Wednesday, 19 October 2011
Public Service Pensions (Single Scheme) and Remuneration Bill: Second Stage
I move: "That the Bill be now read a Second Time."
Since coming into office, the Government has already shown that it is committed to reform. We are determined to change critical aspects of Government and public administration with the long-term interests of the taxpayer and the citizen in mind. In this context, I propose a Bill which provides for far-reaching reform of public service pensions. The Bill's principal purpose is to introduce a new single pension scheme for all new entrants to the public service. The new scheme is a commitment under the EU-IMF programme of financial support for Ireland.
The Bill aims to strike a balance between public service workers and the taxpayer. It will ensure that public service workers continue to have access to good pensions and a reasonable standard of living in retirement, while the Exchequer benefits from greater control over the associated costs and the future burden on taxpayers is reduced. Deputies would agree that the current model of public service pension provision is clearly not tenable in the long-term - a television programme this week highlighted that challenge. Getting these decisions correct now is essential to make the system work in the future. Government and the Oireachtas itself must decide how public service pensions should be provided.
As the House will know, there are significant increases forecasted in public service pension costs owing to the growing number of public service pensioners and rapidly increasing life expectancy. Improved life expectancy has placed us in the welcome situation whereby Irish people now expect to enjoy longer, healthier retirements. However, these social benefits bring with them costs to the individual, to public service employers and to the Exchequer.
The statistics are clear and compelling. Over the next ten years in Ireland, the number of people over the age of 65 years is expected to increase by approximately 50%. When the State pension was first introduced 100 years ago, the average male life expectancy at birth was almost ten years lower than the pension age. It is only since the early 1960s that men have had an average life expectancy at birth beyond the State pension age. How things have changed. Now life expectancy at birth is 75 years for a male and 80 years for a female. For a man born in 1945 and therefore turning 66 and qualifying for the State pension this year, his life expectancy at birth was 67 and his life expectancy today is 81. A woman of the same age would expect to live to 85. Some public servants who have worked for 30 years are drawing a pension for as long as or even longer than the period they worked. Attempting to sustain this into the future is simply not practicable.
These demographic effects will place an increasing strain on our public finances. Demographic projections suggest there will be only two people of working age to every person aged 65 or over by the middle of the century, compared with six people of working age to every person aged 65 or over today. The smaller proportion of our population that will be working will be bearing a greater burden in aging costs such as health care, welfare and pensions. We must take steps now to deal with these looming costs. Older people have made their contribution and we must accept our responsibility in the social contract. However, we must be sensible and realistic about the burden which the present and future working population can bear in this context. I must be clear in what we offer people who are coming to work in the public service.
The issues surrounding long-term pension policy and the pressing problems of pension schemes, both public and private, in the here and now are complex. Retirement ages, actuarial valuations, funding standards and so on are confusing and often incomprehensible to many. Public service pensions operate on a pay-as-you-go unfunded basis. The reality is that, to pay for public service pensions, financing must increase from the State, the public servant or the taxpayer.
In 1997, expenditure on public service pensions was 1.5% of GNP. By 2027 it is expected to account for 3% of GNP and approximately 3.5% by 2050. Long-term projections are notoriously difficult to make with complete certainty, but the core point remains valid: the costs of public service pensions have doubled in the past decade and will, relative to the country's output, double again in the medium term. It is important and fair that the pension scheme be adjusted to take account of these looming costs.
There have been some changes in the area of public service pensions in recent years: Since 1995 all established civil servants and public servants are subject to full PRSI, thus giving them an entitlement to State social insurance pensions. Integration of contributions and benefits apply as part of these arrangements, that is, the occupational pension is reduced by the amount of the State pension. In 2004 the pension age for new entrants to the public service was increased from 60 to 65 years. In 2009, there was the introduction, in the Financial Emergency Measures in the Public Interest Act, of the pension-related deduction, more commonly known as the public service pension levy and with effect from 1 January this year public service pensions were reduced on foot of the public service pension reduction legislated for in the Financial Emergency Measures in the Public Interest Act 2010.
The new single scheme was developed having regard to these reforms and in the light of a number of reports including the extensive and fundamental work of the Commission on Public Service Pensions, established by the Minister for Education and Skills, Deputy Quinn, when he was Minister for Finance, which reported in 2000 as well as the national pensions review, published in 2005. The Green Paper on pensions was published in September 2007 with the aim of promoting adequate pension provision in a sustainable, modern and flexible manner. An extensive public consultation process followed on from the publication of these important reports. This has served to underline the difficulties we face in achieving consensus and understanding in this area.
The Green Paper was followed by the national pensions framework which waspublished in March 2010 and included the public service single scheme among its objectives. The range of reforms recommended included raising the minimum public service pension age; increasing the rate of pension contributions; modifying the earnings-linking of pensions; adjustment or abolition of fast accrual terms; and moving to the calculation of pensions on the basis of what is known as career average earnings. The inclusion of these reforms in the Bill before us serves to underline the importance for the Government of taking decisive action. This will help to ensure that when Ireland emerges from the current difficulties, public pensions policy will be on a sound footing.
Responsible government requires that we resist any temptation to delay and, as Minister for Public Expenditure and Reform, it is my job to promote sustainable policies for all areas of public spending. It is unusual to have a horizon of 40 years when grounding sensible policy, but we need to take a long-term view. It is important to be unequivocal about these matters. Ireland has an opportunity, owing to its relatively young population and current positive dependency ratios, to use the time afforded to establish a sustainable system in the longer term. We must grasp that opportunity.
The Government values public servants and is committed to providing them with good quality pension arrangements. Such arrangements will continue to be a defining feature of employment in the public service and one of the attractions of becoming a public servant. While there has been significant reform of public service pensions following the work of the Commission on Public Service Pensions, the process of modernising and restructuring the system must continue in the light of demographic and budgetary realities which pose a future risk to the Exchequer. Equally, we need to provide certainty that people will have a sustainable pension into the future.
The changes I am proposing will make the public service pensions system simpler, more transparent, fairer and better able to deal with the changes we know are coming and thereby assist us to remain sustainable in the long term. Making these changes is not easy or straightforward. Dealing with the fundamental challenges posed to our pension and benefits system as a result of rising life expectancy and other ageing pressures, while ensuring productivity and value for money for taxpayers, requires difficult choices to be faced.
The most important feature of the single scheme is that pensions will be based on career average pay, not final salary as is the case at present. Pensions based on career average earnings will be fairer and more equitable to the majority of members that do not enjoy high salary growth rewarded by way of final salary schemes. Deputies opposite will be acutely aware of the anomalies and unfairness shown up recently by a final year salary determining an ongoing pension thereafter. Using career average pay means that public servants will each year accrue a specific amount towards their pension and lump sum. For most public servants, this will be one eightieth and three eightieths, respectively. In other words, one eightieth of their annual pension will be placed in a fund for a pension, while three eightieths will be the calculation for the lump sum. This is a notional sum, as there will not be a fund. These "referable amounts" will be calculated annually and up-rated each year by reference to the consumer price index and the total accrued will be aggregated to produce a person's pension and lump sum on retirement. This is a significant change from the current position where the pension is based on final salary on retirement.
There are two other major cost reducing changes from existing terms. The first is the increase in pension age to 66 years and its linking with the State pension age which will increase to 67 in 2021 and 68 in 2028. As new public servants pay full PRSI and their State pension forms part of their final pension entitlement, it is important that the State pension, in terms of the years of entitlement, be linked with the pension regime operating in the public service. The second is the indexation of post-retirement pension increases to the CPI instead of pay. Once a public servant retires on his or her career average pension, further increases will be linked with the consumer price index, rather than the holder of the job last held on retirement.
The new scheme will apply to new entrants in all areas of the public service. This will include the Civil Service, the education sector, the health sector, local authorities, the Garda Síochána, the Defence Forces, non-commercial State bodies and other regulatory or similar bodies. For certain public servants such as qualifying and designated officeholders, including the Taoiseach and the President, the Judiciary, Oireachtas Members and those who must retire earlier than other public servants such as gardaí, Permanent Defence Force members, prison officers and firefighters, higher accrual rates will apply. To mirror this, higher contributions will also apply.
With regard to the recent teachers' unions' claims that scheme members will contribute more than they will receive in benefits, all of the concerns, comments and proposals outlined to date by the unions, including the Trident report which the teachers' unions commissioned, were borne in mind in the consideration and drafting of the new scheme. There was a lengthy and detailed engagement with the public service unions last year, including those representing teachers. These discussions, at the unions' request, were brought under the auspices of the Labour Relations Commission which made recommendations concerning the CPI linkage and the integration formula to be used in the scheme. These recommendations are reflected in the legislation and there are to be further discussions with the public service unions on other technical issues. On foot of this, the public service committee of congress is not opposing the scheme. I welcome this and look forward to further useful discussions with congress on these matters.
The Trident report assumes that the pension related deduction, commonly called the public service pension levy, is a pension contribution. This is mistaken and the law could not be clearer. Section 7(2) of the Financial Emergency Measures in the Public Interest Act 2009 states: "(2) A deduction under section 2 is not a pension contribution for the purposes of the Pensions Act 1990". The pension levy contribution is a misnomer. It was called that by the previous Government, but it is a levy on pay. I hope it will not be a permanent feature, as I said to the unions when I met them. In my judgment, it is mistake for unions to characterise it as a pension contribution because the fear will be at a future date that it will be subsumed into the calculation of pension contributions. Under the auspices of the Financial Measures in the Public Interest Act 2009, it is not, by definition, a permanent measure. I hope it will not be a permanent measure, but, obviously for the foreseeable future, it is required.
Contrary to the teachers' unions' claims, the new scheme has an employers' contribution. The Trident report estimates this contribution at 4.9%. The Comptroller and Auditor General recently estimated the annual pension cost for serving teachers at 22.4%. The new scheme will reduce this figure by approximately one third. The employee contribution continues to be 6.5%: 3% on pensionable pay and 3.5% on net pensionable pay, that is, reduced for social welfare integration. This gives a net contribution of 4.9%, according to the Comptroller and Auditor General, leaving approximately a 10% employer contribution. Therefore, there will be a significant continuing Exchequer contribution to public sector pensions.
There are a number of other issues I want to bring to the attention of the House. The new scheme makes no provision for enhanced pension arrangements for senior new entrant appointees such as Secretaries General and non-commercial State body chief executives. Such persons will be treated the same as other public servants, with pension accruing relative to pay and annual accrued amounts indexed to the CPI and aggregated to produce a pension and lump sum on retirement. The amount of anomalies that some opposition Deputies have rightly identified in recent times and which I have discovered that have built up, particularly in the last couple of decades, is striking. We need to restore fairness to the system, but one should be conscious that it is very difficult to unravel an existing system. In this way, pension will be a function of pay and a higher salary will mean a higher pension proportionate to one's lifetime earnings. This in-built pension-pay proportionality will not be accompanied by special pension enhancements such as added years.
One question that may be posed is why not simply apply the scheme to serving public servants also. Some outside the public service have asked this question. I see a distinction between offering someone a public service position with single scheme membership and changing the pension terms for someone who took up their public service employment under clearly defined and understood terms and conditions. A new entrant can decide whether to take the job on the terms offered, a serving person does not have that option. Many of us will know public servants who stayed in the public service because of the pension provision. It may not be unlawful, but it would be unfair and unjust to people who have worked for many decades on the basis of an agreed outcome in pension terms to then expect that we could arbitrarily change this at the end, or near the end, of their career.
As Deputies are aware, it has been necessary owing to the financial emergency facing the country to legislate in the public interest for the pension-related deduction, a cut in public service pay and the reduction in public service pensions which will be further reduced, reflecting the reduced pay rates, for those retiring after February next. These measures were taken to meet fiscal targets: the pension-related deduction is expected to realise savings of about €900 million this year, an extraordinary sum of money. The tiered reduction in all public service pensions above €12,000 per annum introduced this year has cut pensions, on average, by about 4% and will save about €100 million in a full year. It may not, however, be legally straightforward to reduce accrued pension benefits by adjusting their terms, particularly where benefits have been accrued and contributed to for many years.
To avoid a destabilising rate of retirements in 2011 and to manage the cost of retirements in 2011 and 2012, it was decided that the grace period during which pre-cut pay rates would be used to calculate pension on retirement would be extended to the end of February 2012. This means that those retiring after February 2012 will see a pension reduction of 7% on average, as their final salary pensions will be calculated on the reduced pay level. The pension reduction outlined will not apply to those retiring after that date.
To those who call for the single scheme terms to be applied to the future service of serving public servants, this has not been agreed by the Government, nor is it part of the EU-IMF programme. Given the retrenchment in the public service, I do not consider that this is the time for such a change. We must concentrate on the reform tasks before us, to which we are committed and on which we must deliver. There is no change in the position in relation to the public service agreement or the associated clarifications concerning the indexation of public service pensions. In other words, the Croke Park agreement is not affected by this proposal.
There is an enabling provision in the Bill which would allow me, as Minister, to make an order to apply a CPI link to public service pensions should this be decided in the future. As is well known, there will have to be discussions about this issue under the agreement and if these should lead to a decision to make this change, I will have the necessary legislative powers without having to come back to the House with further legislation. The enabling provision should not be used to create an expectation that it will be unilaterally implemented; discussions will not be pre-empted in any way. This approach is entirely in keeping with both the letter and the spirit of the agreement. Of course, any changes would not, and could not, be implemented during the current agreement in accordance with the clarifications we have given.
I will now outline the main provisions of the Bill. The Bill's principal purpose is to provide for a new single pension scheme for all new entrants to the public service. The new scheme is the subject of a commitment in the EU-IMF programme. Part 3 of the Bill includes the necessary legislative amendments required to allow a reduction in pay rates for public servants and officeholders, including members of the Government and new members of the Judiciary, whose pay rates are determined in legislation.
The Bill is in four Parts, of which Part 1 is preliminary and general. Part 2 deals with public service pensions, with five chapters: (i) preliminary and general, Part 2; (ii) single scheme; (iii) pre-existing public service pension schemes; (iv) provisions applicable to all public service pension schemes and (v) consequential amendments, Part 2. Part 3 deals with the remuneration of judges and other officeholders, while Part 4 deals with the amendment of Acts relating to financial emergency measures in the public interest.
Part 1 contains standard provisions providing for the Short Title of the Bill, commencement, the repeal of legislation and expenses, and defines "Minister" as being the Minister for Public Expenditure and Reform.
Part 2 is the most substantial element of the Bill and deals with all aspects of the new scheme to which I have referred. It deals with public service pensions. The sections in chapter 1 - preliminary and general - define the terms to be used in the Bill and the scheme. "Public servants" are defined as officeholders or employees of public service bodies. The President, Members of either House of the Oireachtas, qualifying officeholders such as Ministers, the Attorney General, the Ceann Comhairle, Ministers of State, the Leas-Cheann Comhairle, the Cathaoirleach, the Leas-Chathairleach, the Leader of Seanad Éireann, members of the Judiciary and other designated officeholders are covered by the provisions of the Bill. "Public service body" is defined as meaning the Civil Service, An Garda Síochána, the Permanent Defence Force, local authorities, the Health Service Executive, the Central Bank of Ireland, educational institutions and non-commercial State bodies where a public service pension scheme is in place or applies, or may be made. The CPI is defined as being the consumer price index, all items. Owing to the legal position of the Central Bank as part of the euro system, the new scheme will apply only with the agreement of the Governor. This is explicitly set out in the Bill. Chapter 1 also gives the Minister power to introduce, by regulation, the administrative measures necessary for the operation of the new scheme as defined in the Bill.
Chapter 2 provides for the establishment of the single scheme and sets out the age-related and other criteria for membership. Persons, other than those seconded or absent on leave with or without pay from a public service body, who become public servants on or after the operative date will be members of the new scheme. It is not proposed to bring the commercial State body sector within the ambit of the Bill. Accordingly, a schedule of excluded bodies is proposed. Owing to the historical evolution of pension systems in commercial State bodies, a separate system has grown up and their market-oriented ethos means it is not considered feasible for their staff to be included in this measure.
Chapter 2 also defines "new entrants" to the scheme. It provides that, from the operative date, for a six month holding period, someone who was at one time a public servant, on returning to be a pensionable public servant, will be regarded as a single scheme member and will not be able to claim pre-single scheme pension terms.
Chapter 2 also provides for a public servant to retire at the age of 66 years or the age at which the person would, from time to time, become eligible for the State pension. The proposed new retirement age of 70 years, at the latest, is also specified in this chapter, with exceptions made for elected officeholders and certain uniformed public servants.
Chapter 2 sets out the provisions concerning pension contributions. For most scheme members, these will be integrated with the social insurance system. This implies 3% of pensionable remuneration and 3.5% of net pensionable remuneration. The chapter also provides that all contributions charged under the new scheme shall be paid directly to the Exchequer.
Chapter 2 sets out the terms and conditions which will apply under the career-average system in the new scheme. It stipulates that members of the scheme will earn money amounts which accrue to their pension and lump sum benefits annually.
The earned "referable amount" is calculated as a fixed percentage of actual pensionable earnings. In this way, the accumulation of future pension benefits will reflect a person's evolving actual pay over the course of a career, while at the same time ensuring that the real value of those pensionable earnings is protected through indexation to the consumer price index.
For almost all scheme members, the money amounts earned will be integrated with the social insurance system. The integration formula applicable to the vast majority of new-entrant public servants includes an accrual rate of 0.58% up to earnings of €45,000 - a figure recommended by the Labour Relations Commission that represents 3.74 times the value of the State contributory pension - which provides for some occupational accrual in addition to that being provided by the State pension until pay exceeds this figure. These are not simple calculations. How they were arrived at is beyond my mathematical comprehension. That said, the LRC recommendations have been accepted. The pension accrual rate above the aforementioned threshold is 1.25% of the scheme member's pensionable remuneration. The lump sum accrues at the rate of 3.75% of the scheme member's pensionable remuneration.
For certain public servants, including the President, qualifying and designated officeholders, the Judiciary, Oireachtas Members and those who must retire earlier than other public servants, such as gardaí, Permanent Defence Force members, prison officers and firefighters, higher accrual rates and contributions apply.
Provision is made in this chapter for a pension to be paid to a surviving spouse or civil partner of a deceased member and, where applicable, eligible children, and sets out the rates, terms and conditions attaching thereto. These include cessation on cohabitation or marriage, a standing scheme rule which is in line with social welfare rules and practice, with which the scheme is integrated.
I do not have time to discuss all aspects of the Bill. Part 3 deals with changes to the pay for new members of the Judiciary and certain other officeholders.
Importantly, the amendment of section 46 of the Courts (Supplemental Provisions) Act 1961 provides for revised salary rates for members of the Judiciary appointed after this Bill is enacted. The revised rates reflect the pay reductions and pension related deduction applied to other public servants in addition to the 10% reduction applied at the beginning of 2011 to new public servants appointed to public service entry grades.
Article 35.5 of the Constitution provides that: "The remuneration of a judge shall not be reduced during his continuance in office." The Government has published the text of a proposed referendum to amend this provision. If passed, implementing legislation will be passed to apply revised pay rates to serving and future members of the Judiciary to ensure comparable treatment between members of the Judiciary and other public servants.
The Presidential Establishment Act 1938 is amended to provide that the new person elected to the Office of President will have an annual salary of €249,014. The current rate is €325,507.
This is complex, wide-ranging legislation. I will be happy to provide any detailed briefing any Member in Opposition or on this side of the House requires for the sake of clarification. The meat of our debate will be dealt with on Committee Stage when we go through the legislation line by line. I am happy to commend the Bill to the House.
I welcome the opportunity to speak on Second Stage of this Bill. We generally need new legislation in this area. The principles of the Bill are generally welcome on this side of the House, as are many of the specifics. On Committee Stage, we would like the Minister to agree to our detailed amendments or take on board the principles thereof and have his departmental staff agree on a satisfactory wording. We would like to see the legislation amended before it passes through the House. I welcome this discussion but flag that, on Committee and Report Stages, we will be tabling amendments that we will want taken into account.
Towards the end of his speech, the Minister outlined some of the specifics of the Bill. Let me make a few general points and then deal with specific aspects of the Bill. The Bill's main purpose, as we all now know, is to provide for a new single pension scheme for all new entrants to the public service. The Minister's briefing note states, importantly, that this will significantly reduce costs to the taxpayer while at the same time ensuring public servants and their dependants will continue to have a reasonable income on retirement. The new scheme will apply to the Civil Service, the health and education sectors, the HSE, local authorities, the Garda, the Defence Forces, the regulatory sector and non-commercial semi-State bodies. It will include Oireachtas Members and members of the Judiciary. The Minister has dealt with this aspect and I do not propose to dwell on it. Other Members may be happy to talk about politicians' and judges' pay. I will leave that to them as they may want to go down that road.
There are important new initiatives in the scheme. The first that will attract a lot of public criticism concerns the higher minimum public service pension age. It is proposed that this be increased initially to 66 to bring it into line with social welfare related increases affecting the State pension. The retirement age will rise on a phased basis to 67 and 68. The Minister made a very strong, cogent and well-documented case for this on the basis that we are all living longer. Many people spend longer in retirement than they spend in the workplace. The purpose of the scheme is to ensure people, during the course of their employment, will contribute to a scheme. It is great that we are living longer. It is great that the health of the nation is improving, despite daily and yearly criticisms. The overall health of the nation has improved, as is evident from the increase in the length of time people live. People are living better lives than they did in the past because of better medical treatment.
It must be recognised that some people feel strongly that it is ageist to be forced to retire when they reach retirement age. There should be an option for people to work a little later than they now do, if only to keep them active for longer. We have all seen people who, having worked all their lives, did not last too long after retirement given that their work was part of what they were. For most new entrants to the public service at present, there is no maximum retirement age. I make this point in the proposed new maximum retirement age of 70.
Another feature of this legislation is the calculation of pensions on the basis of career average earnings rather than final salary. The Minister stated there may have been an abuse of the system whereby people were promoted just at the end of their careers to attract a larger pension. We have all encountered that. It is great for the person concerned but everyone else must pay for it. It was part of the system. Let us not say the system did not allow for it. Perhaps it should have been dealt with much earlier.
Consider the change to the overall rate of pension contribution from staff. It will generally remain at 6.5% but, for those who do not work until they reach the full retirement age that generally applies, there will be an increased contribution rate, given that they receive their pension on a fast accrual basis. Members of the Oireachtas are included in this category.
Modification of earnings linked to pensions comprises a bone of contention. The new scheme provides for the linking of post-retirement pension schemes to the consumer price index and not to pay. We will have to return to this in detail. I understand what the Minister is saying and he might clarify it in due course. Over the course of 40 years, increases in pay could be higher than consumer price index increases. Alternatively, increases in the consumer price index may be higher than pay increases. We must have concrete worked examples of how that will work out.
I understand it cannot go down but over a period of between 30 and 50 years one could be left behind so we must work on that. I suggest some hybrid but I have no wish to defeat the purpose of the Bill by having a hybrid too much in favour one way or the other. At the end of the lifetime of the scheme, perhaps in 40 years time, it is expected that the new scheme will reduce annual expenditure on pensions by 35% or €1.8 billion. That is the long-term projection. It is a cut of one third. We are saying to people who are used to a pension that it will not affect them but it will affect other people in future. On average, their pension will be one third less than what it would have been otherwise. It is difficult to see where these figures are coming from. Someone must have produced a report but I guarantee the House that if one asked ten other consultants to produce the same report one would have ten different answers. No one can see into the future or the long-term. It is not too many years since we set up the National Pensions Reserve Fund. The Minister at the time, Mr. McCreevy, set it up and 1% of GDP was put into the National Pension Reserve Fund and it was to be there for us all. I recall the discussions in this House to the effect that come 2025, a large fund would be in place but most of it is gone already. Events overtake people's intentions. We must come back to the issue of the consumer price index, CPI, linkage.
The Houses of the Oireachtas produced a Bill digest last night, a comprehensive document containing a summary of the Bill. There are many fine charts in it but, in truth, I have not had time to digest it because it only came out last night. It is available in the House today. I refer to the chart on page 15 of the document. People are put in bands ranging from €20,000 to €170,000 although there cannot be too many on €170,000. The chart suggests that people on €45,000, a figure mentioned in several contexts, will not see any change. There is a chart projecting the single pension scheme assuming a 1% real wage growth each year and comparing it to the current pension scheme. It shows the differences that would occur in terms of pensions. Most of the people on €50,000 would get 93% of their pension, the people on €100,000 would get 90% of their pension and the people on €170,000, the highest figure, would get 89.58%. I did not have time to study the comprehensive document that came out last night but, if I read the chart correctly, it appears to suggest a 10% reduction in the pension for those on the highest payroll based on these assumptions but no reduction for people under €45,000. We agree with this because people on low salaries such as those on €45,000 deserve it. Let us consider a couple in receipt of the State pension to begin with as well as various entitlements. They would get at least €20,000. The average net income of a low waged public servant is not a great deal better than what the State pension would have been. Such a person would not get significantly more for having done 40 years work. It is only right that people at the low level of pension entitlements would not be hit because otherwise they could ask what was the point of working for the pension and, if they had not worked at all, they would have received the old age pension which was close in amount.
The chart appears to say that much of the reduction for the people on the higher level will be of the order of a maximum of 10%. I cannot square that. I call on the Minister to explain how that reconciles with the statement in the briefing note we received from the Department suggesting this would result in savings of 35% in pension funds. There are many documents to be examined and perhaps I am not reading the charts properly but this is my initial assessment. I cannot see from where the savings of one third will come.
If the Minister is to achieve savings of one third he should provide the numbers. What are the approximate salary scales of people in the public service? I suppose we could get the information by parliamentary question and it is on the record as well. How many people earn under €40,000, €50,000 or €60,000? Let us suppose there were no reduction for people who earn between €45,000 and €50,000. That is a large number or coterie of individuals in the public service. It means those at the higher end would necessarily suffer a reduction in pension of 50% if we were to get an overall saving of 35%, especially if others were giving no savings.
I understand that but the numbers of people in that category are rather small relative to the 300,000 or more public servants and these people will receive a defined benefit pension. It is important to make the point because people are utterly confused and there was spin from the Minister's Department when we asked a parliamentary question on the matter. I have examined the reply provided on 20 September. I asked about the substantial severance payments for Secretaries General. Naturally, the Minister stated he would examine it but a relevant amendment should appear on Committee Stage to deal with the excessive severance gratuity payments. It could be dealt with now; we need not wait for legislation. If such measures are not included in the Bill we will be obliged to vote against it.
I refer to new Secretaries General, some four of whom have been appointed since the Minister came to office. I will not name them but the Minister knows them. Some vacancies are scheduled to arise as well. I see no justification for those special arrangements. The Minister has talked the talk about this change.
However, he is walking the walk for the future. I understand that the Secretaries General in place are in place but vacancies will arise in the immediate future. I cannot understand it. No one in Ireland, not one among 3.5 million people, except those getting these payments would agree with the new people getting them other than the few people involved and the few people around them who would be keen to continue the arrangement for some more years if they can get away with it. The Minister would have unanimous support not only in this House, but from the people if he stopped the practice.
When we raised the matter with the Minister by way of a parliamentary question, the longest paragraph in the reply stated: "I should point out that, before the end of this month, I will introduce the Public Service Pensions (Single Scheme) and Remuneration Bill 2011." The Minister spelt it out. The Minister tries to give the impression when we talk about obscene payments for new Secretaries General that he is doing something about it and refers to this scheme which, as we are aware, will not have a financial effect for 40 years. The spinners in the Minister's Department have done well to confuse the public. Most people believe this legislation will do something else because a reference is placed in the answer about an unconnected matter.
It is extra information but I am simply dissecting it so that people will not take the view that the issues are directly related. The Minister should move on the matter sooner or later.
I understand the Minister wishes to exclude certain commercial bodies. The Schedule to the Bill refers to bodies to which the definition of "public service bodies" does not apply. These include any body corporate established by Act or Parliament before 6 December 2002 which, upon its establishment, was of a commercial character. We understand the Minister is not including the commercial semi-State companies but I seek answers on some specific bodies to be included in the course of the legislation. The first such body is Anglo Irish Bank. We would freak out if it was included in the new legislation. However, given that Allied Irish Banks, AIB, is 99% owned by the Exchequer, I call on the Minister to clarify whether those in AIB, Irish Nationwide, Permanent TSB, Irish Life and EBS are similarly excluded, and whether those from Anglo Irish Bank are excluded because each of these organisations has been taken into effective State control. Will the Minister clarify the position for organisations such as Teagasc? It carries out a good deal of commercial activity but I am unsure of its commercial status. What is the position for organisations such as the National Gallery and the Zoological Gardens? These are commercial organisations but I do not see them listed in the Schedule. Perhaps they are somewhere in-between because they get a considerable amount of State funding but they have commercial income as well.
Will the Minister clarify the position for foster parents working for the HSE? I refer to people who are long-term foster parents. Some of these people have been fostering for 30 or 40 years. They have looked after different children and they have a good name. Effectively, they are in receipt of long-term payments from the HSE. Are such people categorised as employees? Will they fall under the scheme? What is the position for new foster parents in future and those who carry out home help? Will the Minister clarify the status for these people? There are other organisations funded by public bodies which are partly commercial. I have in mind new child care facilities which are paid the early child care supplement. Some of these facilities are fully funded by the supplement and are in a position similar to that of schools. While they have an intermediate board of management, the Department pays salaries as an agent for the board of management. Will the Minister clarify the position pertaining to child care facilities which are effectively fully funded and paid for through Exchequer grants even though they have a local management committee? Will he also clarify whether nursing homes which are fully funded by the Exchequer on the basis that all their patients fall within the fair deal scheme will also be covered by the scheme?
I am sure the legislation has provisions dealing with public servants who take a break in service or work under term time or job sharing arrangements. Forty years down the line we could have a Greek scenario here with public servants engaging in strikes or industrial disputes. Thankfully, we have not had many industrial disputes in the public service because relations have been good over the years. What would be the position if an extended industrial dispute, such as those which occurred in An Post and other public bodies, were to arise in the public service or Health Service Executive?
What pension provisions will apply in the event that a public body is privatised, as was the case with Eircom? Other arms of the State may be privatised in due course. What will be the position when the reverse occurs, namely, a private sector organisation is taken into State ownership? This has occurred in the case of the major banks. What pension provisions will apply to the employees of such organisations?
How many bodies will be responsible for the payment of public service pensions? At present, the HSE, local authorities and Departments all have responsibilities in this regard. The Minister has an opportunity to establish a single, centralised pension payment body for the public service. It does not make sense that finance officers in each of the county councils make separate arrangements for the payment of pensions to former staff. Likewise, each Department has separate arrangements for staff, for instance, teachers and employees of the HSE. A case can be made for making one body responsible for pension payments. It would be a more efficient and streamlined system. If one body, the Department of Social Protection, can pay the old age State pension to all pensioners, there is no reason one organisation could not handle pension payments for retired public servants. I ask the Minister to consider my proposal. While it may not be part of the Croke Park agreement, there is no reason the Minister should not pursue such a reform as the introduction of one pension payment management system would be beneficial.
On additional voluntary contributions, I have heard many complaints from teachers who had sought to make up their years following breaks in service. Although the payments they made were deducted from payroll through the Department of Education and Skills, they were forced to use a private pension provider. I will not name the companies in question. If a centralised pensions management system were in place, the Minister could introduce a mechanism to enable additional voluntary contributions to be paid into the Exchequer rather than private sector companies. I understand the Taoiseach stated in the House yesterday that the management fees and commissions charged by pension companies are disgraceful in terms of people accruing their pension rights. When a person comes to draw down his or her pension, as much as one third of the fund he or she has accumulated will have disappeared because management fees of as much as 2.5% per annum will have been applied. Is there a case, in the interests of efficiency in the public service, to have additional voluntary contributions paid into the Exchequer? The actuarial valuation could then be applied to such payments when the pension is paid out. This would prevent public servants who wish to obtain additional years or build up a faster accrual as a result of being appointed to a post in later years being ripped off by the private sector.
If the Minister can introduce a single pension scheme for public servants, he must consider introducing further legislation to introduce a single contract of employment for public servants. I accept that not all organisations are the same. Let us take the example of local authorities to which the Minister referred. Some local authority staff have five more days' annual holiday than others. Over 40 years, such staff will enjoy one extra year in holidays than their counterparts in other local authorities while receiving a full pension based on 40 years' service. This does not make sense. Standardisation of contracts would be beneficial.
We all remember the debacle in the Health Service Executive some years ago when the famous PPARS system was introduced in an attempt to computerise the payroll and pensions of employees in the HSE. Approximately one third of the organisation had been covered before the previous chief executive officer of the HSE called a halt to the process on the basis of its prohibitive costs. The cost of computerisation was extraordinary because the previous system was a shambles. This was the logical outcome of computerising a system that was a mess. The PPARS system identified 2,800 different payment arrangements in the HSE. Approximately 38 different payment arrangements were in place for the porters who open and close the doors of hospitals. Different arrangements applied to the guys in Limerick Regional Hospital, Ennis General Hospital, St. Vincent's Hospital and Loughlinstown Hospital, even though they were all doing the same job in the same public body. In one hospital, they may have been given a day off on a holy day whereas the same staff in another hospital may have been given three hours off to go to mass before returning to do a split shift. In one hospital, a staff member may have been given two days off if his or her mother died whereas staff in another hospital may have been given one day off for the same reason. The different local arrangements and ridiculous anomalies in various public bodies need to be rationalised. It used to be part of the terms of employment of staff in Kildare County Council, for example, to be given a half day off to attend the Punchestown Festival. Many other daft arrangements apply. I ask the Minister to consider the introduction of a standard contract.
I accept the Minister's view that the pension levy does not form part of the contributions towards individual pensions. Teachers' representatives made a serious case in that regard but the Minister has answered it factually. On pensions generally, the Comptroller and Auditor General has qualified the accounts of a number of organisations, many of which are commercial State bodies. He has drawn up a schedule and I ask that officials of the Department contact his office to obtain a copy of it. The overwhelming number of qualifications he has given on accounts for public bodies in recent years were made on the basis of inadequate provision for the pension fund. The House is debating pensions. All the Minister needs to do is ask for the list of organisations for which the Comptroller and Auditor General has issued qualifications to his audit reports. He has stated the accounts of the organisations in question do not give a true and fair representation in accordance with the law because of deficiencies in the pension fund arrangements. This matter must be examined to ascertain whether it has implications for the Minister's proposals. An estimate of the costs involved is required because last year the Department unilaterally agreed to assume responsibility for the pension entitlements of the staff of third level colleges, including university professors. This will create substantial costs. Many similar issues arise and all these matters must be examined in greater detail before Committee Stage.
The Minister stated the provision in the legislation regarding a CPI link to public service pensions is an enabling provision and the matter has not yet been decided. My party has difficulty giving the Minister power to introduce a measure without reverting to the House with further primary legislation. It is difficult to secure changes to a measure if the means of introducing it is by statutory instrument. Given that 300,000 people work in the public service, the national Parliament must sign off on any legislation making changes to their entitlements. While I accept the enabling provision has been included in the Bill in good faith, the failure to have changes implemented publicly and transparently in the House is not a good way to do business.
I propose to raise a few points regarding the explanatory memorandum. I am intrigued by the following statement: "Section 9 (Scheme and membership)provides for the establishment of the single scheme and describes to whom it applies, i.e. all public servants other than those under 16 or over 70 or those who do not qualify as scheme members under section 10." What public servants are aged under 16 years? I understood it was illegal to employ persons aged under 16 years.
Section 11, which deals with the pensionability of allowances and emoluments related to payments, provides that only permanent payments will be considered pensionable. I would like to see a list of the allowances the Minister will include as pensionable. I realise people must make a contribution. It emerged at the Committee of Public Accounts that until recently, at several Army depots throughout the country, new recruits were being given a Border duty allowance because their barracks was within a certain number of miles of the Border. There has been no Border duty by the Irish Defences Forces in many years yet long after it stopped it appears some people still receive a permanent allowance. The Minister might address some of those points.
Regarding section 19 the Minister provides the full details of the figure of 45,000, which he states is too complicated to follow. Perhaps somewhere on the public record he will describe how the Labour Relations Commission arrived at this figure. It must have had a consultants' report because I do not believe the LRC has any expertise in this area. I would love to know who it paid to give what advice. That needs to be examined as do most similar situations.
On section 28, concerning retirement on medical grounds, the Minister provided a clear example. I ask him to take this point on board. The whole principle of the legislation relates to "career average". I understand the good nature of the people who drafted the legislation. The current position is that if a person is retiring on medical grounds he or she can receive up to seven extra years of service. However, that seven years will be calculated according to the most recent, full-year, referable amount, namely, current salary, and not on the career average. There is a tremendous incentive, therefore, for a person promoted to the highest level because he or she will now be able to receive seven extra years at that highest level of salary. That runs utterly counter to the principle.
A Secretary General might get the job and decide to retire, taking that extra seven years. Or, because the arrangements of a Secretary General may be slightly different, we could consider a position close to that grade. As drafted, there is a tremendous incentive for a person who arrives at a high rate to leave on sick leave because he or she will get the extra seven years at the maximum rate. I accept it is somewhat mean to base the rate on career average but the Minister has built in a big incentive for higher paid people to retire, take a "sickie" and be certified as no longer capable for work. I ask the Minister to look at that issue because I am worried about it.
I refer to the relevant authority that must make the final payment which, I presume, relates to where the person ends up working for the final year of his or her career. Will there be a disincentive for various local bodies, whether a local authority or the HSE, to take on a person near the end of his or her career, knowing the organisation will be caught having to pay the entire pension for the rest of the person's life as a pensioner? The legislation states that there is a duty on a person taking up employment to make a declaration that he or she has no other pension entitlements. This information could be incorporated. There should be a duty on the actual public bodies to investigate this matter, by means of PPS numbers. It is no good their claiming the employee did not inform them. There was a situation where a worker who had a full-time salary in Athlone Institute of Technology also drew a salary at NUI Galway. Neither outfit knew the person was doing his ten or 20 hours in the other organisation. while he was drawing two salaries and perhaps building up two pension entitlements.
I ask the Minister to clarify section 52 which deals with cessation and reduction in benefit. This includes the case of a person who is to be dismissed for causing financial loss to a public body. From the time of dismissal the right will exist not to pay pension until the loss to the State is covered. What about a regulator, who, through inaction, caused massive financial loss? The Minister should investigate whether this provision can now be applied to Mr. Patrick Neary, who did not do his job as Financial Regulator. I have no problem naming Mr. Neary in the House and I would look forward to his attendance at a committee to answer on this issue from his perspective. He was probably a good public servant up to the point when he was appointed to the job of Financial Regulator but he did not do that job in a competent manner. He received his salary and his severance package and went away with them but I do not understand why we are paying him a pension when nobody in Ireland - nor probably he, in all conscience - believes he earned that salary, never mind the pension entitlement. I would like to have some further detail regarding persons who are to be dismissed for incompetence or in cases where there are court proceedings.
I touched on a number of points. When is the Minister's proposed commencement date of these measures? There is no reference to that. What is the approximate time scale? We look forward to a more detailed discussion on different amendments on Committee Stage in the coming weeks.
When Deputy Fleming questions the pension entitlement of the Financial Regulator, it strikes me that he is not be alone. One would wonder about the pensions of many who sat on the opposite benches not so long ago, and why they received them. I must make that point.
My party welcomes this legislation. Clearly, the Public Sector Pensions (Single Scheme) and Remuneration Bill cannot go unchecked. I welcome the Minister's comment in respect of sustainability in pensions, especially in respect of fairness, and welcome this opportunity to address the inequities of the current system which unduly favour the higher echelons.
It appears that lower paid workers will have better provision in the new scheme. The principle of calculating public sector pensions on the basis of career average earnings rather than on final pay makes a great deal of sense and I welcome those concepts. To the Minister's way of thinking, linking the public service pension age with the three year increase in the State pension age, makes sense and I see the rationale. However, my party does not support forcing older people to stay in work late into their 60s. If we continue along this trajectory who is to say retirement age may not go as far as 70? A previous speaker referred to people remaining active, which is excellent.
When the Minister introduced this increase in pension age entitlement it was a cutback, or a savings measure. It would be disingenuous, therefore, to paint it as some type of affirmation for active aging.
Comment was made on the enabling clause. I share the reluctance to give to the Minister those kinds of powers. I note also that the enabling clause, if I understand it correctly, applies in respect of existing entitlements. There is a problem in the legislation that I have raised with the Minister, in that the new scheme applies to new entrants. This causes a situation within the civil and public service where there is a two-tier system in operation.
Broadly speaking that is the case and it is not a desirable position. The Minister has repeatedly said he cannot touch the existing schemes. In the House he indicated this was because he would consider it to be unfair. He also hinted there may be legal issues concerning notions of legitimate expectation and so on. I would like to hear something more concrete from the Minister. If it is the case that he has received legal advice to the effect that he cannot disentangle or change the existing pension regime for serving public and civil servants, he must attend both House and committees and give us that advice in chapter in verse. It is much preferable that a single, fair, equitable scheme should apply to all working in the civil and public service and that such distinctions not be made.
I am with the Minister regarding the elaborate calculations in respect of pensions. That will be a testing job and we will be obliged to address the issue on Committee Stage. I welcome the indication from the Minister that he will engage with those of us on the Opposition benches in respect of it.
The Minister has addressed the issue I raised with him last week with regard to the teachers' unions. I am inclined to agree with him that it is a mistake to describe the pension levy as a pension contribution. It is not and never was a pension contribution; it is a levy or tax. We must rename the pension levy.
The term "pension levy" is unhelpful and misleading. It is extremely irritating for people who are being taxed in a particular way to have their contribution dressed up as a pension levy. The Minister has indicated, to the trade unions and in this House on two occasions, that he perceives the levy to be a temporary measure.
Yes. However, if the Minister is going to inform the teachers' unions and, by extension, their membership, that this is a temporary measure, he must provide a timeline indicating when the pension levy will be lifted.
The Minister has said on a number of occasions that he cannot provide an indication, but it is he who described the pension levy as a temporary measure. There is a need for him to address this matter. The suspicion is that the pension levy is precisely the same as the health levy in that it endures.
I wish to raise an issue which specifically relates to women in the civil and public service. Has the Bill been gender proofed? I raise this matter because many women and some men have what might be deemed to be disjointed careers. In other words, they might take time off from work to care for children or elderly relatives or for some similar reason. As a result of, their period of service is broken. In calculating final pensions, to what extent have work patterns such as that to which I refer been considered? If the Minister has not already done the maths, I strongly urge him to do so in advance of Committee Stage.
There is a particular anomaly about which I am concerned and which is noted in the excellent digest produced to accompany the Bill. It relates to workers who accrue more entitlements than they might be able to claim. Those involved in this regard are individuals who move down grades. The example offered in the digest refers to a head teacher who might choose to spend the final years of his or her career working as a careers adviser and states his or her salary would be limited to half of his or her final careers adviser salary. The anomaly to which I refer is to be found in the current scheme and section 19 of the Bill will ensure it will be carried forward into the new single scheme. I urge the Minister to give consideration to this matter.
The elephant in the room is the fact that the new legislation does not address the inequities in the existing scheme. As stated, we are moving towards a system under which there will be a two-tier workforce in the civil and public service. That is not good news for the workers or taxpayers. The scheme deals with new entrants only and fails to tackle the scandalous practice of excessive pay and pension arrangements for the big hitters across the civil and public service. The Bill includes provision for cuts to pay. However, when the average citizen examines the suggested pay reductions, I do not believe his or her heart will bleed with sympathy for those concerned, particularly as we are working down from such an extraordinarily high level. The country is in crisis, but judges, hospital consultants, county managers, the President and Members of this House will continue to enjoy pay and pensions that would literally make our EU counterparts' eyes water. For example, British hospital consultants working within the NHS are paid less than half that of their Irish counterparts. That is utterly scandalous.
Pensions in the public sector account for 13.9% of the total pay and pensions bill. As everyone is aware, the overall bill has increased by 66% since 2006. This figure does not take account of all those who will retire before the end of February 2012.
The major problem in this regard relates to the existing pension regime and the fact that the Government still believes it is acceptable to shell out for excessive pay and pension packages. The Minister will state the new single pensions scheme has been agreed with the troika, that public sector numbers are down, that new public service entrants are subject to a 10% reduction in pay rates and that public sector pensioners are feeling the brunt of the reduction in public service pensions which came into effect at the beginning of the year. All of this is true. However, it is also true that public servants on low and average incomes are feeling the pinch of the cuts and that there are knock-on effects for members of the public as a result. The majority of public service pensions work out at an average of €20,000 to €30,000 per year. However, over 100 retired civil servants each receive over €100,000 per year in pension payments. This figure does not include retired judges, hospital consultants, senior gardaí or county managers. In the light of the fact that the Civil Service makes up just 10% of the overall public sector, I do not believe it is a stretch to say there might be approximately 1,000 retired public servants who are in receipt of the whopping €100,000 per year pension payment.
It is disturbing that the Department of Public Expenditure and Reform does not collate data in respect of this matter. The Minister has admitted that he does not know the number of public sector workers who are in receipt of bumper pensions. I accept that the people concerned - the former top brass in the public sector - are in a minority, but the fact is that each bonanza package awarded to one of them would cover the cost of multiple average pensions. It is on this basis that I find it astonishing that the Department does not receive and collate data of the type to which I refer.
This legislation presented the Government with a major opportunity to step up to the plate and tackle excessive pay and pensions among those in the highest ranks of the civil and public service. As the Minister is aware, I have continually made reference to the pay-off which Mr. Dermot McCarthy, former Secretary General to the Government, received. The eventual cost to the State of Mr. McCarthy's package will be €6 million. He obtained a special severance gratuity of €142,670 and received his full pension at the age of 57 years - not at 70 or anything close thereto - without an actuarial reduction being imposed. On each occasion on which I raise this matter with the Minister, he invokes the Top Level Appointments Committee, TLAC. I must again state he is studiously ignoring the specific powers granted to him under the Superannuation and Pensions Act 1963 to rescind such payments to and added years for those who occupy the most senior echelons within the public service. TLAC cannot overrule the law of the land. It is worth reminding the House and the Minister that the Secretary General to the Government and other senior public servants are members of TLAC. We must ask if that is best practice or even acceptable. The Minister stated that terms approved on the appointment of current Secretaries General will be honoured by the Government but last week he told the House he was grappling with the excessive pay and pensions of those who currently occupy the highest ranks of the public sector. He believes, as has been stated today, that the indefensible pay and conditions represent a legitimate expectation, but in a time of austerity and hardship, I find that utterly astonishing. The likes of Dermot McCarthy, regulators, Bertie Ahern and Brian Cowen are cushioned, as are others who made at least some contribution to our current woes. That is not on and politically and legally it is a significant missed opportunity for the Government not to address this matter now.
I understand we will deal with the detail of the Bill on Committee Stage, which is appropriate, and we will bring forward amendments referring to the issues I outlined in my contribution. Sections 60 to 64, inclusive, deal with salaries, particularly of future judges, and the Minister should ensure not only that the salaries of future judges are addressed with all due haste but also those of serving judges. I know reductions have been made in respect of the pay of the Taoiseach, the Tánaiste, Ministers and so on but these have not gone far enough and they should go further.
Section 10 contains a curious provision exempting certain persons from the new scheme if they leave and return to the public service. On the face of it, that seems reasonable but on further consideration it seems to be tailored for Members of the Oireachtas, MEPs and others who lose their seats before returning to a seat they previously held. The Bill provides that those people would have the terms and conditions of the old scheme applied, which is unacceptable and will fuel a very virulent cynicism among taxpayers and citizens as they look at the political class.
I welcome the fact that we have legislation and that it is geared towards full provision, especially for those on lower incomes. I note some of the flaws of the Bill, which will create a de facto two-tier system, and I do not accept that these new conditions can only be applied to new entrants. I ask the Minister to substantiate his claim that it would be legally problematic to apply the new scheme across the board.
Tá sé tábhachtach go bhfuilimid ag labhairt ar an mBille seo inniu agus go bhfuilimid ag díriú isteach ar cheist mhór na bpinsean sa tír. Tá fadhb mhór ann, ní hamháin maidir leis na pinsin poiblí ach leis na pinsin príobháideacha chomh maith. Níl rudaí ceart mar atá siad rialaithe faoi láthair. Níl sé ceart cad atá ag tarlú. Tá deis againn deighleáil le ceist na bpinsean ina iomlán san mBille seo ar dtús ach tá súil agam, chomh maith, go bhfeicfimid Bille ón Aire Coimirce Sóisialaí amach anseo a dhéanfaidh deighleáil le ceist na bpinsean ina iomlán, mar níl an córas i gceart agus ní raibh le fada an lá. Tá a lán athraithe gur chóir dúinn díriú isteach orthu.
Many pension schemes are blighted by giant holes, particularly the private funds, but there is also an effect on the schemes of public or semi-State companies. That is leaving workers, especially those approaching retirement age, carrying a very heavy can. Yesterday, the Taoiseach indicated that the State has no role to play in filling holes which have emerged in these schemes. The State has a role to play and the Taoiseach's comments were a kick in the teeth to thousands of workers whose pensions, through no fault of their own, will be insufficient to sustain them in old age. At a minimum the Government should be taking steps to remove restrictions that are preventing Irish pension funds from addressing their deficits themselves, and that is one role the State has in filling the holes in these schemes.
It was reported over the weekend that An Post has a ballooning pension deficit of €800 million, and the fund is prevented to an extent from addressing that deficit by the current rules which exclude it from investing in Irish Government bonds which would pay higher interest rates than German Government bonds. If a change occurred, the Irish economy could be boosted in a patriotic act and worker pensions would also be protected.
There are two issues in this regard. Why is the Government still allowing the ratings agencies to dictate economic policy? At an EU and international level, steps must be taken to rid us of these odious companies and their activities. Pension fund trustees cannot invest in bonds deemed by these conflicted ratings agencies as junk. Some of these Irish Government bonds might be deemed as having junk status by the ratings agencies but these are the same bodies that gave the sub-prime mortgage products in this and other countries a AAA rating at one stage, and we all know what happened with that.
The ratings agencies are not impartial observers and are actually far from it. Last year a US Senate investigation committee hauled senior Goldman Sachs officials over the coals, and during the process it emerged that the ratings agency used to rate Goldman Sachs financial products was in fact hired by Goldman Sachs itself to do so. Where is the objectivity in that? This is the same Goldman Sachs to which the NTMA paid €7.8 million in taxpayers' money to advise on the recapitalisation of AIB and Bank of Ireland earlier this year. Anyone can see the conflict of interest as, on the one hand, these companies played no small role in destroying the global financial process, especially the Irish economy, while on the other hand, they are being paid by the Government to advise us on how to get out of this mess. That is a major problem.
Private pension funds represent untapped wealth that should be made available for targeted investment in Ireland's recovery. That is the public role for the Irish pension schemes. Currently, the Minister for Finance, Deputy Noonan, has a decreasing pot of money but Irish pension funds are investing in Germany or bailing out European pension funds. Those funds should be invested in Ireland. We urgently need to maximise investment in Ireland and at a minimum we must remove restrictions that are preventing funds from doing so. At this stage there is a patriotic duty in pension funds to invest in Ireland and a minimum percentage of Irish private pension funds should be compelled to be invested here. That would be a step in the right direction.
It would mean that Irish workers would see a benefit from their pension fund on their own doorstep. Pension deficits are a major problem and whether the Taoiseach wants to or not the Government must play some role in helping them to "fill the holes" to which he alluded yesterday.
I take this opportunity to urge the Minister for Social Protection, Deputy Burton, to meet the Communication Workers Union to discuss what can be done to address the considerable pension deficit in An Post - €800 million - in this instance, a semi-State company that was highlighted at the weekend.
I understand the Bill is tied to a promise made to the IMF and that it is connected to the economic crisis and specifically deals with public service pensions. I welcome the news that the Department of Social Protection is to investigate charges in the pension industry. Such an investigation is long overdue. I have long believed that charges in the industry are exceptionally high and it is vital that they are exposed, documented and reduced, thus saving money for pensioners. The Government should force some transparency around costs in the private pensions industry. Pension fund managers should be required to disclose all charges and fees. Moves must be made in that regard because otherwise the Government's entire pension policy is being developed in the dark. We do not know what the charges are and how much it is costing Irish pensioners.
The Pensions Board should collect data on charges but as it does not, currently there is dearth of information on Irish pension industry costs. That said, according to TCD academic, Mr. Jim Stewart, industry charges could be swallowing as much as 30% of a pensioner's lump sum. As was highlighted in a programme on RTE on Monday night; in some cases the smaller the pension the greater the proportion being swallowed by industry charges. That must be addressed in an overall pension package and whether it is done by means of amendment to the Bill before us or in a future Bill it is urgent that it would be done.
In the absence of legislative action by Government to protect pensioners, and more directly as a result of the legislative enabler for the pensions industry provided by the Government, the new 0.6% levy on private pension funds will in all likelihood be passed directly on to pensioners. If that is allowed to happen a pensioner with an annuity of €10,000, which is less than the State pension, could be down €900. I have discussed that with the Irish Senior Citizen's Parliament. There are significant fears that the levy will hit older people on low incomes hard. The Bill provides the Government with an opportunity to introduce an amendment that would have the effect of mandating the pensions industry to absorb the new levy from within its existing fees and charges. I urge the Government to use the opportunity to amend the Bill rather than wait for further legislation to be drawn up.
The pensions industry continues to claim that it cannot possibly absorb the cost of the new levy but must instead pass it on to pensioners. On the basis of studies on costs in Britain, that is simply an incredible claim. PRSAs are comparable to the British stakeholder product yet the costs associated with PRSAs are considerably higher. One has to ask whether the private pensions industry is really earning its cut. In recent years and up until last year the rate of return on private pension assets was 1%. One could get 3% if the money was invested in the post office. That shows private pensions are not all that they are made out to be and that perhaps many private pension fund managers are not earning their keep. Last year the rate of return was 11%, which was high, but even if the rate continued at half that level the industry could easily absorb the new levy. More action must be taken in that regard.
We need a complete overhaul of pensions policy. More radical reform of retirement income policy is badly needed. The favoured policy approach of the present Government and previous Governments is to subsidise private pension provision. The policy has abjectly failed: individuals who have paid into private pensions; the Exchequer which continues to forgo significant revenue via tax reliefs and; society generally because despite huge tax expenditures in the form of relief on pension contributions the vast majority of people continue to depend heavily on the State pension. The Government must learn lessons from this failure.
The National Pensions Framework promises to introduce auto-enrolment pensions with contributions collected by the PRSI system and then to be gifted as a wholly undeserved and reckless reward to the private pensions industry. In our view longer term reform of the Irish pension system should involve making the basic State pension universal and sufficient to provide a minimum income for all in old age. I wish to put other points on the record and I will do so on Committee Stage. I hope the minor changes I have suggested, especially on the levy, can be introduced as Committee Stage amendments to ensure some relief for people who are awaiting their pension in the near future.
Unlike the Sinn Féin Deputies, I do not welcome the legislation. The bottom line is that workers are being asked to work longer for less. It is part of a nasty, regressive attack on the rights and entitlements of working people generally. It arises in the context of a relentless, vitriolic and utterly dishonest campaign of scapegoating against public sector workers generally, the purpose of which has been to cause a race to the bottom in terms of their pay, entitlements, pensions and the rights of workers generally, both those in the public sector and the private sector. It is part of a strategy of playing public sector workers off against private sector workers with the intention of attacking them both.
Much of the context for those sort of attacks on public sector workers has implied that the Government is championing in some way the interests of private sector workers and pensioners. Let us be clear: in the criticism I make of the legislation and the Government's intent, we are as concerned as anybody else about the difficulties and injustices being faced by private sector pensioners. If the Government had any real concern for private sector pensioners it would do something. Instead of attacking public sector pension entitlements it would do something, for example, about the criminal overcharging of private sector pensioners by Irish fund managers. As the Government will be aware, recent reports and analysis suggest that private sector pensioners are losing between 30% and 40% of the value of their pension fund essentially because of the greed of private sector pension fund managers. The Government should do something about that rather than attack public sector pension entitlements.
It should also do something to ensure that it is mandatory for private sector employers to make substantial contributions towards the pensions of private sector workers. The failure of the Government to do anything to champion the real interests of private sector workers and pensioners is symptomatic of its more general refusal to take on the wealthy, corporate elite in this country and impose taxes on it which could be used to fund decent pensions for all workers in the public sector and the private sector.
Symptomatic of the real attitude of the Government towards private sector pensioners was the so-called 0.6% raid on private sector pensions earlier this year, which as the Tara Mines pensioners have now explained to us is not in fact a 0.6% raid on their pensions but actually amounts to 10% of the value of their annual pension being taken off them for the next four years or 2.5% over the full lifetime of their pensions. This is a disgusting raid on people who worked all their lives and paid their taxes and pension contributions. Their pensions are being attacked by this Government to pay off bankers, bondholders and vultures of the financial markets. Other private sector workers are likely to discover that their pensions were similarly affected. The Government needs to provide decent pension rights and entitlements to private sector workers by making employer contributions mandatory.
In regard to public sector pensions, it is important to be clear about the context in which these events arise. In criticising this legislation I also acknowledge the legitimate anger felt by ordinary people in regard to excessive pay and pension entitlements for top civil servants, semi-State bosses, politicians, judges and the bankers who are now effectively public servants. The Government should do something about these individuals by cutting their pay and pension entitlements. At a time when ordinary workers in the public and private sectors are being lashed by levies, universal social charges and taxes on pensions and pay, it is disgraceful that some people are still paying themselves multiples of the average industrial wage. People are right to be angry but this Government has no intention of doing anything about the problem other than token gestures.
The ULA's view is that nobody paid with public money should earn more than €100,000 per annum. If the Government is serious about dealing with excessive pay among those at the top of the public sector, that is what it would do. Such a cap would solve the problem of people walking away with massive pension pots. Rather than attack the pensions of low and middle income public sector workers on the spurious basis of preventing people from building up excessive pensions, by reducing salaries we would not have to deal with these obscene entitlements.
This legislation is based on the myth that ordinary public sector workers have gold plated pensions for which the rest of us pay. Public sector workers pay for their pensions through superannuation, the pension levy and their taxes. The Government continues to recycle ideological rubbish in this regard. On 11 October, the Minister for Public Expenditure and Reform stated: "[t]o appreciate how the single scheme will continue to provide valuable pensions to teachers, it is instructive to look at the 2009 report of the Comptroller and Auditor General on public service pensions which estimated the annual pension cost to the State for teachers to be 22.4% of pay." That is absolute nonsense. According to that report, the cost to the State was 9.6% of pay. The remainder came from the public sector workers themselves. In any event, the State's money comes from the taxes paid by these workers.
This legislation will require new entrants to the public service to pay more into their pension schemes than they will get in return. The State, as employer, will pay a lower contribution to pensions than the average proportion across the private sector. Contrary to all the mumbo jumbo arguments that are wheeled out to defend it, this legislation will accelerate the race to the bottom by attacking the pay and pensions of all workers, whether public or private, and it should be opposed resolutely.
It is not possible to examine the issue of public sector pensions in isolation from the attacks that have already taken place on the State pension and the crisis in the private pension industry. I remind the House of the criminal decision taken earlier this year to increase the State pensionable age to 68. Approximately 11,000 people who will reach the age of 65 in 2014 will have to work an additional year to avail of the State pension. People will have to work until they are 70 in areas like cleaning, catering and construction to get the State pension.
We must also acknowledge the crisis in the private pension industry in light of the reports that hit the headlines this week. Retirement funds are essentially being defrauded by pension operators. Workers who were employed for 40 years in companies that would have been deemed to be on the "A" list, such as Waterford Crystal, are facing pensions of €100 per week. They would have been better off if they had left their contributions under the mattress. In the semi-State sector, pension schemes like the Irish airline superannuation scheme, which I paid into, are facing deficits of hundreds of millions of euro. Workers continue to pump millions of euro down a black hole in schemes from which they will never receive benefits.
This crisis in the private sector does not arise because people are living longer nor is it the case that we cannot afford to offer them a decent retirement. It is the result of the under funding and mismanagement of schemes by employers and the race to the bottom among semi-State companies which are outsourcing positions to non-pensionable jobs. It is lunacy that pension provisions continue to be given to the private sector to manage.
Contrary to the Government's statements on this legislation, it will not deal with the pay of those on the fat cat salaries at the top. We have no problem with those at the top levels paying more but this fudges the intention behind this Bill, which is to yellow pack future recruits to the public sector by giving them inferior pensions. Public sector workers will not enjoy a big pot of gold at the end of the rainbow without contributing anything. Since 1995 the State pension has been integrated with the public sector pension, which means workers are contributing through PRSI, but in reality we should be subtracting €12,000 for each of those public service pensions to get a true sense of what the public sector workers are getting in return for the substantial contributions they are making. I will outline a case study in that regard. A person who joins the Civil Service as a clerical officer at the age of 25 might be paid approximately €22,000. If that person works his or her way up the scale to executive officer level, they might be on a salary of approximately €48,000 after about 25 years. If they have made 40 years of contributions into a pension scheme, they will be paid a pension of approximately half of their final salary, approximately €23,500 per annum. We must bear in mind that the contributory State pension of €12,000 is integrated into that. Therefore, the pension the person will be getting on foot of the contributions they have funded themselves will be approximately €11,500. It is hardly a massive pension.
The prospect of lengthening the working life to 68, with a retirement cap of 70, has been suggested. It is lunacy to force people to work longer and thereby deny young people coming out of college the right to employment. It has been calculated that for every nine public servants who will work until the age of 70, the equivalent of one new public sector job will be lost. It is absolute madness. The proposal to ask public servants to work until the age of 66, then the age of 68 and finally the age of 70, while maintaining the position that their pension contributions are reckonable for a maximum of 40 years, is daylight robbery. Someone who joined the Civil Service at the age of 21 - he or she might have become an usher in here - might not retire until the age of 68. In the case of such a person, seven years of pension contributions will be reckoned for nothing. They will not get the value of that money back at all. It is an attempt to legalise daylight robbery. Current employees who started to work in the public service after 2004 could be working for up to four years without getting any benefit back from their contributions. As has been said, it is conceivable that people will end up paying more into these schemes than they will get back.
I disagree with the move from basing the calculation on final salary to basing it on career average salary. That will hit people by taking money from their pockets. The Minister for Public Expenditure and Reform, Deputy Howlin, has packaged it by saying it is not a cause of worry because it will have more of an effect on higher earners. That does not stand up to statistical evaluation. Most people who slowly rise through the ranks will end up taking a hit because of this measure. Regardless of how it is dressed up, it is undoubtedly an attack on the living standards of retired public servants.
No one is opposed to workers contributing to their pensions as long as the money in question is used to support people during their retirement years and to look after elderly people in general. It is understandable that people who have been hit by extra taxes believe it is lunacy to raid the pension fund to bail out bankers and to fund speculation and so on. It is an indictment of the present system that it somehow sees the fact that people are living longer as a bad thing to be decried by society. It is a great achievement for humankind that people often have 20 years after their working lives to do things they never dreamed possible. It should not be a problem at a time when massive untapped wealth is not being invested by those who do not feel they can make a profit on it. At a time when millions of people are unemployed, we are forcing people to work until the age of 70 or beyond. It shows how dysfunctional the present economic system is.
The real con is that the Government is not looking at the pensions problem holistically. It seems to be under the illusion that it is possible to solve it based on the private sector. It is just not going to happen. Deputy Ó Snodaigh made the point that Irish pension funds are being invested abroad. He is absolutely correct. Almost €100 billion from such funds has been invested outside this country. With proper Government intervention, those funds could be invested in Ireland. These moneys could be used to get people back to work and get the economy going. It would not be a question of raiding pension funds as the Government has done. It would be a question of investing moneys securely, getting a return on that investment and protecting the pension scheme. The Government could leverage that by saying that if these moneys are not invested at home, some of the massive tax concessions that are given to pension funds will be reconsidered.
We are looking at this completely the wrong way around. We need a radical overhaul of the pensions system in its entirety. A similar pensions scheme should apply across the board to public and private sector workers. Such a scheme has been advocated by economists from Trinity College and TASC. They have suggested that rather than going down the ridiculous road that is being pursued at the moment, we should universalise the social welfare pension in a way that would provide a guaranteed income to all older people. They believe the appropriate level would be 40% of average industrial earnings at the age of 65. They propose that in tandem with such a measure, a new social insurance retirement fund should be established as an alternative to continuing to pour money into the black hole of pension funds. The fund would cater for workers by giving them an earnings related income.
Such a mandatory defined benefit scheme would operate alongside the universal State pension scheme. Contributions could be guaranteed at 50% of the final wage or salary, up to a specified minimum. That would be a far better system and would deliver far better returns. It could be facilitated by rejigging the existing system and removing many of the supports that are given to private pension funds. For example, the ceilings on earnings for tax relief purposes could be reduced. If the Government were serious about making a real contribution to dealing with the pensions issue, this is what it would be doing. It would not be scapegoating public sector workers in this regard. I will conclude by saying the unions have been incredibly quiet on these issues. They have let their members down. This battle will be taken into the next Stage of the debate on this Bill.
This is yet another attack on living standards and working conditions that were fought for and hard won. The outrageous media campaign suggesting that public sector workers are overpaid and underworked and receive fat pensions is scandalous. None of it is based on actual fact. Comparisons with public sector numbers and pay levels in other OECD countries show that numbers and pay levels in Ireland are generally lower, albeit with some exceptions. If one were to believe the so-called newspapers, such as the Sunday Independent, one would be under the impression that it is a crime for a working person to have a secure and reasonably paid job and to benefit from an adequate pension after 40 years of hard work.
When I left school in 1979, I went looking for work. My parents directed me towards the Civil Service, advising me that although pay levels were not great, I would get a pension at the end of my career. They said I might have received great pay in the private sector but I might not get a great pension at the end of it. People were actively encouraged to go into the public sector so they would have something at least at the end of 40 years of hard work. The United Left Alliance regrets the anti-working class propaganda I have mentioned. It is a shame that Labour Party Ministers are not doing the same.
The argument that public sector pensions should be cut because private sector pensions have been devastated in the financial meltdown is a false one. My United Left Alliance colleagues have made the point that no pension should be cut. The problem with private sector pensions is the profit making of the companies and fees managers involved. The fees that are charged can be higher than the amount the person is putting in. Irish private pension schemes lost 35.7% of their value in 2008. The OECD average was 17%. Public sector pensions involve no management fees and virtually no administration costs.
The real scandal in this country is that 30% of pensioners live in poverty. That is double the OECD average. Real reform in this area would involve giving every citizen an adequate State pension - of at least 45% of their annual wages, as has already been explained - when they reach retirement age. Public and private sector employers should have to contribute to the funding of this. The average public sector pension is not extremely generous. The average occupational pension paid to a person who has worked as a teacher for 40 years is €22,000. Just 4.5% of public sector pensions are more than €55,000. No savings will be made as a result of these proposals until new entrants start to retire in 2058. The Government should act now by capping public sector pay at €100,000 and pensions at €50,000. Surely this would be better than creating a two-tier workforce in the public sector.