Pensions experts at Mercer Human Resource Consulting have welcomed Government reform of public sector pensions, but suggested that earlier quotes on the expected costs are "just the tip of the iceberg".

Changes announced this week to the formula for calculating the benefits for lower-paid employees are set to boost the pensions of current and future pensioners on lower incomes.

Ms Joyce Brennan, an actuarial consultant at Mercer, said the Minister for Finance had indicated in the last Budget that this change would cost €8 million in 2004, but that this figure referred solely to the increase in pension payments to current pensioners in the first year.

"The capitalised costs would be significantly higher, and it begs the question: 'what about all future generations of pensioners?' The quoted cost of €8 million is likely to be a fraction of the true cost," she said.

The Department of Finance confirmed yesterday that the changes in how public sector pensions are calculated would cost €8-€10 million this year and that this cost would increase on an annual basis.

However, a spokesman for the Department said these additional costs would be more than covered by the savings the Government would make from increasing the minimum retirement age for new entrants to the public sector from 60 to 65.

Mercer also said it believed new provisions facilitating early retirement for public sector workers would improve the competitiveness of public sector jobs, particularly executive positions.

Ms Brennan said the Department's plans for a calculation tool for public sector employees to view their level of benefits at various retirement ages was "very timely and helpful".