Brian Cowen (Laois-Offaly, Fianna Fail)

The total accrued liability in respect of public service occupational pensions is estimated at €75 billion as of 2007. This figure represents the present value of the expected future pension payments to current staff and their spouses in respect of service to date with the full liability for all future payments to current pensioners and their spouses. The figure represents a projection of aggregate pension payments that will be spread over perhaps 70 years. However, the more meaningful measure of public service pension costs is the actual annual outgo on pensions, which amounted to approximately €2.3 billion in 2007, or 1.3% of GDP. This annual outgo is projected to rise to 2.6% of GDP in 2050. The projected increase arises from the growth in public service employment in recent years and increasing longevity.

The numbers of persons covered by the accrued liability figure are approximately 300,000 serving public servants and 100,000 public service pensioners. The liability is estimated at €45 billion in respect of serving staff and at €30 billion in respect of current pensioners. The liability was arrived at using standard actuarial methodology. The main factors determining the accrued liability figure are the assumed discount rate and the assumed future life expectancy of pensioners.

With regard to social welfare pensions, the appropriate basis for assessing the liability in respect of these pensions is the projected level of future expenditure as a percentage of GDP. The most recent projections, which were carried out in 2007, are for expenditure on social welfare pensions to rise from 3.6% of GDP in 2007 to 5.5% in 2025 and to 10.4% in 2050.

An actuarial review of the social insurance fund as at December 2005 was published last October. The focus of the review, which covers the period from 2006 to 2061, is the income of the fund and the contributory pensions and benefits paid from the fund. The review showed that on present trends, the fund will move into deficit in 2009 and that the deficit would increase significantly over time.

The estimate of the accrued liability should not be confused with the actual cash funding that will be required in the future. However, as indicated in the Green Paper on pensions which was published in October 2007, significant issues of sustainability will arise in the future.

Additional information not given on the floor of the House.

If pensions are to grow in line with wages, total expenditure on social welfare and public service pensions would, in the absence of policy changes, rise from 5% of GDP to 13% of GDP as a result of the projected increase in the numbers qualifying for a pension. That would be an unsustainable position. Measures to contain the cost of the increase in public service pensions have been put in place in recent years and options for further reform are outlined in the Green Paper. In addition, 1% of GDP is being set aside annually in the National Pensions Reserve Fund to help fund future costs. However, the great bulk of the projected long-term increase in pension costs arises in respect of the social welfare pension and from the technical working assumption that such pensions are indexed to the growth in wages over time. Options for addressing the sustainability issue will be considered by Government in the course of the coming months in the context of the Green Paper.

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