Sunday 25 June 2017

Public sector pay report ignores earnings abroad

Irish teachers, nurses and doctors among best paid in OECD

Hospital consultants earn almost twice the OECD average, and are top of the international pay league, while nurses earn a third more than the average
Hospital consultants earn almost twice the OECD average, and are top of the international pay league, while nurses earn a third more than the average
Dan White

Dan White

The Government established the Public Sector Pay Commission (PSPC) in October 2016 in response to trade union pressure to unwind the post-crash public sector pay cuts. However, the PSPC's report, which was published last week, doesn't make any recommendations, confining itself to advising the Government in advance of the upcoming public sector pay negotiations.

Public sector pay and pensions will cost €20.3bn in 2017, almost two-fifths of total current public spending. Total employment in the public sector now runs at 330,000 with a further 53,000 people working in the semi-states.

There is a huge disparity in the pay and pensions of public and private sector workers. Average private sector pay was €658 per week (€34,325 per year) at the end of 2016. By comparison average public sector pay was 40pc higher at €922 per week (€50,000 per year).

Private sector workers will also receive far less generous pensions when they retire. Only a third of private sector workers belong to any kind of pension plan, mostly less generous defined contribution schemes.

Any comparison between public and private sector pay levels is complicated by the fact that many public sector workers, doctors, teachers, nurses, etc, tend to be better-qualified than most private sector workers. The PSPC report states that: "By 2014 average public service earnings were approaching parity with private sector earnings when account is taken of differences in educational qualifications, experience and a number of other relevant employee and employer characteristics".

Some independent economists estimate that better qualifications only partially explain higher public sector pay. In a report published last March, Davy Stockbrokers economist Conall Mac Coille wrote that: "At most, around half of this pay gap...can be attributed to differences in education, experience, qualifications and other factors."

International comparisons would seem to support Mac Coille, with most Irish public sector workers very well paid by UK and mainland European standards.

In the UK average private sector wages are £26,200 (€31,000 a year), almost the same as public sector wages of £26,300 (€31,100). This means that average public and private sector pay in the UK is broadly similar to Irish private sector pay.

Irish public sector pay rates also seem high by comparison with the rest of Europe. Figures published by the EU's statistical agency Eurostat show that Irish education workers were the highest paid in the eurozone in 2014 with average annual earnings of more than €56,000 as against a eurozone average of just €34,000, with Irish public administration workers also the best paid in the eurozone with annual earnings of almost €52,000 as against an average of €36,000.

Teachers, nurses and doctors have been among the most vocal in complaining about their pay. However, OECD data indicates that, far from being badly paid, they are in fact extremely well paid. Irish hospital consultants earn almost twice the OECD average and are top of the international pay league while our nurses earn a third more than the OECD average and rank in fourth place.

It's a similar story with our teachers. In 2014 an Irish primary school teacher at the top of the salary scale earned the equivalent of $64,500 (€59,300). The OECD average is just $51,200 (€47,100) and the EU average of $49,500 (€45,500). Secondary school teachers, probably the most vocal of all public sectors workers, are also very well paid by international standards, earning the equivalent of $65,100 (€59,900) compared to OECD average of up to $56,100 (€51,600) and an EU average of up to $54,900 (€50,500).

These comparatively high salaries are supplemented by extremely generous defined benefit pensions. Until 2013, retiring public sector workers received a pension based on a percentage (up to 50pc for a worker with 40 years service) of their final salary. These pensions are hugely valuable, with Davy's Mac Coille calculating that the purchase price of an annuity delivering an annual income of €22,000 would be €1m. For the secondary school teacher at the top of the scale retiring on an annual pension of just over €29,400, that translates into a pension pot with a capital value of €1.3m.

For post-2013 entrants, public sector pensions will be based on career average earnings rather than final salary. Even these less-generous pensions will still be extremely valuable, with Mac Coille putting the purchase price of an annuity paying €11,000 a year at €590,000. Despite this the PSCP report places a value of just 12-18pc of salary on pre-2013 public sector pensions and no value of post-2013 pensions.

"We have called for the issue of public sector pensions to be addressed. The existing pension deduction should be made permanent. There is also a need for a substantial additional contribution", says Ibec director of employer relations Maeve McElwee.

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