Single scheme to be introduced for new public sector workers

PENSIONS:EMPLOYEES ENTERING the public sector from 2010 will not only have to deal with lower salaries, but also potentially lower pensions upon retirement, given the Government's plans to reform public service pension arrangements. The introduction of a single scheme, which is set to be in place by the end of next year, is expected to bring public pension terms in line with private sector norms.

From 2010 onwards, pensions will be based on “career average” earnings, rather than final salary as currently applies. In practice, this will mean that a specific “pension accrual rate” will be applied to pensionable pay, so that each year public servants will earn or accrue a certain amount of pension payable on retirement.

“This will be more equitable than the present system which favours those with higher earnings later in their careers,” Minister for Finance Brian Lenihan said. While it will lower the pensions of people earning more late in their career, it will have less impact on the pensions of lower-paid public servants with relatively flat career earnings like nurses and manual workers.

In addition, the minimum pension age for public service employees will be raised to 66 years from 65 at present, “to bring it into line and link it henceforth with the State pension age”, while the maximum retirement age will also be increased to 70 years.

Unions reacted angrily to the proposals, with the ASTI declaring that it will affect future recruitment possibilities. “Changes to the pension scheme for public service workers will make it much more difficult to recruit talented people to the sector from now on. Public sector pensions have always been seen as deferred earnings by workers,” said John White, ASTI general secretary. Existing public sector employees and pensioners may also be affected if another proposal is introduced. In his Budget speech, the Minister said the link to earnings or “pay parity” basis for post-retirement pension increases, is under review and, if abandoned, would save €21 billion, or 20 per cent of the current pension bill.

At present, post-retirement pensions are raised in line with salary increases. On average, these “have been significantly greater than increases in the Consumer Price Index”. If increases were to be kept in line with inflation, it would reduce the actuarial cost of public service pensions from an estimated € 108 billion to €87 billion.

This change will be considered as part of the reform of public service pensions. Pending that review, the pay cuts announced in the Budget will not be applied to existing public service pensioners.

In developing the new scheme, the Government will also consider other changes such as applying the 6.5 per cent rate of employee pension contribution to all pensionable pay.