Seán Fleming (Laois-Offaly, Fianna Fail)

Yes. Some 300,000 public servants are beginning to realise the importance of this debate. One section of the Bill affects them, but we will discuss it later. In general, the Bill only affects new entrants. By and large, new entrants who retire after 43 years, having paid for three years longer, will have pensions in the order of 80% of what they would have been under the current scheme. The Minister claims that there will be a saving of approximately 20%. This is what we all understood the figure to be, although we might not have liked it. However, the Minister also stated that the new scheme would reduce annual expenditure by approximately 35%. Any person who heard him would have expected the new pension rates listed in the appendix to be approximately 65% of the current arrangements. The figures have been dolled up to give them the appearance of being approximately 80%, but the small print on the previous page mentions savings of 35%. These two figures do not tally. How can we tell new recruits that, although their pensions will be 20% less, we will save 35%? The Bills Digest could not get its head around this issue either when it produced its updated documentation on the Bill on 27 October 2011. We raised this matter on Second Stage last autumn. Some of the public sector unions could not reconcile the Minister's claim about the reduction in pensions being small with the purported savings of 35%. We must tease out the question of why the figures do not tally.

The career average change is a fundamental element of the new pension scheme, as pensions will be based on career average salaries. For example, the No. 3 example of a higher executive officer on 78% of the current pension is based on ten years as a clerical officer, 15 years as an executive officer and 18 years as a higher executive officer. Every public sector union asked us how the Minister could claim that he would cut the pension bill by 35% when he continued producing charts to show reductions of 20%. Getting my head around this has been problematic. For this reason, we asked for the formula, but I have not received what I sought. We will discuss that issue on another day.

Everyone understands that the career average change will form a significant aspect of the reduced pensions of new recruits. Instead of one's pension being based on one's salary in the final few years at work, it will be based on one's career average earnings and lead to a saving of €500 million. A further change is that a person must work in the public service for 43 years. It is stated somewhere in the Bill that, due a career's extra three years, a person will be three years older when he or she retires. According to the notes on the Schedule, a longer working career means more tax revenue and pension contributions to support the scheme's pay-as-you-go nature. The later pension age means that the pension will be in payment for fewer years, notwithstanding increased longevity, and the national retirement age will have increased to 68 years. That saving will amount to €300 million and the career average change will save €500 million.

However, the major saving has not been dealt with yet, that is, the €1 billion relative to indexation. Some 60% of the overall saving owes to the fact that, when a person retires, his or her pension will increase based on inflation. Under the existing scheme, increases are based on current pay rates. If a person works for a lifetime and retires under the new scheme, his or her pension increases will be capped to the consumer price index, CPI, rather than to pay increases. As such, the scheme's main saving does not owe to the changes in terms of the career average earnings or becoming pensionable three years later. Instead, it owes to the fact that, when people retire, inflation will screw them. We will make our savings when they are in their old age, not when they are still making contributions.

For decades, the standard of living in every Western society has increased. If it had not, people would have the same standard of living now that they had in the 1930s. My main gripe with the legislation is that, having given 43 years' service, contributed to the State and paid tax and PRSI, the increase in one's pension will be limited to the rate of inflation. One will never receive a standard of living increase. One could leave the service at 68 years of age and live for 30 years on a pension. If society's wealth and standard of living increase and if the public sector payroll increases accordingly, pensioners will receive nothing. We will not allow their pensions to decrease below the rate of inflation, but we will cap them at that rate as well. If everyone else's quality of life and pay increase in the following 30 years, pensioners will still see no increases. We are locking people into their final standard of living on the date they retire, and this despite the fact that they will not be on large pensions. They will have contributed towards the overall annual pension fund by paying superannuation, various levies and taxes. We are saying thanks for the 43 years of work and although they are leaving the service, if standards of living increase in the next ten or 20 years, they will get no increases relative to it. They will be pegged to the consumer price index.

This is the biggest single change in the legislation. Everybody has been focused on the career average earnings aspect and the number of extra years that must be worked. We are indicating that once a person is out the door, he or she should not expect an improved standard of living up to the day of death. That is what the legislation is about.

Some 60% of the total saving is due to indexation. Pension increases after a person's retirement will be based on consumer price index increases and remain unconnected to increases in pay and earnings in society at large. The figures from the past 20 years were provided by the Department in recent days, and on average public sector pay rates increased by 1% more than the rate of inflation in that time. Over a period of 20 years, a person would have had a 20% improvement in the standard of living, which is only right.

I would not like to think that the standard of living we have in Ireland today will be the same in 30 years or that nobody could expect an increased standard of living. We are saying to these pensioners that the standard of living of everybody else can increase but when these people live off their pensions, they will never get an increase in their standard of living, although the income will be proofed against inflation. If everybody else is seeing standards of living increasing by 1% per year - sometimes it may be half or a quarter of that - these pensioners will not share in it. It is the meanest aspect of the legislation and where the savings come about.

I could never reconcile the charts we were handed that showed how people's pensions would be at 81%, 87% or 83% of the current arrangement. That may be true on the day the person retires but the Department will claw back the money. At the end of a person's life, having lived on the pension for 20 years, what percentage of current arrangements will it be? The figures I outlined are the high point on which a person starts but it will drop every year in a person's retirement. When salaries and standards of living go up, the person on these pensions will only see them rise in line with inflation. The pension as a percentage of current arrangements will decline year by year when a person is in retirement, and that is not reflected in today's information. The best figure is given at year 1, and as a result a fair picture is not given.

What has been described is accurate but the picture is incomplete. A pensioner cannot expect an increase in standards of living if the State wants to claw back most of the money by linking increases to indexation.

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