Pensions timebomb ticks on as bill predicted to top €2bn
THE cost of 400,000 public sector pensions is projected to balloon to over €2bn per annum in the next decade or the equivalent of €38m a week, according to a new report compiled for the Government.
The first report on the sector from the Comptroller and Auditor General (CAG) also warns that the net cost of these pensions will soar to more than €7bn by 2058 compared with €715m currently, as the pension timebomb ticks away, setting the Government on course for further clashes with the public sector.
Sources said the Department of Finance was "acutely" aware of the seriousness of the problem and was assessing the findings of the CAG as well as that of other recommendations made separately by economist Colm McCarthy in his earlier report.
The sources added that with ongoing negotiations between the Government and unions focusing on finding cuts, the issue of pensions would be a key part of talks in the future.
"While pensions are part of terms and conditions of public sector workers, this will be more of an issue in future budgets," said one government source.
The report does not include the thousands of workers in commercial semi-states like ESB and CIE, many of which already have deficits of billions, with pension experts warning that this will drive the costs even higher.
"This is storing up a bigger problem for the future," said John Feely, a pension specialist and director at Attain Consulting. "Eventually, it will all have to be paid for."
The report focuses on civil and public service workers in the health, education and prison services as well as An Garda Siochana and the Defence Forces.
It does not include local government.
As our ageing population grows, the report also states that the Government will pay out €367bn in public sector pensions between now and 2058, the equivalent of three times our annual national income.
The figures are based on the expectation that 3.6pc of our national income (Gross National Product) will be necessary to fund the pension costs by 2058, more than double that of the 1.6pc being applied today.
Deficit
The Irish Association of Pension Funds has already warned of the demographic "timebomb" that Ireland is facing, with the population aged 65 and over set to increase by 59pc in the next 12 years and by a further 142pc by 2061.
This represents an increase from the current 470,000 people over age 65 to 1.8 million.
According to the report, the growing practice of adding years of service for retiring government workers is very expensive.
For example, the figures show that based on the cost of one year's additional service, the pension provision for an average public servant will cost around 9pc of pay in 2009 after the new pension levy is taken into account.
The gross cost of pensions is an average of 20pc of pay, although there are wide variations in different areas of the public sector (see case study).
As of the end of December 2008, net accrued liabilities amounted to €101bn.
While commercial semi-states like Bord Gais and the ESB have schemes in place designed to fund them for the future, experts added that it was inevitable that some would run into difficulty.
For example, the ESB has a deficit of €2bn; FAS has a €300m gap to plug; while Bord na Mona, which has a deficit of about €50m, told some of its workers earlier this year that it didn't have the funds to pay their pensions.
The Government has already begun to transfer commercial semi-state pension assets to the National Pension Reserve Fund (NPRF), which reduces the national debt figure.
For example, the pension fund of FAS, which has a deficit of more than €300m, is to be transferred to the NPRF, Tanaiste Minister Mary Coughlan said earlier this month. The NPRF, which has funding of €21bn, was originally designed to meet future pension needs.
However, the Government has already earmarked €7bn of NPRF money to recapitalise the banks although under current rules the fund can't be touched until 2025.
- Ailish O'Hora, Public Affairs Correspondent
Irish Independent
