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News : Irish Last Updated: Sep 27, 2009 - 6:27:27 PM

IBEC calls for ending of pay parity link in Irish public sector pensions that gives them a six-star standard status
By Finfacts Team
Jan 15, 2009 - 11:33:00 AM

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If Minister for Health Mary Harney retires in 2012, when she will be 59 years old, she will collect a severance payment of about €70,000 and an annual pension of €130,000. Whenever a current minister or TD gets a pay increase, she will get the same increases in her pension - including benchmarking or whatever a new breed of politicians will devise, to feather their nests.

IBEC, the Irish business lobby group, today stated that as part of the Government's effort to reduce public expenditure the cost and liability to the tax payer of public service pensions must be reduced. IBEC calls for the pay parity link, where public servants are guaranteed pensions based on the ongoing salary of the job they held, be ended. The current system could be termed a six-star standard status.

IBEC as part of the social partnership process since 1987, has given tacit approval to the six-star class public sector scheme. Some of IBEC's significant members are public bodies and commercial organisations.

IBEC Director Brendan McGinty said: “We are facing the most difficult economic circumstances since the foundation of the state. It is a time for strong leadership and for taking difficult decisions in the national interest. Now is the time to take the necessary steps to put the economy back on track.

"Business will support government in its endeavours on the basis that a reduction in the cost of the public sector is a priority. The average public sector pension is worth a premium of 13.5% of salary more than the average private sector pension. Necessary reform must involve capping public sector pension liabilities and introducing fundamental reforms of public sector pensions.

"A target of €5 billion reduction in total government expenditure by 2012 is needed. In that context, public service pay and pensions cannot be exempt when one considers that the public sector pay and pensions bill will account for 51% of all tax revenue in 2009. This is now urgent, with a shortfall in tax revenue of €8 billion for 2008 and an Exchequer deficit spiralling to €20 billion.”

IBEC says that no one individual reform option will solve the problem of the escalating cost of public service pensions. A combination of major reforms is necessary, which could include the following measures:

  • Ending the pay parity link, where public servants are guaranteed pensions based on the ongoing salary of the job they held.
  • The Government should set a contribution rate cap beyond which employees would have to fund any pension liabilities on an equal basis.
  • All public servants should be required to contribute towards the cost of funding retirement benefits.
  • The Government should complete and publish a detailed actuarial analysis of the pension liabilities for public sector employees.
  • Public service pension liabilities should be costed on an annual basis by each government department and agency and published.
  • Public sector workers should be aware of the value of their pensions. Payslips should record the indicative value of pension contribution rates.
  • Adopt a fundamental repositioning of the public service pension for new entrants, away from defined benefit provision to a defined contribution with a state guarantee of certain minimum investment returns.

“In 2008, in the private sector, three out of four defined benefit schemes were estimated to be unable to meet the draconian funding standard, compared to just one in four at the end of 2006. The situation will deteriorate further in 2009 and without serious reform, a number will collapse or benefits will have to be seriously restricted," said McGinty.

“Every sector of Irish business is struggling to sustain jobs and to compete. The private sector is already adjusting to the unforgiving realities of market forces, and turmoil in financial markets with pay freezes and in some cases pay reductions being necessary for survival and to sustain jobs. The pubic sector must show similar flexibility," concluded McGinty.

Finfacts Report: 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

An example of the pension scheme, which is considered amongst the best in the world:

Less than two years into his job, the current Dublin City Manager got a 36% hike in 2007 and his retired predecessors also got windfall pension increases of 36%. Also in October 2007, the Secretary-General of the Department of the Taoiseach, Dermot McCarthy, got a 25% hike as did his retired predecessors. McCarthy currently has the task of selling a public sector pay cut to the trade unions.

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.

The majority of private sector workers don't even have a basic occupational pension scheme.

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