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| In addition, it is estimated that the accrued liability in respect of State pension arising from the entitlements of public servants who pay full rate PRSI was €12.7bn at 31 December 2009 giving a total of €129.1bn - - 94% of Gross National Product Source: C&AG.
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Surreal Ireland: The real annual cost of Irish
public staff pensions is at
about €5.1bn (including an annual actuarial accrual) and the cost of an
additional year for judges is 62% of salary net of personal contributions.
In the public sector there are 2.5 workers for
each pensioner and in the
2009 report of the Comptroller and Auditor General (C&AG), published last
September, he estimated the accrued total pension liability at €129.1bn - - 94% of
Gross National Product.
In
the private sector, only about half the workforce have an occupational pension
with a contribution from an employer; most funds are in the red and the defined
benefit scheme where there is a guaranteed payout, is being phased out. Even
with reasonable investment returns, funding levels of about 10% in unguaranteed
defined contribution schemes are simply inadequate.
Returns (after inflation)
from managed pension funds
are in the red for the past 10 years and the situation is unlikely to change
soon.
The Central Statistics Office (CSO)
reported this month (pdf) that while there is blanket coverage in the public
sector, the number of self-employed workers with a pension fell sharply - -
from 47% in early 2008 to just 36% towards the end of 2009.
Apart from the tax
relief, many private sector workers will find that their pension pays very
little when they retire.
The CSO say that while
half of all workers expected an occupational or personal pension to be their
main source of income when they retired, according to a survey in 2005, the
figure had fallen to 41% at the end of 2009.
The percentage who expect to rely mostly on the State pension for their
retirement income rose to over a quarter (26%) in the April survey compared to a
fifth in late 2005.
The State pension
is about 30% of the average industrial wage.
The chart above excludes about 42,000 staff at State commercial companies.
The C&AG estimated that one additional year in
respect of Constitutional, Ministerial and Judicial Office-Holders has a net
cost of 61.8% of salary. He estimated that the cost of a new entrant in
2009, net of the additional pension contribution, was 19.1%.
In last December's Budget, it was announced that
while the link with current earnings would not be touched, a new system would
apply to new recruits.
The Department of Finance said in its
Analysis of Exchequer Pay and Pensions Bill 2005 - 2010 report, published
last July, that the net Irish public sector Pay and Pensions bill was projected
to increase by 16% in 2010 to €15.09bn - - a decrease of 8.4% over the 2009
figure of €16.47bn. While pay increased 11% in the period 20015-2010, the
pensions bill has risen by 66% since 2005 while pensioner numbers have increased
by 31,000 or 43% to 103,400.
Pensions now account for 12.9% of the total Pay
and Pension Pay bill, up from 9% in 2005. Overall, the pensions bill has
increased from €1.35bn in 2005 to €2.23bn in 2010 representing a 65.6% increase
over the period (pay in contrast rose by 10.8%). The pensions bill has increased
by 35% since 2008. This is mainly attributable to an increase in retirements in
2009 including those under the Incentivised Scheme for Early Retirement.
The Department of Finance's July 2010 analysis
excluded local authorities and in
The
National Recovery Plan 2010-2014, the cost of pensions in 2010 was €2.7bn and the public pay bill
was €16bn.
The C&AG estimated an overall additional pensions
funding cost of 15.1% which on a €16bn paybill amounts to €2.4bn. Adding the
annual pensions payout bill of €2.7bn gives a total of $5.1bn - -
equivalent to over 33% of the paybill and 15% of expected 2011 tax revenues.
Responsibility for the pension funds of State
agencies like FÁS and public bodies such as the universities was assumed by the
State in 2009.
The taxpayer ended up with a €1bn bill to
bailout the pension funds. Deficits were partly the result of the widespread
practice of adding pension years as if it was a free lunch option.
The deficit in the funds of the old universities
was €630m led by Trinity College at €315m.
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.
The cost implications of
public service pensions, both in the shorter and longer terms, was an area of
concern highlighted by the Bord Snip report on public spending in 2009.
The report said public
servants are generally entitled to retire on a full defined benefit pension
(calculated at half of the average annual salary over the final three years of
service), after 40 years’ service, together with a lump sum of up to
one-and-a-half times the final salary. Employees may retire after reaching the
age of 60 (the compulsory retirement age is 65), with pro rata reductions for
those with fewer than 40 years’ service, although those retiring between the
ages of 50 and 60 incur an ‘actuarial reduction’ to reflect the longer
retirement period. (The key benefit of the recently-introduced Incentivised
Scheme for Early Retirement is that it eliminates the actuarial reduction for
this age group.) After retirement, it has been the practice to index pension
rates in line with earnings, which carries a very high actuarial cost and is not
generally available in the private sector.
In addition to the basic
public service pension system, BS noted the existence of a range of accelerated
/ ‘added years’ arrangements across various areas of the public service. These
accelerated arrangements are more costly to the Exchequer, and their existence
and budgetary implications do not appear to be widely known or appreciated by
the general public. For example, Gardaí are free to retire on full pension at
the age of 50 (an effective 10 years’ added service on the assumption of an
entry age of 20); some engineers, who might enter the public service at the age
of 35, would accrue full pension entitlements at age 65 (again an effective 10
added years); teachers with 35 years service are eligible to retire from age
55 on; some hospital consultants may be entitled to up to 10 added years of
service; and a High Court judge, who might typically be appointed to the bench
at 50 years of age, is entitled to full pension at age 65 (an effective 25 added
years).
