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Friday 20 September 2019

It's time to talk, as value of gold-plated pensions to be used against public sector

Aer Lingus and DAA workers protest in Dublin about losses to their pensions in 2014. Photo: Arthur Carron.
Aer Lingus and DAA workers protest in Dublin about losses to their pensions in 2014. Photo: Arthur Carron.

Anne-Marie Walsh

The average public sector pension is worth almost four times as much as a private sector one. Official figures reveal retired State workers got €20,367 last year, while the biggest pension provider, Irish Life, said private sector pensioners received an average annual payment of €5,332.

The value of public sector pensions is under intense scrutiny after independent consultant John Horgan estimated this week that a typical garda pension is worth up to €40,000 a year.

His assessment comes at a critical juncture, as a commission to advise the Government whether to give pay rises is calculating the gap between public and private sector retirement benefits. Its findings on the differential between pensions and job security in both sectors will be used in talks on a deal to succeed the Lansdowne Road Agreement.

Sources revealed that the Public Service Pay Commission's assessment of the value of pensions in the sectors is unlikely to take account of a profound difference between them when making its calculations.

The Government is arguing that a 12pc 'discount' to pay to take account of the difference in the value of pensions between the sectors used in benchmarking in the past is too low. Unions claim it is too high and was historically valued at 5pc.

But pension experts said they expect the pension gap to be much larger than it was before the crash.

Although public sector pensions have suffered cuts, their value is not expected to have drastically changed since 2007. However, private sector pensions - which were given an 8pc valuation at the time compared to 20pc for the public sector - have plummeted.

"The defined benefit public sector pensions are extremely valuable and need to be taken into account, particularly those of prison officers and guards who can accrue at a cost on a commercial basis that would be prohibitive for any employer in the private sector," said actuary and director of Technical Ltd, Tony Gilhawley.

Sources said the tabling of pension values at pay talks is being driven by Public Expenditure and Reform Minister Paschal Donohoe, with strong backing from his Secretary General, Robert Watt. Mr Donohoe is also sitting on four-year-old legislation that would allow him to link pensions with the cost of living rather than final salaries.

Public servants' guaranteed pensions are often described as 'gold plated' or 'Rolls-Royce'.

Most public servants have contributed towards their pensions bar civil servants recruited before 1995 in the past - although all must now pay a pension levy brought in under emergency legislation.

It should be noted that longer-serving staff do not qualify for a State pension, which would be paid to most private sector workers. In addition, although there were 500 individuals with pensions of over €100,000 last year, there were 54,600 with less than €10,000.

But there are many elements of the schemes that cover over 300,000 staff and more than 160,000 pensioners that are unmatched in the private sector. Pensions are paid on a pay-as-you-go basis from taxes or borrowings and the Government always pays up.

With full service, staff are guaranteed pensions worth half their final salary at retirement, and a lump sum of one-and-a-half times their pay. The icing on the cake is that a pensioner's payments keep going up whenever someone in their old job gets a pay rise.

Since 2007, there have been cuts to benefits and the introduction of a scheme for new members, but not enough to suggest there will be a huge change in the value of pensions. In that time, private sector equivalents have been wiped out. Defined benefit schemes have gone bust due to huge deficits that employers are unwilling to fund, and the strain placed on them by pensioners' lengthening life spans.

The vast majority of workers will be relying on the State pension or hoping that Leo Varadkar gets his act together on his promised mandatory universal scheme.

Whatever pension gap is calculated for the upcoming talks, the variety of pension benefits enjoyed by public servants means there will be winners and losers in a one-size-fits-all formula.

Politicians, judges and other grades on lucrative accelerated pensions will be laughing. Their pensions, which accumulate benefits at a rate of knots, are paid at an earlier age and cover a longer time frame.

A Comptroller and Auditor General report calculated that ministerial and judicial office holders' pensions are worth 70pc of their pay compared with 16pc in health. For gardaí it's 27pc, 28pc for the defence forces, and 29pc for prison officers. For teachers and the civil service, it's 22pc.

But the importance of the value of public pensions to taxpayers - including public servants - goes beyond whether pay rises are justified, and whether as Mr Donohoe puts it, the unaffordable pay rise of today will become the savage pay cut of tomorrow.

Irish Independent

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