THE STATE’S accrued pension liability for 300,000 serving public servants, and a further 100,000 who have retired, now stands at over €100 billion, the Comptroller and Auditor General has disclosed.
In a new report, the CAG John Buckley has found that the State’s pension burden is set to rise significantly over the next 50 years, leading to a significant drain on the exchequer.
This is illustrated by the proportion of Gross National Product (GNP) that will be absorbed by pensions for public servants. At present, they account for 0.5 per cent of GNP; Mr Buckley has found that “as a result of demographic changes it will be necessary to devote 1.9 per cent of GNP to meet the net cost of pension payments by 2058”.
The report’s findings indicate that a four-fold rise in payments from public funds will be necessary to meet the pensions bill. This could necessitate an increase in taxes, or cuts in other areas, unless provision was made for it in the intervening years.
In its examination, Mr Buckley’s office found that the accrued liability in respect of pensions for serving staff and pensioners was estimated at €108 billion as of the end of last year. However, that figure is reduced by the €5.5 billion of assets held by the National Pension Reserve Fund (NPRF).
That liability, for present and future pensions, will be paid out over the next 60 years or more, he said.
The largest liabilities are for public servants in the health sector and for teachers. The net liability for teachers is €28 billion while the health sector is just short of €23 billion.
The prospective bill for the civil service in Government departments is €13.5 billion. The CAG has calculated liabilities of over €8 billion for both the Garda and the Defence Forces.
The report is based on a wide range of assumptions about demographic changes, economic performance and other factors over the next 50 years. It estimates that €78 billion will be paid by public servants in standard contributions and a further €132 million through the pension levy, if it is maintained in its current format.
It continues that the Government will have two broad choices when it comes to funding pensions. The first is to set funds aside and invest them to help meet future pension liabilities. The other method would be for public servants to make contributions on a pay-as-you-go basis.
“A middle way is to even out the burden of future liabilities by the creation of a pensions reserve fund which can smoothe out the impact on future taxation by setting a long-term sustainable pension charge target.”
Successive ministers for social affairs have warned about a pension time-bomb by the middle of this century, both for private sector workers who have no pension plans and for the potential high cost of public sector pensions.
Former minister for finance Charlie McCreevy set up the National Pension Reserve Fund, which had €16.1 billion of assets as of the end of December last year. However, some of those funds will now be diverted into bank recapitalisation and recovery.