Alan Shatter (Dublin South, Fine Gael)
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Question 7: To ask the Tánaiste and Minister for Finance the basis of the State's recalculation of public service pension provisions as published recently by his Department; and if a similar recalculation of the liability to social welfare pensions will take place. [15722/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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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.

Richard Bruton (Dublin North Central, Fine Gael)
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The figure of €75 billion for the public service certainly is scary. As a previous estimate suggested the social welfare liability was at least double that again, which would give a figure in the region of €230 billion. As this is 120% of GNP, it is a substantial liability. Does the Tánaiste share the view repeatedly expressed in reports from the EU, the IMF and others that Ireland is not planning adequately to meet the challenge of the so-called pensions time bomb? If not, what is the thrust of his proposals to prepare Ireland more adequately for this challenge?

Based on previous estimates, my understanding was that the figure in question was approximately €50 billion. As it now has risen to €75 billion, what caused the sudden adjustment upwards by what appears to be 50% from the estimates I had seen in the past? As this came as a surprise to me, how did it come about?

Brian Cowen (Laois-Offaly, Fianna Fail)
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The large size of the accrued liability figures, €75 billion, is due to it comprising the total of pension payments for many years into the future. It will continue until the last spouse of serving staff has died, which probably will be in more than 70 years time.

Richard Bruton (Dublin North Central, Fine Gael)
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This figure used to be €50 billion.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I must check on where the Deputy is coming from with that figure. I will try to get that information for him. This is where it is coming from at present.

I will answer the question in a manner that may be helpful to Deputy Bruton. Last year, the figure of €45 billion that was mentioned in a parliamentary question only covered serving staff, while the figure of €75 billion covers both serving staff and pensioners. The difference between the figures of €45 billion and €75 billion does not, therefore, arise from a recalculation of the amount. There is no implication that there should be a calculation of the social welfare pension liability. It merely is a more comprehensive figure.

Richard Bruton (Dublin North Central, Fine Gael)
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Will the Tánaiste respond on the preparation issue?

Brian Cowen (Laois-Offaly, Fianna Fail)
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On the Deputy's policy question, Ireland has a demographic window. Although it is not a reason to do nothing, Ireland is not at the stage reached by a number of our fellow EU member states, in which the time bomb is not only ticking but can be heard. The issue in Ireland relates to ending the consultation on the Green Paper in May and bringing forward a White Paper as soon as possible thereafter. This means the Government must consider this issue strategically and in a hard-headed way, which will include reinforcing the sustainability of pensions in the future and finding the mechanisms to so do. This could involve a variation of pension age or many other options set out in the Green Paper that must be considered, as must the question of how this will be funded in the future. While these are serious strategic questions, much good work has been done in respect of the policy formulation phase.

Some people, including Deputy Bruton, would argue the consideration is taking too long. However, because of the figures involved, the highly complex actuarial calculations that must be made and the underlying assumptions, one must check carefully what one's real options are in the short, medium and long term. Certainly, this will be a major challenge in the future. While we have some time before the issue hits us dead in the face, as the figures under discussion demonstrate, we must make some decisions in the short to medium term.

Joan Burton (Dublin West, Labour)
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The Tánaiste gave me a similar answer a short time ago when I asked him the same question. Public service employees pay superannuation of approximately 6% as a contribution to the pension. It would be interesting to ascertain how much of a contribution the superannuation contributions of current public servants' pay makes towards the costs of those who retired in the past and who still are in receipt of a pension.

The National Pensions Reserve Fund has almost €19 billion available to it, which will meet some of the built-up accrued liabilities and so on in respect of pensions in the future. Does the Tánaiste envisage increasing the Government's contribution to the National Pensions Reserve Fund as one way to make provisions to meet public service liabilities in the future?

Brian Cowen (Laois-Offaly, Fianna Fail)
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My recollection of the Act that established the National Pension Reserve Fund is that the Government is statutorily obliged to transfer at least 1% of GNP to the fund per year until 2025. Therefore, in the event of there being room to so do in good times, the prospect of continuing with a contribution that is greater than 1% is a matter that is open to any Minister for Finance to decide on in any given year. I recall however, that in the fund's early years, when the state of equity and other markets was such that the return on investments was low, there was a suggestion that the Government should not be putting in as much. This demonstrates the wisdom of the provision.

Joan Burton (Dublin West, Labour)
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The suggestion was to invest it in public projects in Ireland.

Brian Cowen (Laois-Offaly, Fianna Fail)
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That is correct.

Joan Burton (Dublin West, Labour)
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That certainly was the suggestion made by the Irish Labour Party.

Brian Cowen (Laois-Offaly, Fianna Fail)
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That is correct. There was a suggestion that the Government should raid the fund from time to time.

Joan Burton (Dublin West, Labour)
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It was an excellent suggestion.

Brian Cowen (Laois-Offaly, Fianna Fail)
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That is a matter for——

Joan Burton (Dublin West, Labour)
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We might now have the roads and transport system we deserve, had we the benefit of doing so.

Brendan Howlin (Wexford, Labour)
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Please Deputy.

Brian Cowen (Laois-Offaly, Fianna Fail)
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We certainly would not have a pension reserve of €19 billion for future liabilities, which is the purpose of this discussion.

Joan Burton (Dublin West, Labour)
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The Tánaiste should wait and see what the results are like at present.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The purpose of this discussion is to debate how to meet future pension liabilities. While the Government was putting that 1% of GNP aside, it was still running surpluses and ensuring it could operate a capital programme from cash. Now however, when I try to borrow modestly to invest ambitiously, I am criticised for the deficit that might arise as a result. It is hard to win when one goes around in a circle.

However, to make a serious comment, it is open to a Minister for Finance to increase that allocation. It cannot be less than 1% and I do not believe there is a view in the House that the Government should withdraw that statutory imperative in the interest of ensuring it does not fall down the priority list as it might otherwise do, were it to be a more discretionary option available to the Minister.

Shane McEntee (Meath East, Fine Gael)
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Question 8: To ask the Tánaiste and Minister for Finance his views on changing the presentation of Estimates in order that they would show the extra pension liability that is being taken on by public service bodies. [15702/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Estimates Volume provides information on voted expenditure by Departments and offices in respect of administration and programme costs. This includes expenditure in respect of civil servants' pension costs, as provided for in Vote 7, superannuation and retired allowances, and the pension costs of other public servants, including teachers, members and former members of the Garda Síochána and the Defence Forces, among others. This expenditure on pensions and its associated receipts are dealt with on a cash basis. Thus accrued liabilities are not shown in the Estimates publications.

As the Deputy is aware, there are two forms of accounting in the public service. The accounts of Departments and Government offices are prepared on a cash basis, while local authorities and commercial State-sponsored bodies, for example, prepare their accounts on an accrual basis. The appropriation accounts for central Departments and Government offices are required by legislation to be prepared on a cash basis.

However, a working group on better financial reporting has recently been set up to review the current position with respect to the contents of notes to the appropriation accounts, which include accruals, and make recommendations for their improvement in terms of quality and relevance, to help to present a more holistic and up-to-date view. The review will cover long-term liabilities, including pensions at the aggregate level. This information will be included in the finance accounts.

Richard Bruton (Dublin North Central, Fine Gael)
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Substantial liabilities are incurred by the State when people are recruited into a new service, but this never shows up in any assessment. We should build that liability into decisions to recruit so that if, for example, a 15% or 20% pension liability is implied, the agency making the decision recognises the cost.

Similarly, while I do not want to return to the political arena, when we decide to give increases of, for example, €30,000 to senior public servants or Ministers, that represents a pension increase of €16,000 to €18,000. The actuarial cost of purchasing that in the marketplace is massive. I do not believe any serious thought is given to the true costs of these packages when they are blithely approved. The increases have significant implications for the Exchequer and, regardless of whether the decisions are correct, they at least need to be clear and transparent.

Brian Cowen (Laois-Offaly, Fianna Fail)
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While I too want to avoid the political arena, I do not think it fair to claim these increases were blindly approved. Account is taken of the public-private pension differential in the benchmarking process.

Richard Bruton (Dublin North Central, Fine Gael)
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Read the document.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Actuarial advice was taken to that effect and it was set out in much greater detail and transparency than was the case for the initial report. We can agree or disagree with the recommendations but we should fairly characterise the professionals involved and the work they did.

I accept the point about the costs which are incurred when permanent and pensionable posts are created. How to move away from a cash basis is perhaps a matter on which the working group on better financial reporting could report to me. I am not sufficiently au fait with the ups and downs of that at present.

Joan Burton (Dublin West, Labour)
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Civil servants' superannuation and their contributions to the cost of their pensions are accounted for on a cash basis so, in a sense, superannuation payments by current civil servants contribute to the pensions of retired staff. Can we be given information on the extent to which current payments meet the cost of current pensioners?

Will the Tánaiste consider establishing an office of a national actuary, perhaps within the National Treasury Management Agency? Similar offices have been established in many other countries to regularly publish this important information so that people are informed on pensions. Many people do not realise that civil servants pay towards the cost of their pensions. They think superannuation is notional. The NTMA also manages the National Pensions Reserve Fund and, if it employed a national actuary, information on different parts of the public service could be independently published on an annual basis. It is not possible at present, for example, to get separate figures for the health services or the Garda.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I do not want to dismiss the Deputy's suggestion but actuarial advice is available on an independent basis to the Pensions Board, which has a statutory remit on advising the Government on pensions policy generally and is one of the vehicles through which we are proceeding with the pension policy review. It is a matter of examining that and deciding whether a case can be made. There is also a requirement on many agencies and State boards when submitting their annual accounts to report problems that arise in respect of pensions or where the sustainability of finances has to be addressed in the event of some major pension liability.

Kieran O'Donnell (Limerick East, Fine Gael)
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The figures are alarming to say the least. By 2050, 10.41% of GNP will be spent on public sector pensions. I ask the Tánaiste to publish a White Paper as a matter of urgency because, apart from the State sector, a significant number of lower paid people in the private sector have no pension provision.

Current pensioners comprise €30 billion of the €75 billion liability. I presume that ratio will be increasingly skewed towards retirees. It is imperative that we bring proposals to deal with pensions, particular given that the public sector payments will be in deficit by 2009.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Clearly, the demographics will change in coming decades. Some years ago we made assumptions based on certain population changes which did not prove correct. The assumptions may be robust in the short term but the further ahead one predicts, the lower the certainty of accuracy. The demographics ratio between those of working age and pensioners will obviously deteriorate, from 4:1 at present to predictions of 2:1 in 30 years time, if the population of people of a certain age does not expand. We have to be somewhat circumspect, while in no way denying the importance of the issue.

Improving one's pension provisions requires deferring present income to future consumption. That is an important aspect because the reason one should have a good pension is for the better chance it offers of spreading consumption over one's lifetime in a way that continues to contribute to demand and revenue. While everyone agrees with the objectives of pension policy, reaching agreement on the means of meeting them, which often requires the deferral of prospective income in the short term for a longer term consumption pattern, is the problem. It is difficult to sell the idea of waiting for a rainy day because it is human instinct to believe one will not be around by then. However, that does not detract from the validity of the argument.

Deputy O'Donnell noted that few people on low incomes have supplementary pensions, the simple reason for which is they do not have the disposable income which would allow them to consider the option.

Kieran O'Donnell (Limerick East, Fine Gael)
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We have to look at models.

Brian Cowen (Laois-Offaly, Fianna Fail)
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Of course we do. Sometimes it is assumed that everything can be transformed with a wave of a magic wand.

Kieran O'Donnell (Limerick East, Fine Gael)
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It needs to be looked at.

Brian Cowen (Laois-Offaly, Fianna Fail)
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It is being looked at.