State may break pay rise link to increases in pensions
THE Government is planning to halt the surge in the public sector pension bill by breaking the link to wage increases.
It is also examining if there are other ways to reduce the cost to the State of providing pensions for retired public sector workers, which has increased by 65pc in the past five years.
Retired public servants benefit from pay rises given to those in current posts as their pensions increase by a corresponding amount.
But the Department of Finance is now planning to break this link.
Instead, it wants to tie pensions to the cost of inflation. That would mean future increases could be far less. If public-sector pensions were linked to the Consumer Price Index, the State's liability could be reduced from €108bn to €87bn.
Justice Minister Dermot Ahern yesterday refused to rule out clawing back some of the pension payments provided to retired public workers. He said "everything was on the table".
It is costing €2.236bn this year to fund pension payments to around 103,000 retired public sector workers, compared with €1.35bn in 2005.
This cost is set to rise even further as life expectancy increases and the population ages.
The largest groups of retired public sector staff include teachers, gardai, nurses, prison officers, civil servants and local authority workers.
However, the measure now under consideration would not cut the cost of providing the pensions in the forthcoming Budget and the department has admitted it would need to consult with public sector unions about the move.
Public sector workers were forced to pay an average of 7.5pc more for their pensions last year and were also subjected to an across-the-board pay cut in last December's Budget.
But public service pensioners were not affected by these changes.
The situation is becoming more urgent for the State because it has already raided the National Pensions Reserve Fund to pay for the €7bn cost of recapitalising AIB and Bank of Ireland -- and is expected to take another €3.5bn to put more capital into AIB.
The fund was established in 2001 to put aside money that would be needed to provide for public sector and social welfare pensions after 2025.