David Stanton (Cork East, Fine Gael)
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Apologies have been received from Deputy Ann Ferris. I remind members to turn off their mobile telephones because, even in silent mode, they can interfere with the quality of the transmission.

This meeting has been convened to consider a Supplementary Estimate for Vote 35, Army pensions, and Committee Stage of the Europol Bill 2012. We will deal with the Supplementary Estimate first.

A Supplementary Estimate for Vote 35 was referred to the select committee yesterday by the Dáil with an instruction to report back to the Dáil by 8 November. The role of the select committee under Standing Orders is to consider the Supplementary Estimate and report that it has done so to the Dáil.

I welcome the Minister for Defence, Deputy Alan Shatter, and his officials to this meeting to assist the select committee in its consideration of the Supplementary Estimate. I thank them for providing briefing material on the Supplementary Estimate which was circulated to members in advance.

I propose the Minister will address the select committee first after which Opposition spokespersons will have an opportunity to respond. Then we can have an open discussion. Is that agreed? Agreed.

I remind members that under Standing Order 161, discussion must be confined to items included in the Supplementary Estimate.

Alan Shatter (Dublin South, Fine Gael)
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I thank the select committee for the opportunity to present for its consideration the 2012 Supplementary Estimate for Vote 35, Army pensions, which is for a net sum of €30 million. I also thank the committee for agreeing to meet at 10 a.m. rather than 9.30 a.m. as I had another meeting in which to participate.

The 2012 Estimate provided for a net sum of €207.9 million. Net outturn this year is expected to be approximately €238 million, leaving a shortfall of €30 million. I must emphasise this Supplementary Estimate for the Army pensions Vote will be met by an appropriate saving on the defence Vote. It is, therefore, a technical Supplementary Estimate with no extra demand on the Exchequer over what was initially voted for the Department of Defence for 2012.

Following the move by the Government to the new performance budgeting format, expenditure under the Vote is now provided under a single programme entitled provision for defence forces pensions benefits. 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 original Estimate provided a net sum of €207.9 million to cover a total of over 11,600 pensioners in all categories, the majority of whom are Defence Forces pensioners.

The number of Defence Forces pensioners has continued to increase during the past year. There are almost 12,000 pensioners of all categories paid by the Department of Defence. This includes 10,047 retired members of the Permanent Defence Force, 1,666 spouses and children of deceased members and 212 spouses of deceased Old IRA veterans. Subhead A2 is the main subhead of the Army pensions Vote. It covers expenditure on all superannuation benefits for former members of the Defence Forces and their dependants. It accounts for over 95% of all military pensions expenditure and is primarily demand-led as well as non-discretionary. The original provision of €204 million for this subhead will be inadequate to meet all requirements. The gross shortfall on this subhead is estimated at €29.9 million. A shortfall of €500,000 is also expected in appropriations-in-aid. The overall supplementary requirement will be offset by expected savings of €400,000 in subheads A1, A3 and A4 to A6, inclusive. When these are taken into account, the net shortfall is €30 million.

The principal reasons for the shortfall in subhead A2 are: the full-year pension impact in 2012 and related carryover costs of the large number who left the Defence Forces on pension in 2011; there were higher than anticipated numbers who retired on pension from the Permanent Defence Force during the first two months of 2012, that is, ahead of the end of the grace period up to 29 February; and many Defence Forces retirees continue to be in the long service category and, therefore, entitled to maximum retirement benefits. Overall, the provision in subhead A2 was not sufficient to meet the costs actually incurred in 2012.

During 2011 and in early 2012 the numbers who retired from the Permanent Defence Force with an entitlement to pension and a retirement gratuity were considerably higher than anticipated. Up to the end of 2011 a total of 498 military personnel of all ranks retired on pension compared to 427 at the end of 2010. However, a total of 559 military personnel have retired on pension so far this year. The bulk of these, 514, did so in the first two months of the year. These early 2012 departures far exceeded expectations, considering that retirements in 2011 were already above average.

The personnel turnover rate in the Defence Forces is among the highest in the public service. As a matter of policy, the regular recruitment of young soldiers is an absolute necessity to ensure a pool of fit personnel.

The level of retirements in 2012 has placed an additional burden on individual members of the Permanent Defence Force during the year. I acknowledge this and thank them for their efforts. At the end of August the strength of the force was 8,838. Therefore, the recruitment of some 600 personnel is required to maintain the agreed strength of 9,500. The intake of personnel will take place in several tranches before the end of the year. This process commenced in late September. To date, 349 recruits have been enlisted, of whom 22 are instrumentalists. In addition, a medical officer was appointed in July and a military judge in September. There was also an intake of 37 cadets who commenced training in October. An Air Corps apprentice competition and a competition to recruit engine room artificers for the Naval Service were recently advertised, from which it is proposed to enlist 20 and 11 personnel, respectively. At the end of September the strength of the force was 9,028 and is currently in the order of 9,100. All of this recruitment will be achieved within the resource envelope allocated to the Department of Defence to maintain the Government-approved strength of the Permanent Defence Force of 9,500.

That is a brief résumé of the overall position and why the Supplementary Estimate is before the committee. I commend it to the committee and hope it will be supported by it.

Pádraig Mac Lochlainn (Donegal North East, Sinn Fein)
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The Minister has stated the additional cost of pensions will be met from the savings accruing the fall-off in the threshold of 9,500. Am I correct to interpret it in this way? Is that where the savings have been made?

Alan Shatter (Dublin South, Fine Gael)
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Yes. Far more retired than was anticipated, especially in the period from January to February 2012. They did so because of the advantages in the pension that would accrue to them. After that had occurred we had to assess the impact on the Permanent Defence Force and make arrangements for recruitment which we advertised in June. When one advertises, there is a lead-in period. I may be corrected by my officials if I am wrong, but my recollection is that we advertised for in the region of 600 personnel. There were in the region of 10,000 applications which, once received, had to be assessed. Following this, there was a process whereby individuals initially selected had to go through an interview and health checks. A range of processes had to take place and we were not in a position to starting brining in people until September. The committee will be aware that of the 600 personnel, more than 400 have been recruited. We should be up to speed by the end of the year.

Pádraig Mac Lochlainn (Donegal North East, Sinn Fein)
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How will the Minister anticipate what the budget for 2013 will be when the numbers get close to 9,500 again? Will the exposure to pension payments continue? How does the Minister intend to balance the position?

Alan Shatter (Dublin South, Fine Gael)
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We should be close to 9,500 by the time we get to the end of the year. That is our objective. In the middle of this process we are implementing a reorganisation programme. As there will be Dáil questions on that issue this afternoon, I will not go into it here. In the context of the Estimates process we are engaged with the Department of Public Expenditure and Reform and the Minister, Deputy Brendan Howlin, on the figures and where we stand in dealing with the financial envelope available to us for 2013. The reality of pension payments is part of the financial envelope. Pension payments are relatively predictable and fixed and this forms part of the discussions with Department of Public Expenditure and Reform. In the current financial climate and with limited resources it is important to stay within our resources. In a sense, members of the Permanent Defence Force in 2012 whom we may have envisaged continuing in the force and for whom salary provision was made went into the pension stream and there was an interregnum in bringing people in. We were able to made provision for this within our resources. These issues are part of the Estimates discussions with the Department of Public Expenditure and Reform.

Niall Collins (Limerick, Fianna Fail)
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How many years does a member have to serve to have full service? How many more than expected retired before the grace period expired in February? The Minister has stated many of those who retired had long service. How many did not? Of those who did not have full or long service, how many were granted catch-up years because of ill-health? I understand one can be granted several added years because of ill-health.

Alan Shatter (Dublin South, Fine Gael)
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That is a series of questions to which I have answers which I will gladly give to the Deputy. However, I will consult the statistics because I do not wish to do it from memory in case I give the wrong statistics.

A total of 21 years is normally the length of service required to be on full pension. The retirement age is normally 50 years for those who joined post-2004.

We have a breakdown of the figures for PDF retirements and discharges. Of those who retired as of 30 September 2012, 59 were officers, while 612 were enlisted personnel. That amounts to a total of 671 retirements. Of the number of 671, 559 retired on pension. I am unsure whether I have information on those who retired early as opposed to those who had completed the full 21 year period, but I will be glad to ensure the Deputy is communicated with in that regard.

We have a complex and detailed breakdown which covers the 619. If I can give an example of what it says - we are happy to put this into a communication to the committee - in the context of officers, we list 48 voluntary retirements. Two retired members were deceased. There were ten retirements on age grounds in the context of officers. Where retirements were voluntary they would not have completed service to the full age at which retirement is compulsory. There are various reasons for enlisted personnel. The largest number involved 453 enlisted personnel who retired on the basis that they were on pensions after 21 years of service. The next largest number involved 73 discharges by purchase. That effectively involves personnel who left without completing the full 21-year period but who are ultimately entitled to pension payments.

David Stanton (Cork East, Fine Gael)
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The Minister stated that the Supplementary Estimate for the Army pensions Vote would be met by an appropriate saving under the defence Vote.

Alan Shatter (Dublin South, Fine Gael)
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Effectively, we have stayed within the overall financial envelope. In simple terms, we are moving a portion of money designated as salaries into pensions. That is facilitated as a consequence of the larger than expected number of retirements at the end of February and the obvious hiatus created thereafter. They retired and then became entitled to their pensions as opposed to Army salaries and, effectively, we determined what recruitment was required and how it should be distributed between the Army, the Air Corps and the Naval Service. For example, it is not a question of simply recruiting ordinary personnel but of identifying who should be recruited by way of cadets. The work that was done after February allowed us to advertise in June. We knew exactly where we were heading and could start bringing people into the Defence Forces in September after the preliminary work was done. That created an envelope of money that had not been spent on salaries. It was utilised for pensions and it meant that we stayed firmly within budget, which was important. Obviously, how we deal with funding for 2013 is dependent on the outcome of the Estimates and the conversation we are having with the Department of Public Expenditure and Reform.

David Stanton (Cork East, Fine Gael)
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Is there a net saving when people retire?

Alan Shatter (Dublin South, Fine Gael)
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There was a saving on the salary side which then had to be transferred into the pension side. The good thing about it is that, going through the recruitment process, we are substantially on target as we get to the end of the year of ensuring we have the strength we envisaged at the start of the year, which was key to the Defence Forces meeting their operational requirements.

David Stanton (Cork East, Fine Gael)
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What level of net savings were achieved when one considers salaries versus pensions and lump sums for the year?

Alan Shatter (Dublin South, Fine Gael)
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Effectively, we are transferring the envelope from one side to the other. With a strength of 9,500 at year end we are going into 2013 with an additional cohort of pensioners but many of the retirements which occurred early in the year might have otherwise gone throughout the year. I think I am right in saying that the normal retirement rate from the Defence Forces was between 350 and 400 per annum. By the end of February, in excess of 500 left in a two-month period. Things should level out as we go into 2013. There is always a degree of the imponderable in this area. People may retire for reasons entirely external to the Defence Forces. I do not think there will be major incentives for people to retire early during 2013. The scheme offered an incentive to retire early but we were in a position that was not shared by any other Department in that we are able to recruit again. That was important in the context of the age profile of members of the Defence Forces.

David Stanton (Cork East, Fine Gael)
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Was there a net saving on the overall envelope?

Alan Shatter (Dublin South, Fine Gael)
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I do not have an overall figure but if one takes the annual pension paid to an individual compared with what he or she would have received if he or she was still in the Defence Forces, there is a saving of approximately €17,000 per individual per annum. That is based on a comparison between an annualised pension payment and an annualised salary payment. It is not pure salary because, as members are aware, there are a number of allowances in the Defence Forces which are on occasion misunderstood in the media as some form of perk. Enlisted personnel are paid their basic salaries according to rank and the allowances are paid in the context of specialties they may possess or services, such as service overseas, in which they may engage. This figure is produced by averaging out the figures.

David Stanton (Cork East, Fine Gael)
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The €30 million came from net savings.

Alan Shatter (Dublin South, Fine Gael)
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Yes, effectively.

Niall Collins (Limerick, Fianna Fail)
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In regard to the determination of service by the Minister for Defence, is that a discretionary power for the Minister of the day?

Alan Shatter (Dublin South, Fine Gael)
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That is a recommendation that would come to the Minister from the military. There can be reasons as to why someone’s service should be terminated. As the Deputy can see, that provision affected three people. Disciplinary, health or other issues could arise in that context.

Niall Collins (Limerick, Fianna Fail)
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Does the Minister confer added years to the individual’s service in the determination of service?

Alan Shatter (Dublin South, Fine Gael)
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Not in those circumstances. If there is a recommendation from the military that, for example, it is inappropriate for someone who has undergone a disciplinary process to remain in the military, he or she is not going to receive additional compensation for service being terminated. Fortunately it only affects a small number of individuals.

Niall Collins (Limerick, Fianna Fail)
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Do health grounds come under that subhead?

Alan Shatter (Dublin South, Fine Gael)
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Generally there are no added years as I understand the matter.

David Stanton (Cork East, Fine Gael)
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This concludes our consideration of the Supplementary Estimates for Vote 35.

Alan Shatter (Dublin South, Fine Gael)
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I thank the Chairman and members for their co-operation in dealing with this issue and I look forward to reverting to them on other defence matters during Question Time later today by way of a break from dealing with the Personal Insolvency Bill.

David Stanton (Cork East, Fine Gael)
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I thank the Minister and his officials for meeting the committee.