The EU is pumping money into Ireland just to keep the madness going, says James Fitzsimons

The early retirement scheme for public servants is already a flop. Brendan Howlin should invest in a rubber stamp with the word 'Rejected' and use it on every case where a meaningful saving is not being made. We need something more focused that will achieve results. The public sector is overstaffed, overpaid and out of control. The majority may be paid less than €50,000, but when the cost of pensions is factored in the average gross pay would be between €60,000 and €70,000. It is not the case that they might not deserve it, but we don't have the money to pay it.

Half of the assistant garda commissioners have opted to take early retirement. Their positions are considered vital and they will have to be replaced. So, not only has the Government created outrageous pensions, but also they cannot achieve the planned pay cuts because the vacancies must be filled. Savings might be made in the short term, but not in the long run.

The cost of public sector pensions has been covered up for years. When they couldn't hide it any longer they agreed to change it for new recruits. So it will take 40 years before anything changes. But even these changes may be reversed as soon as they get a chance. Is it any wonder that a high proportion of those who took early retirement is from the higher ranks? They have most to gain.

In 2010, two years after the economic crisis struck, pay cuts were imposed on the public sector. For salaries over €200,000 the cut was 15 per cent. As pensions are based on final salary they will be cut too. But those who take early retirement will not have their pensions restricted. So for this category of public servant the early retirement scheme gives them the equivalent of a 15 per cent increase in their pension relative to their colleagues who stay on.

If we were flush with cash there could be merit in this kind of rationalisation. But the country is broke. For reason's best known to the EU, it is pumping money into the system so that we can keep the madness going. There is no doubt that some senior public servants did great work. There are also some, including politicians, who have a lot to answer for. They were paid well while they worked but there is no justification for paying the outrageous pensions so long after they stopped working.

They didn't even build a fund to pay these pensions. This presents the dilemma that they have contractual rights, but they were not realistic in their expectations. Take for example the case of a person on €300,000 a year. Ignoring lump sums, after 40 years' service, that person gets a pension of €150,000. Even if it never increased again, that will cost the taxpayer €3m to €5m. There are many hard-working public servants who wouldn't make that much over their entire working life. In fact it is possible for a senior public servant to earn more in retirement than they did when they worked.

The Government called for a €200,000 cap on pay for senior public servants. That would automatically cap pensions at €100,000. But where is the justification for paying outrageous pensions such as these for 20 or 30 years after the person has finished work? If these pensions are to continue to be paid they should be critically evaluated and someone should take responsibility for their authorisation. They cannot be justified unless the resources are there to pay them. And they are not.

When we realised we were broke in 2008 that was the time to sort out public sector pay and pensions. Instead we got Croke Park so the public sector could ignore the economic crisis. After three years and a change of government, Brendan Howlin brought in his plan to cut public expenditure, which only kicked the can down the road. Most of us will be dead before any changes take affect.

Taoiseach Enda Kenny recently stressed the importance of keeping EU funds flowing to pay for public services. But neither he nor his advisers will accept that we are paying too much. In January alone we paid interest of €749m on our national debt. When we add together bank debt, the national debt and the deficit on these crazy public sector pensions we owe hundreds of billions of euro that we cannot afford to pay back. It suits our paymasters in Europe to keep up the charade. Is that the price to keep the rest of us in line?

We finally have a draft proposal for personal debt forgiveness, but we still don't have what we asked for. The Government is making the same mistakes the developers made. It is getting the money it wants from the EU so that it can pretend that everything is rosy in the garden. A time will come when there is nothing left to give. Mr Kenny is so focused on being a good European he can't remember what it's like to be Irish.

He and the Government should work out what it will cost to run the country efficiently. This will require an honest evaluation of our use of public resources and what we pay our senior public servants. Pay for what they do and build in a reasonable cost for their pensions. Then cut out the waste and inefficiency. The party is over for those who did not create a rainy day fund when they had it. Meanwhile, Champagne Enda is willing to borrow whatever it takes to keep the party going. But he won't be around when it's time to pay it back.

Funding public sector pensions out of current tax revenue is no longer feasible or sustainable. The entire burden is dropped in the lap of the private sector. Defined benefit schemes in the private sector have their problems. They were the private sector equivalent of the public sector Rolls Royce schemes. But with so many companies crippled under the burden of underperforming schemes they too may be at an end. In fact, with the exception of the larger companies, defined benefit schemes were replaced by defined contribution schemes. An employee's pension would only be determined at retirement depending on how much was in the fund.

Last month the Minister for Social Protection signed the new Sovereign Annuity legislation into law. With so many under-funded pension schemes this lets employers off the hook vis-a-vis their pension commitments.

In the last 15 months we have seen very high yields from certain government bonds, including our own. Sovereign annuities could be used to provide a level of pension in retirement that is no longer achievable with other investments. But yields are high because the risk is greater.

If sovereign annuities were used to provide pensions the financial risk for their sustainability would probably be transferred from the employer or pension company to the pensioner. They may have no choice. If Aer Lingus can dump its under-funded pension scheme on employees, the Government might be able to sell its stake.

In less than a generation the pension timebomb will explode. The real problems are covered up by the fact that we are in the worst financial crisis ever. While those in the public sector are being wrapped in cotton wool the rest have been left to fend for themselves. The public sector early retirement should be scrapped and we should start all over again. But those who are paid to deal with these issues should make the decisions even if they are not popular. If this had been tackled four years ago we would be a lot better off now. And we wouldn't be relinquishing our sovereignty to the EU.

James Fitzsimons is an independent financial adviser specialising in tax and financial planning

Originally published in