Unwinding Haddington Road will break economy
Embargoes on public-sector pay and pensions are to be lifted and that will bring back austerity, says James Fitzsimons
Published 17/05/2015 | 02:30
The Minister for Public Expenditure and Reform, Brendan Howlin, signalled the unwinding of the Haddington Road Agreement in the last Budget before the economic recovery had time to establish itself. Public servants expect a 3pc pay rise, restoration of annual increments, more jobs and promotions. What we have to remember is that the Haddington Road Agreement didn't reform the public sector, it just sought agreement for pay restraint and flexibility. It's coming to an end and with it public spending is set to go through the roof.
Meanwhile, the private sector has borne the brunt of half a million job losses, massive pay cuts and the loss of pensions and pension rights that will never be restored. For those lucky enough to have something left in their pension funds, the Government robbed nearly €3bn of that with the controversial levy on private-sector funds. The private sector was abandoned when the financial crisis began and it is being neglected now that economic recovery has started. That's got to change.
Public servants had to tighten their belts, but not a lot and none of them lost their jobs. Not, that is, unless they wanted to avail of generous voluntary redundancy packages that were on offer. Some of them were even contracted back on better terms, than they were on, to plug holes that the ill-conceived scheme created.
Public sector pay accounts for about 35pc of public spending. The Haddington Road Agreement sought to save about €1bn on the cost of public-sector pay and pensions over three years. By comparison, the Government set about taking nearly €2bn from private-sector pension funds, built up by workers many of who lost their jobs and couldn't pay their mortgages.
Civil Servants and public servants at all levels qualify for gold-plated pensions that might be paid for 20 or 30 years. Lower paid civil servants can expect pensions of €20,000 to €30,000 a year. That compares favourably to their counterparts in the private sector who have only the old-age pension to look forward to. Middle management in the civil service can expect pensions between €30,000 and €40,000, senior management get €50,000 to €60,000 and the top brass get pensions of €100,000 and much more.
Public servants appointed since April 1995 pay Class A PRSI and get the State old-age pension. They make an employee pension contribution too and this makes up the rest of their pension package. Unlike the private sector, their contributions are not invested in a fund to provide a pension in retirement. It goes into the public coffers to pay towards the cost of current public -sector pensions. The private sector pays the rest. And because there is no fund it can't lose value.
When the controversial 0.6pc pension levy was taken from pension funds, it didn't cost public servants anything. The private sector paid it all. The 0.15pc levy that we still have is being used, amongst other things, to compensate the Waterford Crystal pensioners that the Government shafted when their fund collapsed. But public servants pay nothing for that too.
As public-sector pay talks get under way again, there have been suggestions that pay restoration should be flat across the board to benefit low earners. But those at the top argue that they deserve more. Research suggests that those at the bottom are on better pay than their private-sector counterparts. But the top brass in the public sector don't do so well when compared with their opposite number.
That's for pay, but the pensions for the cushioned elite in the public sector are simply outrageous. Whether they deserve them or not they certainly don't pay for what they get. If they did there would be a fund there to support it. Increments are much higher too at the top, where they amount to tens of thousands in a very short space of time, and certainly less than seven years.
The average public servant who started work on less than €5,000 a year decades ago, could retire on over €50,000 and the defined benefit pension and lump sum is based on final salary. The top brass can double their pay in the final years and their pensions rise accordingly. But the private sector pays the price.
The deficit in public sector pensions was €116bn in 2009. It's probably a whole lot more now. How can they even contemplate restoring public-sector pay and pensions until this is addressed. Public-service representatives claim there is no pension deficit because there are no funds. They say the calculation is arbitrary to satisfy financial accounting rules, as the pensions are paid out of current tax revenue. If that is the case the problem is much worse and the real deficit, if a fund is to be provided, would be over €300bn which is more than the national debt.
James Fitzsimons is an independent financial adviser specialising in tax and financial planning