State could save €16bn with changes to public pension, briefing document shows

The State could save €16 billion on the projected cost of its public service pension bill in the coming decades if it links increases for pensioners to the cost of living rather than to pay rises for serving staff, according to new official figures.

Historically, public service pension increases have been based on the principle of pay parity, meaning they were set in line with the pay of the grade from which the pensioner retired.

Pension payments for retired public service staff are frozen until 2016, reflecting the pay freeze for serving personnel under the Haddington Road agreement.

However, confidential official briefing documents seen by The Irish Times suggest that, after 2016, the Government will have to consider whether to maintain the pay parity arrangement or move to a system of linking pension rises to consumer prices.

Briefing material prepared for secretary general of the Department of Public Expenditure and Reform Robert Watt suggests this could be carried out in conjunction with the unwinding of financial emergency legislation introduced by the Government in recent years.

These pieces of legislation allowed the Government to reduce pay and pension benefits for staff in the public service as well as for those who retired.

Union pressure

The Government is coming under strong pressure from trade unions to repeal the legislation, particularly in the light of economic improvements.

Figures drawn up by the department earlier this year suggested the cost of public service pensions – based on the current system of pay parity – to be €98 billion over the next 70 years. The estimate is down from a figure in 2009 of €116 billion as a result of pay cuts imposed on public servants in recent years.

At the end of 2013, there were 144,300 public service pensioners compared with 111,600 at the end of 2009.

The briefing material says that “if instead it is assumed that pension increases (after 2016) will be in line with prices, then the new accrued liability figure is estimated at €82 billion”.

The department documents say legislation introduced in 2012 permits a switch to consumer price index-based linking of all public service pensions subject to a resolution being passed by the Oireachtas.

It is expected that any move to introduce indexation of pensions would be opposed by public service trade unions.

Although it is the position of the Government that the issue of public service pay – and by extension, pensions – is settled until 2016 under the Haddington Road agreement, public service unions have signalled in recent weeks they could table pay claims next year if there is growth in the economy.

Lump sums

At present, the State pays out about €3 billion a year in public service pensions and retirement lump sums.

The accrued liability figures of €98 billion or €82 billion – depending on the system of indexation employed – is the value, as of December 2012, of all expected future payments to current staff and their spouses for service to 2012 in addition to the full liability for all future payments to current pensioners and those with preserved pensions and their spouses.

The figures cover those in all parts of the public service, the civil service, the health and education sectors, local authorities, An Garda Síochána, the Defence Forces and in non-commercial State bodies.