Public servants are unfairly vilified over pensions, when the reality is that recent reforms have significantly reduced their net cost, writes Niall Shanahan
Last week, in an Irish Times opinion article, Brendan McGinty of Ibec alerted readers to the fact that the State "must act quickly to avert crisis over public sector pension liabilities".
Most workers employed in the public service would not have been surprised to read an article containing noticeable inaccuracies in a critique of public service pay and pensions. Public servants have become accustomed to a brand of criticism and vilification which places them in the path of blame for everything, most notably the pension crisis. Public servants make up 12 per cent of the Irish workforce and, it should be noted, make a substantial contribution to the exchequer through the payment of direct and indirect taxation.
Mr McGinty made a number of erroneous assertions about the level of reform, or lack thereof, in relation to public service pensions, and about who pays for them. In making these assertions, he also failed to acknowledge changes already implemented to public sector pensions, as well as various pieces of legislative reform governing pension calculation.
Last April, the Public Services Committee of the Irish Congress of Trade Unions (Ictu) made a considered submission to the benchmarking body on superannuation, as it accepts that it is appropriate for the body to make an overall assessment of pension terms, as with other conditions of employment, in coming to its conclusions on pay.
Mr McGinty claimed that in "stark contrast" to the changes being made by private sector employers to their pension plans, public sector pensions are fully paid for by the public purse. This may come as something of a shock to those employed in the public services, who currently contribute 6.5 per cent of their salary towards their own pension, which is a slightly higher percentage of salary than the typical average of 5 per cent paid by private sector employees. Mr McGinty's assertion fails to reflect the individual investment of public servants into their own pensions.
To say that public service pensions remain unreformed also fails to acknowledge some very significant reforms that have been made over the last 12 years; reforms that have resulted in a net reduction to the cost of providing public service pensions.
In fact, these changes were very difficult for public service workers as they represented significant alterations to previously existing conditions of employment. To ignore these changes and characterise the system as "unreformed" is both inaccurate and, frankly, unfair.
For example, since 1995, public sector pensions have been integrated with the social welfare system. There are important differences between pension terms of staff recruited before 1995 and those recruited since. Namely, that the former category's pensions are not integrated with the social insurance system and, therefore, the staff involved have no entitlement to a social insurance pension. The pensions of those recruited since 1995 are integrated with the social insurance system and they have an entitlement to social insurance retirement and old age pensions.
This means that, for those recruited since 1995, double the value of the social welfare pension is discounted off the public service employee's salary, before a pensionable amount is calculated.
Therefore, in the case of lower paid public servants, a significant part of their remuneration is not pensioned by the employer, but by the social welfare system. The first €20,000 of their salary is not reckoned for an employment-based pension. The commitment in the new programme for government, to increase the amount of the basic State pension to €300 per week by 2012, means that the first €30,000 will be outside the pension remit.
Integration with the social insurance system has a real effect on reducing occupational pension costs. A further significant reform was introduced in 2004, creating important differences between staff recruited before and after this date. In the case of the former, those on general or standard terms had a minimum pension age of 60, while those recruited since 2004 have a minimum pension age of 65. In addition, certain significant groups such as primary teachers and psychiatric nurses had a minimum pension age of 55, which was also increased to 65 at that time.
The commission on public service pensions estimated that this change represented an annual reduction of 2 per cent in the cost or value of public service pensions.
Mr McGinty calls for the current benchmarking body to factor public service pensions into its work. It should be noted that the public services committee of the Ictu already addressed this point.
It pointed out that the first benchmarking body had made a deduction from the initial pay rates suggested by the comparison between the public and private sectors to account for differences in pensions.
This was a logical approach to the issue, provided, of course, there was a clear difference involved.
A study of data available suggested a "new entrant" public service pension funding rate of just under 15 per cent of salary, taking account of both employer and employee contributions. This estimate was supported by empirical external comparisons in the form of some private and commercial semi-state defined benefit superannuation schemes where the actual funding rates were in the region of 15 per cent.
Finally, the public services committee pointed out that the value of a private sector pension, based on an accrual rate of 1/60th per year of service, and subject to a maximum of 40 years, would be more favourable than a public service scheme where the benefit was based on an annual pension based on an accrual rate of 1/80th per year of service plus a lump sum. Ironically, this more favourable outcome for private sector workers arises from increased longevity.
In short, the longer you live, a pension of two-thirds of final salary is of greater value than a pension based on half one's final salary plus a lump sum.
These points would significantly reduce or eliminate the value of any "premium" to be considered by the benchmarking body.
Niall Shanahan is communications officer with Impact trade union.