Éamon Ó Cuív (Galway West, Fianna Fail)

I welcome the opportunity to contribute to the debate on the Bill but also to comment on the wider issue of pensions. When the old age pension was first introduced in Germany, the average life expectancy was 65. As a result, the German authorities set 65 as the age at which people could retire. It was not expected that many people would draw down their pensions for very long and it was quite easy to make proper pension provision. In the past 20 years, the average life expectancy has increased by ten years to 75. The difference between 65 and 75 does not appear that great. However, if the retirement age is 65, this represents a doubling of the pensions bill. That is where the pensions time-bomb lies.

We must all learn one of the fundamental lessons of mathematics, namely, that it is not possible, over the long term, to pay out more than is taken in. There are those in the House who continually state that there can be no change in respect of the pay out. However, they also resist any changes in respect of what is paid in. If these people ever got into government, I am sure they would take a more sensible approach. If we follow their line of reasoning, it is obvious that a major gap exists. Who do they suggest should fill that gap in the long term? Therefore, we face challenges. Our own success is a challenge as people are living much longer than they did in the past.

I was very surprised to hear Deputy Halligan talking about adjustments in pension reliefs. The initial proposal for pension relief was to standardise all pension relief at 33%, and that is still where I would like to go. I know there are commitments in the four-year plan but if the fiscal position improves, a 33% rate would be a balanced proposal. I have heard people quite rightly complaining in the past that those on the highest income got the biggest tax relief on pension contributions while those on the 20% tax band got little relief or no relief if they were outside the tax net. The idea behind a rate of 33% across the board was to encourage young people to start paying into pensions when they were on low incomes. As economic conditions improve, we should aspire to that approach.

There are constant warnings on the television about share values, with pensions going up and down depending on the international financial markets. We know many pension funds have lost money and I ask the Minister for Public Expenditure and Reform to examine the sovereign bond issue. There is a potential for a double gain, which I have returned to time and again. There is a gain from the State not having to borrow abroad and instead borrowing from its own people, and on the other hand there is a much better return for the pension funds. The only guarantee to be given is that the country will not renege on sovereign bonds. The idea is well worthy of consideration. For example, €20 billion of Irish pension funds are in French or, in the main, German bonds. If that money was in our Exchequer, it would reduce the requirement to borrow from abroad quite considerably. Furthermore, the German bonds give low returns but if that money was put into Irish bonds, it would bring more money into the coffers.

There seems to be two ways of thinking with regard to the public service pensions bill. I have heard people saying time and again that top people in the public service get lump sums and pensions which are too big. This Bill addresses the issue. A person starting as a clerical officer may move to being an executive officer, higher executive officer, assistant principal and principal officer before eventually working up the greasy pole to become a Secretary General for five years. The person's pension would forever reflect that last few years and not total years in the service. The person who never got beyond becoming a higher executive officer in the public service would have the pension reflect that level, leaving a major difference between the two pensions.

It has been clearly proven that in the new system the biggest saving will be made from the person at the top, with the next biggest saving from the person one step from the top and so on. The savings made from the people on the bottom would be relatively modest as the figure comes from career average. There are many people who started in the public service recently who have fantastic qualifications such as masters degrees. They may start as clerical officers and move to being executive officers. They may spend five years as a clerical officer, ten years as an executive officer, as well as some time as a higher executive officer. Those people would have a pension based on the average of the number of years at each level, and if a person got stuck on a level, the pension would reflect the number of years spent there. In the current system, if a person manages to get to the top, the pension will be much higher. As we are living longer, it is more difficult to fund this, so a career average approach is a good reform.

There is also an issue of private sector versus public sector. In recent years I have never seen so many people, with a significant number quite comfortably off, looking at a neighbour's field and thinking the grass is greener. Everybody in this society, whether public or private, always seems to think the other guy has a handy number. The Minister is correct in that it would be difficult to buy the type of public service pension that is currently guaranteed. In the public service pensions system, there cannot be a big loss that occurs owing to the vagaries of stock markets. That is the big attraction of a public service pension: a person is guaranteed a sum at the end which is known the day the person starts paying into it. One of the objections to making radical changes to public service pension levels is that this principle should not be radically changed and there should be a fixed rate of return for what comes from the pension at the end. That is important.

It is also important to point out that comparing private and public pensions is like comparing apples with oranges. I am sure the Minister will correct me if I am wrong but my understanding is that public service pensions have always been funded in this State with a pay as you go system. The taxpayer in general is not paying the public service pension. In 2011, the contributions of civil and public servants for that year are paying for the pensions. Am I correct in that assumption?

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