Thomas Byrne (Meath East, Fianna Fail)
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Question 422: To ask the Minister for Defence the position regarding members of the Air Corps who may be considering retirement in 2010, 2011 or generally; their pension entitlements; their lump sum entitlements; the taxation position of both; his plans to change the position in view of his recent announcement; and if he will make a statement on the matter. [20121/10]

Tony Killeen (Clare, Fianna Fail)
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Retirement benefits in the public service are usually calculated by reference to the rates and scales of pay applicable at the time of retirement. However, in Budget 2010, the Minister for Finance announced that the pension entitlements of public servants – including members of the Permanent Defence Force – retiring in 2010 would not be affected by the cuts in public service pay implemented from 1 January 2010.

The pay cuts were provided for in the Financial Emergency Measures in the Public Interest (No. 2) Act 2009. That legislation also provided that the pay cuts shall be disregarded when calculating the retirement benefits (pension and lump sum) of any person leaving the public service during 2010. This was to prevent a de-stabilising level of retirements in the public service. The legislation empowers the Minister to extend by order this arrangement to persons who retire later than 2010.

Under the Draft Public Service Agreement: 2010-2014, detailed transformation programmes in the form of sectorial agreements have been drawn up for each area, including the Permanent Defence Force (PDF). Paragraph 1.17 of the draft agreement provides that "There will be an extension of the period by a year within which the January 2010 pay reductions will be disregarded for the purposes of calculating public service pension entitlements". This would extend the period of disregard to the end of 2011. Its actual implementation is dependent on the agreement being ratified.

As also announced by the Minister for Finance in Budget 2010, existing public service pensioners were not affected by the pay cuts. The recent clarification of the Draft Public Service Agreement indicated that, while the Minister for Finance is reviewing the arrangements around indexation of public service pensions and is considering linking public service pensions to increases in the cost of living, "no change in the current indexation arrangements for serving public servants and current public service pensioners will be implemented during the period of the agreement".

As regards the taxation position, the Commission on Taxation recommended that pension lump sums below €200,000 should not be taxed. As indicated in the National Pensions Framework published recently, the Government has accepted this recommendation and decided that arrangements for the tax treatment of lump sums above this level would be considered and developed during the implementation of the Framework. Occupational pensions continue to be subject to income tax in the normal way.