Apr 24, 2009 - 5:31:05 PM
Irish Public Sector Pensions' bill jumped €743m to €1.8bn in 5 years to 2008 - up 66.5% compared with pay rise of 45.4%; 57% of Irish private sector workers have no occupational pension
By Finfacts Team
Nov 7, 2008 - 5:46:34 AM
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Irish Public Sector Pensions have been termed among the best in the world and the beneficiaries include the politicians who are responsible for the system. It's called feathering your own nest. Pensions now account for 9.8% of the total Pay and Pension Paybill, up from 8.7% in 2003. Overall, the pensions bill has increased from €1.1bn in 2003 to €1.8bn in 2008 representing a 66.6% increase over the period while pay in contrast rose by 45.4%. The pensions bill has increased from €876m in 2001.
In Education and Science, the pensioner total is equivalent to 24% of the current workforce and is 26% in the Health sector.
More than 1 million Irish private sector workers - - 57% of the total - - have no occupational penion.
The Department of Finance's Analysis of Exchequer Pay and Pensions Bill 2003 - 2008 Report says: "The increases in the first benchmarking report reflected the acute tightness of labour market conditions around the 1999/2001 period which saw a substantial number of private sector firms concluding pay deals significantly in excess of the standard terms of the national agreements then applicable. These conditions did not apply in relation to the second benchmarking exercise. The second report, published in December 2007, concluded that when account is taken of the more valuable pension arrangements in the public service relative to private sector arrangements (the superior value was assessed as 12% of salary) the vast majority of grades in the public service have not fallen behind private sector rates."
The Department doesn't say that public sector pay by comparable grade was below private sector pay in 1999/2001, as that claim would be fraudulent, even though it was the basis of the first so-called benchmarking special pay increase of an average of 9% - - which ministers, the rest of the public service and pensioners were awarded.
In 2004, the former Davy Stockbrokers economist Jim O'Leary who had resigned from the first benchmarking body because it was a farce, joined the Department of Economics at Maynooth University, and published with two of his colleagues, the results of six months' rigorous and painstaking research into public-private sector pay differentials in Ireland - Public-Private Wage Differentials in Ireland, G.Boyle, R.McElligott and J.O'Leary, ESRI Quarterly Economic Commentary, Summer 2004.
O'Leary and his colleagues wanted to discover whether similar people in similar employment circumstances were better or worse off working in the public than in the private sector. In order to do this, they had to control for attributes like age, experience, gender and education, and also for job characteristics like occupation, type of contract and size of establishment.
As the CSO data does not permit this kind of analysis, the dataset that they had to use is one based on a large-scale survey conducted by the Economic and Social Research Institute (ESRI) and used for much of its research into poverty and inequality.
The core finding was that on average, public servants earned 13% cent more than their private sector counterparts on a like-for-like basis in 2001.
The researchers discovered that the size of this margin (the public sector premium) in 2001 was not significantly different from what it had been in 1994, suggesting that pay increases in the public sector had kept pace with the private sector throughout the Celtic Tiger period.
Another discovery was that the margin by which public service workers outearned their private sector counterparts tended to be significantly larger at the bottom of the income distribution than at the top.
The first benchmarking body viewed pensions as being irrelevant in comparing public and private pay as the then Taoiseach Bertie Ahern and Finance Minister Charlie McCreevy wanted to produce a favourable end result for the public sector unions.
As for the second benchmarking report, the "more valuable pension arrangements in the public service relative to private sector arrangements," was assessed as 12% of salary, as if all private sector workers are covered.
Convenient indeed, but the majority of Irish private sector workers have no occupational pension. Besides, many of those who do, are exposed to the vagaries of the market.
Irish pension funds were down 33.4% in the year to October and the average annual return over the past 10 years was 1.9% -- less than inflation.
With a severe recession expected in 2009 and a slow recovery thereafter, returns will be poor for the foreseeable future. This will hit workers who will retire in that time frame. As for the rest of private sector workers, it's unlucky to be among the outsiders in Ireland.
For a private sector worker to have the equivalent benefit of a public sector pension, it would require funding of an estimated 25 to 28% of annual salary every year for 40 years.
The gilt-edged public sector pension is indexed for life to the earnings of current incumbents of the last job held. So when the Dublin City Manager got a 36% pay hike last October, his predecessor's pension also jumped 36%!!
Current Minister for Health Mary Harney will get an annual pension of about €130,000 plus a severance payment of €70,000, if she retires in 2012 at the age of 59. Her pension will then rise in line with ministerial pay rises for the rest of her life.
The Sunday Independent said last month that one of many beneficiaries of the generous public sector wage and pension structure is the current Chief Justice, John L Murray. As Chief Justice, he receives an annual salary of €295,915 a year -- which is now greater than that paid to the Taoiseach. On retirement he will also be entitled to a defined benefit pension which will be worth up to 60% of his salary a year and a lump sum of one-and-a-half times his final salary.
However, he is also currently paid a pension for his two stints as Attorney-General. Because that pension is linked to the current pay level for the position, €219,000, he received €69,042 in 2007 from the State as a pension. He also receives a pension entitlement from his time on the European Court of Justice.
It was estimated that it would cost as much as €9.5m to fund Murray's pension if he was in the private sector.
Public Sector Pay
Unemployment has risen by over 94,000 in the past year and the rise of 15,800 in October would be 1.2 million in the US on a population equivalent basis.
The number on the Live Register could well rise by 100,000 to 360,000 by the end of 2009.
“If we try to ride out this recession as if it is not affecting us or shouldn’t affect us, then we won’t be competitive, we won’t be able to increase our exports, we won’t be able to generate the wealth to get us back on track," Taoiseach Brian Cowen, said in an interview with Hot Press magazine, which was published this week. “As I say, this isn’t the full process of adjustment by any manner of means.”
"At the end of the day, if everyone stands up and says, 'Not me, mate'; don't be surprised if we don't get there as quick as we should,"Cowen told a, Economist Intelligence Unit (EIU) business conference last week.
He said the public has not yet grasped the gravity of the situation facing the country, in what he described as "the most severe global economic and financial conditions for a century".
The pay and pensions bill for 2009 will be about €20bn.
The proposed national pay agreement provides that all private sector workers will have a three-month pay pause. They will then receive a 3.5% increase over six months and a further 2.5% for the following year. Public sector workers will have an 11-month pay pause from the last module of Towards 2016.
They will then receive 3.5% for the next nine months (commencing 1 September 2009), and a further 2.5% for the remainder of the agreement.
In the private sector, apart from the thousands who will lose their jobs, many of the rest will not get any pay rise.
Apart from the pay rise in September 2009, public sector staff who are not at the top of their pay scales receive an annual increment of at least €1,000 in addition to any increase agreed through social partnership. For example in 2007, an executive officer in the public service with two years' service would have received an annual increment of €1,632 or 5% of salary in addition to the Towards 2016 increase of 4%, giving a total salary increase of 9%.
Every one per cent increase in pay for the public sector costs the public purse in the region of €200 million annually.
"At the moment, 10% of the cost of every teacher, doctor and nurse is being paid from borrowing. Any extra ones would be paid for 100% from borrowing.
"It does not matter if it is me, or somebody else, at the top table -- I'm certainly not infallible, as recent times have proved, but we are going to have to pull together to get through this.
"Business leaders need to stand up, and trade union leaders need to stand up, and say what the situation is," Cowen told the EIU conference.
It's overdue time he showed leadership to match his warnings.
Scrap all increases including increments in the public sector and implement a general cut of 10% on salaries above €100,000.
With home loan rates falling, public service staff would have an offset to either a pay freeze or a cut.
Publish detailed spending budgets with cross-departmental cost categories and implement public sector reform starting with numbers of Minister of State, advisers, constituency "helpers," the Oireachtas and across central and local governments - - How many housing managers have nothing effectively to do in local authorities, now that budgets have been slashed? The questions could go on and on.
The political and public service leadership are the biggest beneficiaries of the Irish Insiders' system. Will the public finances have to become so dire before they take serious action?