Paul Kehoe (Wexford, Fine Gael) | Oireachtas source

I note the Austrian ambassador is in the Gallery.

I thank the committee for the opportunity to present for its consideration the 2018 Supplementary Estimates on Vote 35, the Army pensions Vote. The Vote makes provision for retired pay, pensions, allowances and gratuities payable to or in respect of members of the Defence Forces and certain dependants. The 2018 Estimate provides a gross sum of €239.1 million for the Vote; however, gross outturn this year is expected to be approximately €242.6 million, which leaves a shortfall of €3.5 million. The €3.5 million required is 1.5% of the original gross Estimate. I will deal with the recent spending review of Defence Forces pensions expenditure, which is particularly relevant in the context of this Supplementary Estimate, later.

I will set out the position regarding the relevant subheads of the Vote. 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 96% of all military pensions spending, including gratuities. It is demand-driven and non-discretionary. The original provision of approximately €229.2 million for the subhead will not be sufficient to meet all requirements for the year. In the circumstances, the shortfall on this subhead is estimated at €4.7 million.

I refer to the main reasons for the shortfall in the subhead. The number of Defence Forces pensioners has continued to rise during the past year and at the end of October 2018 there were approximately 12,450 military pensioners of all categories. This is a net increase of approximately 460 since the end of 2013. Based on available information, it is projected that approximately 340 military personnel will retire with a pension and lump sum in 2018. Overall, this turnover during the year was greater than what was provided for in the original Estimate. This is driven by natural turnover of Defence Forces personnel annually, allied with increased life expectancy generally. New retirees going on pension continue to outnumber deceased pensioners by a ratio of about 2:1 on average.

In other areas of the public service, most people leave at a standard retirement age and so their numbers and timing of departure can generally be predicted well in advance. However, the PDF is different because the vast 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 these voluntary early retirements are not known in advance, this 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 number of retirements is very difficult. In 2017, some 70% of military personnel who retired on pension did so voluntarily and the picture is much the same for 2018. In addition, many retirees qualified for the maximum retirement benefits, which also contributes to the ongoing increased expenditure.

The shortfall of €4.7 million under subhead A2 will be partly offset by expected savings of €1.2 million under subheads A3 to A6, inclusive. To sum up, the purpose of the Supplementary Estimate for Vote 35 is to seek additional funding of €4.697 million for subhead A2 and to reallocate savings of €1.197 million from subheads A3 to A6, inclusive, to subhead A2. This leaves a net Supplementary Estimate requirement of €3.5 million.

Earlier, I referred to the recent 2018 spending review of Defence Forces pensions expenditure. The review, which was published on budget day, was carried out as part of the 2018 round of spending reviews and was undertaken jointly by officials from my Department and the Department of Public Expenditure and Reform. Briefly, the review came to the following conclusions. Defence Forces pensions expenditure and pensioner numbers have been increasing progressively year on year. This trend is forecast to continue in the short to medium term. Military pensions expenditure, in common with public service pensions generally, is demand-driven and non-discretionary, so it cannot be arrested or reversed in the same way as may be possible with other aspects of Exchequer expenditure. Defence Forces superannuation arrangements differ in a number of key respects from the wider public service. These distinctions include earlier and more unpredictable retirement turnover with entitlement to immediate pension benefit, and atypical faster rates of benefit accrual. These factors make it more difficult to predict annual funding requirements accurately in any given year. Of particular relevance is the review’s conclusion that funding allocated in the annual Estimates process for Defence Forces pension benefits has proved insufficient in recent years. This has led to an annual requirement for a Supplementary Estimate, largely met through identified savings from the Vote 36 - Defence. In noting the Supplementary Estimates that have been required in the past, the spending review goes on to recommend that the Army pensions Vote should be allocated resources in line with the cost analysis in the review from 2019 onwards, to ensure that the full cost can be met.

As the committee will be aware from previous Estimates debates, it has been my stated intention to seek extra funding for military pensions as part of the overall budgetary negotiations. I am pleased to report that solid progress has been made on that front. As announced in budget 2019,an extra €10 million has been allocated in the 2019 Estimate for the Army pensions Vote, a 4.2% increase. This follows an additional €6 million in the 2017 Estimates and an extra €9.5 million in the 2018 Estimates. As stated in the pensions briefing material provided to the committee for today’s debate, the extra €10 million in Vote 35 for next year is generally in line with the forecast for Defence Forces pensions expenditure for 2019. The situation will be constantly monitored over the course of the coming year to ensure that appropriate funding is in place to meet all requirements.

I commend this Supplementary Estimate for the Army pensions Vote to the committee. I will be happy to take any questions regarding the Vote.