in respect of members of the Defence Forces. The 2017 Estimate provides a net sum of €224.6 million for the Vote. However, net outturn this year is expected to be €235.3 million, leaving a shortfall of €10.7 million.

Subhead A2 is the largest subhead of the Vote. It covers spending on all pension benefits for former members of the Permanent Defence Force, PDF, and their dependants. It accounts for over 95% of all military pensions spending, including gratuities. It is demand-driven and non-discretionary. The original provision of €220.1 million for subhead A2 will not be sufficient to meet all requirements for the year. The shortfall in this subhead is estimated at €10.8 million.

I will outline the main reasons for the shortfall in subhead A2. The number of Defence Forces pensioners has continued to rise during the year, with some 12,350 military pensioners across all categories. This is a net increase of about 1,350 since 2007. It is expected that approximately 320 military personnel will retire with a pension and lump sum in 2017. Overall, this level of turnover during the year was greater than what was provided for in the original Estimate.

In other areas of the public service, most people leave at a standard retirement age, meaning that their numbers and timing of departure can generally be predicted well in advance. However, the PDF is atypical. The majority of military personnel who retire on pension do so voluntarily, that is, before reaching maximum retirement age and at a time of their own choosing. As such, the details are not known in advance, which can contribute to greater than expected expenditure on military retirement benefits in any given year. This situation is a product of the availability, for operational and human resources, HR, policy reasons, of the early payment of pension benefits immediately on retirement after relatively short periods of service and regardless of age.

In any given year, forecasting of Defence Forces pensions expenditure and the exact numbers of retirements is difficult. During 2016, 75% of military personnel who retired on pension did so voluntarily. The picture is much the same for 2017. In addition, many retirees qualified for the maximum retirement benefits, which also contributes to the ongoing increased costs.

A shortfall arises in subhead A3, which 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 €8.7 million for this subhead will not be enough to meet the full costs arising during the year. A shortfall of €430,000 is expected and is due to greater than expected expenditure in respect of new disability pension and disablement lump sum awards over the course of 2017.

The combined shortfall of €11.3 million in subheads A2 and A3 will be partly offset by expected savings of €260,000 in subheads A4, A5 and A6, combined with surplus receipts of €300,000 in subhead B.

To sum up, the purpose of the Supplementary Estimate for Vote 35 is to seek additional funding of €10.83 million for subhead A2, seek additional funding of €430,000 for subhead A3, reallocate savings of €260,000 from subheads A4, A5 and A6 to subhead A2, and reallocate projected surplus receipts of €300,000 from subhead B into subhead A2. This leaves a net Supplementary Estimate requirement of €10.7 million.

As I previously indicated to the committee, it has been my intention to seek extra funding for military pensions as part of the overall future budgetary negotiations. Arising from those negotiations, the gross allocation for Army pensions was increased by €6 million for 2017. I am pleased to inform the committee that, as recently announced in budget 2018, the Army pensions allocation will be further increased by €9.5 million next year. The military pensions funding envelope for 2019 will again be addressed next year as part of the process of ongoing engagement with the Minister for Public Expenditure and Reform and his officials.

Although the costs of recruitment to the PDF are not met from the Army pensions Vote, I will take this opportunity to update members on the measures being taken to replace personnel who are leaving the PDF through retirements and discharges generally. I reiterate the Government's commitment to reaching a full strength of 9,500 PDF personnel as set out in the White Paper on Defence. In that regard, I assure the committee that there is sufficient funding within the budget for a full strength PDF.

In terms of defence spending, budget 2018 delivered an extra €25 million for 2018 and an additional €98 million for capital expenditure out to 2021. As I have acknowledged, however, the process of reaching and maintaining the 9,500 target strength level presents many challenges. As with other areas of the public service, challenges have arisen for the Defence Forces in terms of the recruitment and retention of personnel with scarce and highly marketable skills. This is always a factor where highly trained personnel are a desirable asset to any employer. There is a particular challenge in retaining personnel with specialist and scarce skills but having spoken to my ministerial colleagues at European meetings, I note this is a challenge faced by military forces internationally.

I have welcomed the recent announcement by my colleague, the Minister for Finance and Public Expenditure and Reform, on the next phase of work of the Public Service Pay Commission. I am pleased to see that the Defence Forces are highlighted as a priority area requiring a more comprehensive examination of underlying difficulties. The Department of Defence, in conjunction with the Defence Forces, has raised recruitment and retention issues as part of its submission to the commission. We will be making a further submission to it when it commences this next phase of its work.

As stated in the 2015 White Paper on Defence, continuous recruitment is the lifeblood of the Defence Forces organisation. It provides young, motivated and enthusiastic personnel to replenish military formations for operational deployments. As the committee is aware, there has been a concerted effort in recent years to ensure significant ongoing recruitment at enlisted and officer levels. It is anticipated that 800 personnel will be inducted into the PDF during 2017. This includes officer cadets, Air Corps apprentice aircraft technicians, direct entry officers for the Naval Service, medical doctors and, of course, general service recruits.

A new general service recruitment campaign was launched in September. This builds upon the successes of previous campaigns and will provide for the induction of new personnel in 2018. Aside from recruitment, there were also more than 1,400 promotions across all PDF ranks in the years 2014 to 2016. Promotions within officer and non-commissioned officer, NCO, ranks are ongoing in order to fill vacancies and, to date in 2017, a further 190 personnel have been promoted.

A range of recruitment methods are being employed, including direct entry competitions for specialist positions, and the scope to expand direct entry further is being considered. This includes actively considering the terms and conditions that would allow and encourage former members of the Defence Forces with specialist knowledge, skills and expertise to return to service to meet any identified skills gap.

The Government is committed, with the support of the Chief of Staff and within the resources available, to retaining the capacity of the Defence Forces to operate effectively across all roles and to undertake the tasks laid down by the Government at home and overseas.

I commend this Supplementary Estimate for the Army pensions Vote to the committee. I will be happy to take whatever questions arise and will do all that I can to answer them openly and honestly.