asked the Minister for Finance if he will make a statement on recent reports suggesting that the Government intend to require public service employees to contribute towards the cost of funding their pensions; and the long-term implications for the Exchequer of unfunded pension costs.
Ceisteanna—Questions. Oral Answers. - Public Service Pensions.
43.
I do not consider it either necessary or appropriate to comment on media speculation of the type referred to by the Deputy. I will, however, make a statement on the two issues raised by the Deputy, namely, the contributions payable by public servants towards their pensions and the manner in which these pensions are financed.
The position is that public service employees already contribute towards the cost of their pensions. Many have contributory pension schemes, under which employees pay a total contribution of 6½ per cent of salary — 5 per cent for personal pension and lump sum benefits plus 1½ per cent for spouses' and children's benefits. The remainder also contribute 1½ per cent of salary for spouses' and children's benefits but have nominally non-contributory main schemes; that is to say that while they do not make an explicit employee pension contribution, broadly the same effect is achieved by reducing their levels of pay below what would otherwise obtain. These reductions, or implicit pension contributions, vary from 5 per cent up to 8½ per cent of salary.
As regards the long-term implications for the Exchequer of unfunded pension costs, I presume the Deputy is referring to the fact that most public service pension schemes are financed on what is known as a "pay-as-you-go" basis from current State revenue rather than by way of a formal pension fund. As I indicated to the House in my reply to Question No. 22 of 9 December 1987, I have no plans for changing this arrangement.
I am satisfied that there would be nothing to be gained from the establishment of formal pension funds for public servants. Arguments in favour of funding are more appropriate to private sector schemes and are, to say the least, not compelling in the public service context. One of the principal objectives of funding, for instance, is to provide a secure basis for the benefits of staff. The pay-as-you-go system, however, is based on the State's permanent and continuing ability to discharge its obligations as they arise. More importantly, the creation of formal funds would initially be very costly because of the immediate liability for the pensionable service already acquired by serving staff. The capital formation involved would require either further borrowing or increased taxation and I need hardly underline the objections in present circumstances to either of these courses.
First, would the Minister tell me what proportion of public servants are on the 6½ per cent regime and what proportion on the 1½ per cent regime? Secondly, could he tell the House whether, in view of the fact that he has agreed public service pay increases for the next two years, there is any intention on the part of the Government to increase, on the part of any members of the public service, the amount of moneys they contribute towards their pension and whether he is contemplating moving some people from the 1½ per cent regime into the 6½ per cent regime? I appreciate the Minister may not like to comment on media reports, but I would ask him if there is any substance in the widespread perception that the Government are thinking of asking public servants to make a more substantial contribution towards the costs of their pensions.
The second part of the Deputy's question is a matter for the Minister for Social Welfare; therefore, I shall not comment. The answer to the first part of this question is that roughtly two-thirds of public servants are on 6½ per cent and one-third on 1½ per cent.
Am I to understand that the Minister and his Department have not examined the possibility of requiring the one-third to go up into the 6½ per cent regime and that they have no intention of doing that?
The Minister and his Department, every minute of every day, are examining many options and possibilities.
The Minister is boxing cleverly there.
(Limerick East): I notice it was a very careful answer that the Minister's officials gave him to read out.
I deal with the facts.
(Limerick East): I see a difference between the Minister and the civil servants on this issue.