Dinny McGinley (Donegal South West, Fine Gael)
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Question 50: To ask the Minister for Finance his views on the interaction of the new pension levy with the system of coordinating public service pensions with social welfare entitlements; and if he will make a statement on the matter. [6265/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I will first explain the integration system whereby pensions are calculated for public service employees insured for full PRSI who are members of public service pension schemes.

The Commission on Public Service Pensions made certain recommendations on the treatment of part-time employees and employees on lower levels of pay. With effect from 20 December 2001, the pension system for part-time employees was modified to a pro-rata basis, by reference to the remuneration of whole-time employees.

With effect from 1 January 2004, a new system of calculating pensions for employees insured for full PRSI was introduced. This new system delivers increased pensions to members of public service pension schemes whose full-time salary is less than 3 1/3 times the Contributory State Pension (CSP).

The new integration formula takes into account the value of the Contributory State Pension (CSP) in calculating occupational pensions. The method of calculating a pension for public service employees who qualify for benefits on or after 1 January 2004 is:

(a) For that part of the employee's pensionable remuneration which is less than or equal to 3 1/3 times the current rate of CSP, 1/200th of pensionable remuneration multiplied by the number of years of reckonable service plus

(b) For any part of the employee's Pensionable Remuneration which exceeds 3 1/3 times CSP, 1/80th of pensionable remuneration multiplied by the number of years of reckonable service.

The maximum number of years of reckonable service is 40. The new formula is used in all cases of retirement on or after 1 January 2004. In addition, pensions in course of payment on 1 January 2004 were revised by reference to the new formula in cases where this produced an improvement for the pensioner.

The revised system improved the position for people on lower rates of pay and ensured that every person who meets the requirements of the pension scheme gets an occupational pension, regardless of income.

It is proposed that the new pension related deduction will confer no additional pension benefit and that it will be deducted from gross pay before income tax, PRSI and health levies are calculated. As the new integration system ensures that every person who meets the eligibility criteria of the pension scheme gets an occupational pension, regardless of income, there are no direct consequences to the interaction of the pension related deduction with the integration system.