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News : Irish Economy Last Updated: Oct 16, 2010 - 7:38:19 PM


Irish taxpayer to provide €1bn bail-out of FÁS and university pension funds
By Michael Hennigan, Founder and Editor of Finfacts
Oct 12, 2010 - 4:58:26 AM

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Trinity College, Dublin.

As the Government scratches around to find more than €4bn to reduce the deficit in its forthcoming budget, it has been revealed that the Irish taxpayer is stuck with a €1bn bill to bail-out the pension funds of State agencies like FÁS and and public bodies such as the universities.

Responsibility for semi-State and university pensions was assumed directly under the Financial Measures (Misc. Provisions) Bill which was rushed through the Dáil in just three days in 2009. The National Pensions Reserve Fund is now responsible for these funds and in a response to a  Dáil question, the Minister for Finance, Brian Lenihan, has signalled in a letter to Fine Gael’s Denis Naughten TD, that the deficit may exceed €1bn.

The university deficits amount to about €630m led by Trinity College at €315m.

While the majority of Irish private sector workers have no occupational pensions and those who do face the prospect of meagre payouts, it has been an exception in universities for both academic and non-academic staff  to retire without additional pensions years allocated.

This is an expensive perk and of course coming from the public treasury, there wasn't much to worry about.

The Comptroller and Auditor General's (C&AG) 2010 report published last month  shows that the net annual cost of a new public pension entrant is 19.5% of salary while the net cost of an additional 1 year's service for ministers and judges is 62% of salary.

In a separate report, the C&AG said additional years have become a feature of pension awards in universities. By way of example, in UCD 78% of staff retiring between October 2007 and September 2008 had years added to their service for pension purposes. These 42 employees had an average of 4.2 years added to their pensionable service and their average salary on retirement was €74,434.

Similar provisions apply in other universities - - Trinity College stated that since 1972, on the basis of custom and practice the award of added years has become a legitimate de facto entitlement under its Master Pension Scheme and that Scheme members were advised that they had been granted added years.

This also arises in universities that operate pay-as-you-go schemes. For instance, in the University of Limerick, nine staff retiring in 2008 were awarded added years ranging from two years to the maximum award of ten years and in 2009, 22 staff were awarded added years ranging from 3.67 years to the maximum award of ten years.

In UCC, academic staff appointed prior to 8 July 1986 are eligible by statute for seven professional added years at age 60. The years are accrued in the first ten years so that in the 11th year a member of the academic staff has gained a right to seven added years at age 60. Where such academics retire at age 65 they are entitled to a maximum of ten added years as with the normal application.

The report says the statutes of NUI Galway (NUIG) state that the Governing Authority shall have the power to award years in addition to the actual service of officers in specified senior positions and posts deemed by the Governing Authority to be of a professional, technical or specialist nature and in respect of appointment to which qualifications and or experience ordinarily required would not permit appointment of a person less than 25 years of age.

The C&AG said in practice, all staff in the grade of administrative officer and above are awarded added years on retirement provided they meet specified conditions. Eligibility is assessed by the Pensions and Investment Officer. The decision to award added years is not sent to the Governing Authority for further approval. The current Pensions and Investment Officer does not have a copy of the specific delegation decision giving authority to award added years.

NUIG stated that although the wording of the relevant statute indicates that added years are at the discretion of the Governing Authority, this discretion has always been exercised in line with the provisions of the statute and staff are annually advised of their projected added year’s entitlement (impacting their decisions regarding overall pension planning).

Consequently, custom and practice and legitimate expectation dictate that added years form part of the terms and conditions of employment. There is in practice, effectively no discretion available to the Governing Authority in respect of existing staff.

This is a convenient rationalisation from a university! The concept of 'legitimate expectation' is an interesting one when no authority exists to make these payments from public funds.

Such is life when there is little if any accountability.

The late American historian Daniel Boorstin, wrote in an essay, "The Amateur Spirit and its Enemies," published in his book "Hidden History": "In the United States today there is hardly an institution or a daily activity where we are not ruled by the bureaucratic frame of mind -- caution, concern for regularity of procedures, avoidance of the need for decision" -- all of which, Boorstin suggested, was best summed up - - "on a sign over the desk of a French civil servant: 'Never do anything for the first time'."

Denis Naughten TD questioned why some funds were guaranteed when other funds such as those of Aer Lingus and Aer Rianta were not. “We don’t know what the implication of the final cost on Government fiscal policy will be and we are yet to see if the Government intends to make any attempt to recoup some of these costs from the organisations,” he said.

It's interesting to observe the silence of normally voluble academic commentators on public spending issues, about the gravy train under their noses.

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