Noel Ahern (Dublin North West, Fianna Fail)

I appreciate that this is a topic of interest and concern across the House. The Local Government (Superannuation) Act 1980 enables the Minister for the Environment, Heritage and Local Government, with the consent of the Minister for Finance, to make superannuation schemes for employees of local authorities. However, councillors are not local authority employees and could not, therefore, be covered by any such scheme.

Under public service pension arrangements, it is only periods when employees are in receipt of salary or paid leave that count as pensionable service. Even if coverage under the local government superannuation scheme, LGSS, were possible for elected members, periods in receipt of the representational payment, which was introduced for councillors in 2002, would not count towards pension benefit since it is not a salary. It was made clear, right from its introduction, that the representational payment is meant to be a recognition of the work that councillors volunteer to undertake when they stand for election and subsequently serve their community. It is not meant to be a salary.

Membership of the local government superannuation scheme entails certain restrictions which do not apply to a councillor's retirement gratuity. Benefits under the scheme may not be paid until age 60, or age 65 in the case of new entrants since 1 April 2004. However, a councillor's retirement gratuity may be paid from age 50. In addition, the councillor has flexibility in terms of how to use the gratuity, for example, he or she may decide to invest it in a personal pension or a personal retirement savings account or supplement any additional pension entitlement by means of additional voluntary contributions.

In pure benefit terms, the councillors' retirement gratuity compares very favourably with retirement pension and lump sum payments. Using standard public service pension capitalisation rates, the gratuity payable to a councillor after 20 years' service, that is three times the representational payment, is equivalent to the retirement pension and lump sum payable to an employee under the local government superannuation scheme after 20 years' service.

In addition, councillors do not have to make any contribution towards the gratuity, whereas there is a contribution of 6.5% under the local government superannuation scheme and, where an employee is fully insured, the pension benefit is further reduced to take account of social welfare pension entitlement.

The tax exemption rules applicable to severance payments mean that very few, if any, councillors will be liable to pay income tax on the gratuity. While the retirement lump sum under the superannuation scheme is tax free, the pension is subject to tax, which may be deductible, depending on individual circumstances.

I wish to draw to the attention of the House that, at the current rate of representational payment, which is €15,949 per annum for a city or county councillor, the councillor is in effect clocking up a tax-free gratuity lump sum of €2,392 for every complete year of service since May 2000, with pro rata amounts for borough and town councillors.

It is important to note also that there is universal coverage for the gratuity. All councillors are covered, subject to minimum service requirements. This contrasts with the position in other European countries, where only a minority of councillors have pension coverage.

I consider that the gratuity stands up to scrutiny. It is free, in that councillors do not have to contribute. It is fair, in that it applies to all councillors and compares well with standard pension terms. It is flexible, in that it can be drawn down at an earlier age than pensions and can be used in the manner most suited to the circumstances of individual councillors.

That said, however, I can advise the House that my Department is looking at certain aspects of the councillors' retirement gratuity arrangements with a view to seeing if some improvements can be made. There are a number of legal issues which must first be examined and clarified, and my Department is currently seeking legal advice on the matter. I believe, in the circumstances, that this is the best way forward and my Department will be in touch with the associations representing councillors as soon as all the issues involved have been fully examined and clarified.

This is not under my area of responsibility in the Department. I was a councillor for 17 years. I might be entitled to feel that councillors nowadays are well looked after with their representational allowance and expenses. I lived quite close to the council chamber when I was a member and was not getting £20 per meeting. I accept that the world has changed and that councillors would like changes but I have no real information in that regard, other than the matter is being examined.