JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM debate -
Wednesday, 22 Feb 2012

Public Service Pensions (Single Scheme) and Remuneration Bill 2011: Discussion

Chairman

We are now in public session to discuss matters relating to the Public Service Pensions (Single Scheme) and Remuneration Bill 2011. I welcome Mr. Shay Cody from IMPACT, Mr. Billy Hannigan from the Public Service Executive Union, PSEU, Mr. Noel Ward from the INTO, Ms Phil Ní Sheaghdha from the Irish Nurses and Midwives Organisation, Ms Louise O'Reilly from SIPTU and Mr. Jim Mitchell from the Prison Officers Association. Mr. Cody will make some opening remarks and that will be followed with a question and answer session. I remind members, witnesses and those in the Gallery that all mobile phones must be switched off at this point.

I advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, you are protected by absolute privilege in respect of the evidence you are to give this committee. However, if you are directed by the committee to cease giving evidence in respect of a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise or make charges against any person or persons or entity by name or in such a way as to make him or her identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

Mr. Shay Cody

From the perspective of the trade unions, the introduction of a new pension scheme for public servants was not something about which to be particularly enthused. We definitely see it as a worsening of the terms and conditions for new entrants to the public service. Notwithstanding this, we decided to engage with the Labour Relations Commission and attempt to shape the outcome, which was noted by the trade unions. On occasions that has been represented to indicate that unions had signed up to the new scheme but we have clearly reserved our position on it. Notwithstanding that, we have engaged with officials, the Minister, and here today on the details of the legislation. I will walk through the aide mémoire which was circulated.

I hope the first two items will be addressed as the Minister has given a commitment to bring forward an amendment to sections 19 and 28 of the Bill. The first element had a provision that the eventual pension to be earned by somebody would be a maximum of 50% of final earnings. We indicated this flew in the face of a career average scheme. I will give a simple example. By the time we get to the end of this, people will be retiring between the age of 68 and 70. Very often at that age people would be going off shift work and stepping down in their career, and in those circumstances if the pension was limited to 50% of the final salary, a person could be catastrophically leaving behind the average earnings over a long period. The Minister has accepted that point and agreed to amend it.

A second issue concerns the position of, in effect, the enhancements that would arise where somebody either died in service or had to retire on the grounds of ill health. The Minister has accepted a suggestion we made that the augmentation of pension that would arise in the case of those unfortunate events would have a ceiling of ten years' value. A year of value would be the accrued year's pension benefit, which could be augmented up to a limit of ten times, although that amount is not guaranteed. The Minister has accepted our suggestion in that regard.

Moving to a halfway house clause, which is in section 33, there is an issue with the cessation of spouses and partners' benefits. I put particular emphasis on this. There is a very anomalous position in the public service pension scheme currently that is pretty much unknown. If a public servant dies either in service or following retirement, and if the partner or spouse was to either cohabit or remarry, the pension is due to forfeit. If two partners of deceased public servants were to get together, two pensions would be forfeited. The Commission on Public Service Pensions recommended that this measure be abolished but it has now reappeared in this legislation. There appears to be a struggle under way between the views of the Department of Public Expenditure and Reform and the Minister, who seems to accept the views of the trade unions that in a modern world that is unfair, and the concerns which exist in the Department of Social Protection that this could represent a Trojan horse into the widows' and widowers' pension schemes. We argue that this makes no sense because this is an occupational pension scheme.

To give an example, my personal pension scheme would not have such a draconian clause and I am not aware of any private pension scheme that does. We are talking about attempting to align the new pension scheme for new public servants as close to such schemes as is possible. I appeal to the committee in its consideration that it delve into this matter. We have the sympathy of the Minister and his letter was circulated, in which he indicated a positive disposition. There seems to be a resistance within the Department of Social Protection but I hope that can be overcome as this is an occupational pension scheme and is not meant to affect standard social welfare arrangements. I invite my colleague, Noel Ward, to speak on the issue of uprating accrued benefits.

Mr. Noel Ward

My union, the Irish National Teachers Organisation, is seriously concerned about the single pension scheme for new entrants to the public service as it constitutes a serious diminution of the current terms. We commissioned an independent report on the scheme, the Trident report, which has been circulated to members. The report shows that many new entrants may pay more into the scheme than they will ever receive from it.

I will leave aside that general point and speak specifically to section 39 of the Bill. If we accept that key parts of the Bill are required under the memorandum of understanding with the troika, for example, a career average retirement age link to the State pension and increases in pensions linked to the consumer price index, other parts of the Bill are discretionary. I specifically refer to the manner in which accrued benefits are uprated. When a person in the first year of employment as a public servant makes a pension deposit, as it were, in his or her pension fund, the way in which the pension is treated and uprated thereafter is specifically referred to in section 39(2), which provides that it will be uprated in line with the consumer price index. If the increase in the value of salary overtakes the increase in the consumer price index, the value of the amount accrued is thereafter substantially reduced.

The assumption taken by the Comptroller and Auditor General in his 2009 pensions report was that salary growth would exceed inflation by 1.75% per annum into the foreseeable future. While one could not consider this assumption to be accurate as it has been entirely overtaken by events, based on this figure the reduction in the value of a person's accrued benefits over the years would be substantial. If we make an assumption that at some point the economy will improve, national wealth will increase and will be shared to some extent and salaries will exceed inflation by 1% per annum, the value of a person's pension pot under the formula provided for in the Bill will reduce by about 40% compared with salary. This is a serious diminution. The uprating mechanism is seriously flawed and will lead to pensioner poverty.

This issue was closely examined in the Hutton report on public service pensions in the United Kingdom, which was published in March 2011. Recommendation 8 of the report states specifically that pension benefits should be uprated in line with average earnings during the accrual phase. Thereafter, Hutton recommends that pensions in payment should be increased in line with the consumer price index. The career average scheme introduced in the ESB one year ago provides for uprating at the consumer price index plus 1%. The discussions on public service pensions in the United Kingdom are focusing on uprating at CPI plus approximately 1.7%. That is the approximate position in the negotiations in the UK which have not yet been finalised. To uprate on the basis of inflation is a serious matter as it would significantly diminish a person's pension pot over the course of the longer career envisaged under the scheme.

Mr. Shay Cody

On section 39, IMPACT is concerned that the legislation vests in the Minister the power to implement consumer price index increases and provides a facility permitting him to delay increases. If the Minister were minded at some stage to delay the application of CPI to pensions, one could end up de facto missing years. All he would need to do is sit on his hands. There is no provision for a review or discussion of this section. We are very uncomfortable with the provision giving the Minister discretion to rip open what is at the heart of this pension scheme.

On section 46, part of the section relates not to the new pension scheme for new public servants but to the existing pension scheme for existing public servants. It is, in effect, an enabling provision that would allow the Minister to move from a salary relationship to a CPI relationship at some stage in future. Our position on this power is simple. We have agreed with the previous and current Governments under the Croke Park arrangements to leave this matter alone until the Croke Park agreement concludes. However, the truth of the matter is that pensioners would fare better if a CPI relationship were in place because instead of not receiving an increase in pensions as a result of the absence of pay increases, they would receive increases in line with the increase in the consumer price index. This matter should be addressed on a stand-alone basis rather than being stitched into the legislation.

We raised the issue of a minimum benefit of five years' pension at an early stage with officials and the Minister. Most private sector pension schemes have a minimum pay-out arrangement. Occasionally a person who has put money into a pension scheme for a long period will die shortly after retirement. In most private pension schemes there is a minimum pay-out of five years' pension in such cases. This means that if a person dies at an early stage, the payment is either paid to the surviving partner or his or her estate on the grounds that the deceased may have paid into the pension for up to 40 years. In the public service pension scheme, where a person who has paid into a pension for 40 years dies on the day after retirement, the State becomes the sole beneficiary. Our proposal for a minimum pay-out arrangement is not particularly costly as such cases arise only occasionally. I suspect actuarially that the number of people who die in the first five years of retirement is low in the overall scheme of 300,000 public servants. If the argument is that we need to move to a new pension scheme which is more closely aligned with private sector schemes, this facility should be made available as is the case in the private sector. It is a decent proposal which we ask the committee to consider in due course.

I invite my colleagues from the prison officer and nursing professions to address the issue of the fast accrual groups.

Mr. Jim Mitchell

Under the legislation, the multiplier to be used for fast accrual grades such as prison officers, firefighters and gardaí is not relative to non-fast accrual grades. We understood that under the new career average scheme, a serving public servant would, under the non-fast accrual scheme, accrue their full benefits after 40 years. This is similar to the position for fast accrual grades after 30 years' service. As Mr. Cody correctly noted, while we understand the new scheme, we are not entirely enamoured with it because we understood there would be relativity between the fast accrual grades and other grades and both groups would take the same type of hit. For operational reasons, we cannot work longer than we work at present. The only time fast accrual grades will achieve parity under the proposed multiplier is if they work for 37 or 38 years, having paid more money into their pensions. We are seeking the same relativities for fast accrual grades as apply to non-fast accrual grades.

Ms Louise O’Reilly

It is generally accepted by all concerned that the new pension scheme will not be as good as the current scheme. However, our calculations indicate that the fast accrual grades, such as firefighters and prison officers, will end up significantly worse off than other grades. We have discussed this matter with the Department of Finance and will revisit it. We need to make the joint committee aware of this unfair element of the scheme. Fast accrual groups have fast accrual for the simple reason that they have an early retirement age for operational reasons, as I am sure members are aware.

Mr. Shay Cody

The final sentence in the note summarises the issues. The remedy required to preserve a balance between the position of, let us say, standard public servants and those in fast accrual groups who must retire early, the accrual rate specified in the Bill would need to be improved. The final figure could emerge from discussions with officials in the Department. Clearly, however, the matter is ultimately one for legislation and we hope to secure some support on that front.

Chairman

Mr. Cody pointed out two areas where there is agreement with the Minister and he has indicated his intention to introduce an amendment in respect of sections 19 and 28, as reflected in the letter from him that was circulated. The issue related to section 33 is being discussed with the Department of Social Protection. Some sympathy was expressed for the union's viewpoint but this is a work in progress with the Department. There is still disagreement about section 25, the last point that was raised, as Mr. Mitchell explained. The unions are looking for an amendment to that. I am not expressing a view one way or the other, I am trying to set down everything.

The second area of disagreement is section 39, where there are two issues that have been raised. I am not sure how the second issue could be addressed but it is clear that the unions want an amendment to the section 39(2) to address that issue.

There is one issue of concern in section 25 and two in section 39, with a final issue related to section 46, the extension of those changes to existing schemes, where the unions propose the removal of the provision. Those are the sections the unions hope will be changed.

There is also a proposal for a new provision to do with the five year minimum benefit. That does not appear in the Bill and would need to be added.

Deputy Sean Fleming

I welcome Mr. Cody and his colleagues here today. It is good they are in a position to assist us in our work.

We would like to know when we are dealing with the Bill on Committee Stage if the public sector trade unions support it or oppose it. Are they of the opinion that it will happen and that there should be changes?

This matter was considered by the Labour Relations Commission, with €45,000 as a figure that calculations would be based upon. How was that arrived at? It seems to be a compromise.

Regarding the formula for uplifting accrued benefits in line with the CPI, I fully understand CPI and salary grades do not always move in sync. If there was deflation what would happen? Anything could happen in 40 years. Is there a provision in the union proposals for that? I see the reference to the ESB at CPI plus an additional amount.

On fast accruals, if a prison officer serves 30 years, the union would like a formula whereby if he is two thirds of the way through his career and retires, he would get two thirds of his rate based on someone serving 40 years. How does that work?

If someone must retire on health grounds, would the ten added years - it was seven in the draft legislation and has gone up to ten - be an incentive for people to sign themselves out on medical grounds? It looks like a financial incentive to have the CMO retire him on health grounds if there were difficulties in the course of his work. Could that be over-used?

I thank the unions for coming in. If there are any more matters that arise after today, please come back to us before we go on to Committee Stage.

Mr. Shay Cody

The trade unions have not embraced this Bill and do not support it. We are not part of the Parliament so what relevance our opposition might have is a different question. We are dealing with people who are not trade union members at present. It is not as if there are 10,000 people at the gates but given there will be a new scheme, we felt an obligation that we should engage to make it as palatable as possible. That is where the engagement with the Labour Relations Commission took place. We decided that in the new scheme, it would be better if something extra could be given to people in the early part of a public service career; that is from where the €45,000 came. One accrues faster while earning less than €45,000. The trade unions saw that as a reasonable compromise. We started with a higher figure and the other side started with a lower figure and that is where we met. It is not scientific, it is a compromise.

What would happen if there was deflation? That was discussed with management and it agreed in the LRC that negative inflation would be treated as 0% inflation. If there was 2% inflation it would go up by 2%, if there was -2% inflation, it would be left as it is, nothing that has been accrued to date would be unwound.

Deputy Sean Fleming

I was not talking about unwinding anything accrued, I was talking about what is built up as a person's period goes along and if there is a period of deflation, there would be no increase that year. Previous contributions would not be written down.

Mr. Shay Cody

We had a concern that, strictly applied, if there was -2% a person could lose. It has been agreed that there is no difference between it being -2% or 0%, it will be treated as 0%.

The ten added years have been expressed in the language used in the current formula, where people may get up to ten added years in the event of ill health. Under the new scheme, there will not be a currency of years. All a person will get is a slice of the pension accrued in the previous 12 months with a multiplier of ten. If someone retires out of the public service on health grounds, that is entirely decided by a doctor appointed by management. The only way to be certified for retirement is if the Chief Medical Officer agrees a person is no longer capable of carrying out his work and there is no prospect of recovery. As a trade union official, I find it is more and more difficult to get people out because CMOs tend to be of the view that a person can stagger into work in circumstances where a more generous approach might have been taken in the past.

Mr. Jim Mitchell

At this point we are talking about parity. At present, an average civil servant will work 40 years and the pension will amount to X. A prison officer will work 30 years for operational reasons, as will firefighters. If there is a reduction for the pension scheme in simple terms for 40 years, we should take a commensurate hit on 30 years but not in excess of that, given the nature of our jobs; that would not be appropriate. We are not entirely happy, like the rest of the trade union movement, about the pension scheme, but we expect to take the same hit as our colleagues.

On the current multiplier, for short service the fast accrual will work up better because of the nature of the figures but as a person moves beyond 21 to 22 years, fast accrual workers do commensurately worse than their colleagues. Let us say somebody works as a prison officer in Mountjoy for 30 years. Everyone will accept that a prison is an inappropriate place for such officers to wander around in later years. It is an operational reason for firefighters and is the reason that we must accrue benefits. We do not have the liberty or luxury to work beyond 55 years because of our terms and conditions of employment. We are not looking for anything extra. We just want people who provide a front line service, and work in difficult jobs, to be treated the same as everybody else.

Ms Louise O’Reilly

The contribution rate is 7.5% for the fast accrual groups. They are already paying in more but they will get less out because, for the operational reasons that we are all too well aware of, they have a compulsory retirement age. That means they cannot reach the level of service that other groups can and is true for the fire service, prison officers, the Garda Síochána and the Army.

Chairman

Is that okay Deputy Fleming?

Deputy Sean Fleming

Yes.

Deputy Mary Lou McDonald

I welcome everyone and it is important that they are here. When we originally discussed inviting delegations I had the idea that we would have the Minister present thus leading to an interesting conversation.

I read the letter that Mr. Cody circulated to us that the Minister for Public Expenditure and Reform, Deputy Howlin, sent to him. I am glad to see that the Minister commended the union for raising issues in a co-operative manner while being conscious of any additional costs.

The new pension scheme is a cost-cutting device and is why the Government insists on it. Have the groups an idea of the projected savings? Has the Minister shared that figure with them? I do not know who to direct my question to. Perhaps Mr. Cody will answer, in the first instance.

Deputy Peter Mathews took the Chair.

Mr. Noel Ward

The figure quoted by the Minister at the time of publication was a saving of €1.8 billion by the middle of the century. We find it difficult to see that and all of the figures quoted for the proposal are highly speculative. A lot of the statements made on the Bill and proposal are based on the Comptroller and Auditor General's Report in 2009 on public service pension costs. That figure is constantly put out there as to what the liability for public service pensions is now. As I said earlier, its key flawed assumption is that wages will always outpace inflation by 1.75% per annum for forever more. That is clearly not a real assumption. We have asked previously for a re-examination with a more realistic assumption of those costings. As things stand it seems that one can pick any number, and it does happen, and say that will be the saving or is an enormous cost to public service pensions. The current scheme is sustainable.

Deputy Mary Lou McDonald

I work on the assumption that the groups have singularly and collectively made that point to the Minister. The trade union movement has made it clear that it does not favour the new scheme. I raised the issue because it is central to our political and public's understanding of what is happening. Pensions are complicated by definition and for that reason people shy away from debating the matter. This is significant legislation. It relates to new entrants and will have consequences far into the future. I note that in the aide memoire the groups set out a number of key issues and the Minister has indicated that he may table amendments in respect of two of those issues. I ask the groups to please tell us whether they think he is willing to move on any of the remaining issues. For instance, section 33 on the cessation of spouses and partners benefit which seems to me to be one of the no-brainers.

Mr. Shay Cody

To be honest, if one goes back to the Commission on Public Service Pensions that reported almost a decade ago, there was a strong recommendation that the measure be done away with. There was consensus among the trade unions nominated and right across public service management, with the exception of the Department of Social Protection, which feared that it would establish a precedent that would have implications for the widow's and widower's pension. For the life of us we cannot understand that stance because this is an occupational pension.

Deputy Mary Lou McDonald

I apologise for cutting across, Mr. Cody. Did that Department ever explain? I am struggling to see the connection. He said that the Department feared that it could become a Trojan horse for social welfare pensions. Was he given the rationale behind that idea?

Mr. Shay Cody

No. In the Public Service Pensions Commission all that is recorded is the dissenting view of the representatives of the Department of Social Protection. In our engagement with the Minister and the officials they basically said, if I might put it like this, that they were not arguing with us on the point because they believe it to be a reasonable point but the people over in Social Protection have a big bee in their bonnet about it. That view was not shared by any of the people that we have dealt with on it. The people who have the problem are not involved in these discussions and, therefore, I cannot answer what the fundamental part of their problem is. From our perspective it is an unfounded fear.

Acting Chairman (Deputy Peter Mathews)

Deputy McDonald has indicated. Does she wish to comment now?

Deputy Mary Lou McDonald

I do. This is one of the reasons the Minister's presence or attending directly after this discussion would have been so useful. We need, as parliamentarians, an indication from him, notwithstanding the views of the Department of Social Protection, whether he wants to do the logical thing.

I find myself almost in the same position as the delegation in terms of the legislation. On the one hand, I am looking for amendments to provide the least worst option delivered but, on the other hand, instinctively feeling that this is another blow to public service workers that is being delivered in an opportunistic manner.

Section 10 makes exceptions for elected representatives and the holders of qualifying offices within the scheme. I am curious to know the delegation's views on that measure.

Mr. Shay Cody

We raised the matter in our discussions with the management side. We found it strange, if I can put it like that, somebody could re-enter Parliament and be a member of the old scheme. If an ordinary public servant left work but got another job in the public service later a six month break would end their connection with the old scheme. The management side simply said that a similar provision was contained in the 2004 legislation that made changes to the public service and they were simply replicating it. I am not sure if I am in the right place to comment on but it seems to me that it was designed to facilitate.

Acting Chairman (Deputy Peter Mathews)

Perhaps it can be discussed on Committee Stage.

Deputy Mary Lou McDonald

We must raise the matter because it strikes me as a case of some being more equal than others. If there is going to be a single scheme then elected representatives, and other qualifying groups, should not be exempt from what the Government's judges to be an appropriate scheme for the rest of the public service.

Acting Chairman (Deputy Peter Mathews)

Does the Deputy have additional questions?

Deputy Mary Lou McDonald

I have a final question. I have listened carefully to the fast accrual groups. Perhaps Mr. Mitchell or Ms O'Reilly might say more about the following matter as it concerns their members and future members. They have offered the solution that improving the accrual rate of 1.43% will remedy the matter. Obviously they are satisfied that offer would address the issue.

Ms Louise O’Reilly

We have had discussions with Cornmarket which referred the matter to its actuaries and provided us with the figures. Cornmarket has done a year-by-year comparison between the career of the person who has the fast accrual and the career of the person who does not have it. Therefore, the need to increase the rate from 1.43% has arisen out of the figures we have been given by Cornmarket. These have been examined by an actuary and they have been given back to the Department but in our view it is necessary to change or amend the legislation in order to reflect that so that those groups are no worse off. Deputy McDonald is quite correct when she says that every public servant - even those not yet employed - will be worse off as a direct result of this legislation. Mr. Cody is correct when he said it is not our job to make the legislation but we have a role to comment upon it and to represent those people who are not yet members of our trade unions but who will be at some point in the future. The necessity to increase the rate is a matter for the actual figures. We have our own figures but perhaps the Department of Finance will look at the actual figures but this does not get away from the need to amend the legislation to reflect the current situation which is that there are certain groups who for operational reasons of which we are all aware, cannot work past a certain age and these groups need to be no worse off than their counterparts.

Deputy Mary Lou McDonald

I have one final question. This committee is due to deal with this matter very soon. Are the negotiations still ongoing with the Minister and the Department? The aide memoire lists the issues. The trade unions have been given some comfort on two specific issues. Is it correct to presume that the trade unions are continuing to negotiate with management in communication with the Minister to have these other matters resolved to their satisfaction?

Mr. Shay Cody

The only live issue under discussion is the fast accrual issue. When we met with the Minister we pointed out there was a research project under way with the actuaries and that once this was available we would raise it with his officials. This is the only live issue, in effect. On the other matters, the Minister has either said "Yes" or "No" or, in the case of the spouses issue, we will see how it works out with the Department of Social Protection.

Deputy Mary Lou McDonald

Can we take it that you have been told "No" to the other matters then?

Acting Chairman (Deputy Peter Mathews)

I thought that the previous Chairman summarised that under the cessation of spouses and partners benefit, section 33, it is a work in progress.

Mr. Shay Cody

Yes, exactly. However, the work in progress is a dialogue that involves social protection.

Deputy Kevin Humphreys

I welcome the delegation and thank them for their informative submission. I come from the private sector and a bone of contention of mine is that shift work was never calculated for pension purposes, meaning a worker could do 30 years on shift work and never see any pension benefit. The delegates were comparing private and public sector arrangements. Will the legislation allow for shift work to be pensionable?

Mr. Shay Cody

Yes. That is the reason the Minister eventually agreed to make the amendment on final salary. In the public service shift work is fully pensionable and people pay a pension contribution and the pension levy on their shift earnings and they accrue benefits on their shift earnings. I am aware of private sector companies who also have the same arrangements.

Deputy Kevin Humphreys

Unfortunately, none that I worked for.

Mr. Shay Cody

They are pensionable and it is not proposed to change that arrangement. However, it gave rise to the need for the first amendment of section 19.

Deputy Richard Boyd Barrett

I apologise for arriving late to the meeting and missing the beginning of the presentation. I am particularly sorry because the subject of pensions completely befuddles me. I find it difficult to get my head around the subject. The only thing I fully understand about this Bill is that it will raise the pension age to 68 years, which in my view is appalling. I suppose it is a done deal from the Government point of view but from the point of view of society it is really a shocker because it is a backward step for society. We are forcing people to work longer and harder for less money.

It is stated the Government claims there will be a saving of €1.8 billion but the delegation questions whether this saving will be achieved for the reason that the Government is assuming wages will keep ahead of inflation and this certainly does not seem to be the case at the moment and quite possibly it will not be the case in the foreseeable future, given the way things are moving. How far off could the Government be in its prediction or is it difficult to calculate? It is a significant statement because if the Government does not realise the savings - which are required to be made according to the arithmetic of the troika agreement - if the maths are incorrect, are off, and the expected savings do not materialise, then the troika will have to come looking for other things. Is this a fair assumption?

Mr. Billy Hannigan

On a general point, the raising of the age of retirement in this scheme is directly related to the decision to raise the old age pension retirement provisions, because the scheme has to be integrated with social welfare pensions. I do not disagree with the Deputy about the merits from the point of view of public policy. As for the costs, these are not exclusively related to not uprating benefits by reference to wages or consumer price index. The structure of the scheme, even if one were to relate the movements of the pension pot of each individual to the movement of wages, would produce a significantly worse pension for new entrants than is in place at present. This is not the only factor in the scheme which affects the benefits because currently, people's pensions are based on their final salary. If, for instance, I have been promoted once in my career, the pension benefit is based on my final salary. Under this scheme, the pension benefit is based on what I earned during my first 20 years as a clerical officer or as an executive officer or whatever it was and therefore, this is what is set aside. It is not just the consumer price index impact. Taking account of the fact that we are stuck with this scheme, some of the groups who are most significantly disadvantaged are part-time women workers. These are the people most disadvantaged by the structure of this scheme because they tend to take time out of employment, the amount of money they can set aside is half their wages or one third of their wages, depending on their working pattern. Everybody will be significantly disadvantaged but that group of people will be most significantly disadvantaged.

Acting Chairman (Deputy Peter Mathews)

Disproportionately disadvantaged.

Deputy Richard Boyd Barrett

This is the other point I understood, that it is based on median earnings now rather than on final salary. I would like to hear some more about that point. I suppose the one piece of public sentiment the Government could trade on - given the scapegoating of public sector workers the Government could probably trade on quite a lot of public sentiment - one that it could convincingly argue is that pensions based on final salary of very highly paid public servants could reasonably be examined. How could it be organised to get those on obscenely high salaries, top public servants and civil servants who are paid pensions while ensuring that low and middle income public sector workers are not hit with reduced pensions? How could it be done differently from the way the Government has chosen to do it?

Mr. Shay Cody

If one were doing a redesigning of this scheme from the start, one would agree a maximum pension, which is a suggestion we made in these discussions. In fact, there is a suggestion, I understand, in the programme for Government, that the tax system would cease supporting the creation of a pension that would generate more than €60,000 a year. I have not heard much about it but it is in the programme for Government. What appeared in the programme for Government was closely aligned to the suggestion we made of a ceiling of €60,000 a year.

Acting Chairman (Deputy Peter Mathews)

That has been left out.

Mr. Shay Cody

This is not the place for it but if there is to be a public service pension scheme we suggested having one with a maximum pension of €60,000 a year. Lo and behold, the same figure ended up in the programme for Government. Is there a danger the troika will come back looking for more? The maths of that does not work out. My colleague, Mr. Ward, made the point that the Comptroller and Auditor General has overstated the cost of public service pensions because of the assumptions outlined. If the new pension scheme is to create a saving of €1.8 billion and the Comptroller and Auditor General has overstated the cost, we are narrowing the savings but more cash will not have to be found. The savings are paper savings because we thought we would have to pay a higher figure and, in reality or through the new scheme, we will pay a lot less. It is not the case that cash must be removed to pay back the troika. It was a sloppy piece of work with untenable assumptions. There is discussion in the Department of Public Expenditure and Reform about re-examining the accrued public service pensions liabilities. That would be useful for public policy debate.

Deputy Richard Boyd Barrett

We discussed this point on Second Stage. Following Deputy McDonald's point, does this apply to politicians in the Dáil prior to the commencement date of the scheme? If they lose their seats and subsequently get re-elected, will the scheme not apply to them?

Mr. Shay Cody

That is correct.

Deputy Richard Boyd Barrett

The old pension scheme will apply. That is unbelievable. These guys have some neck.

Deputy Kieran O’Donnell

Is the proposal that fast accrual groups pay the same contribution rates in their pension as-----

Acting Chairman (Deputy Peter Mathews)

Deputy O'Donnell's mobile telephone is interfering.

Deputy Kieran O’Donnell

-----the average of 40 years? Sorry. Are the witnesses suggesting they pay a higher rate to compensate for the same point applying? Has it been examined within the scheme on an actuarial basis for people to make voluntary higher contributions on public sector pensions? Did that inform the discussions?

Ms Louise O’Reilly

The fast accrual groups will already pay a higher contribution. The contribution proposed is 7.5% for fast accrual groups and 6.5% for others.

Mr. Billy Hannigan

The point the fast accrual groups make is that the effect is disproportionate on them because they pay a higher contribution as fast accrual groups-----

Deputy Kieran O’Donnell

At the moment.

Mr. Billy Hannigan

At the moment they do not but they will pay a higher contribution because they are a fast accrual group. The effect of the introduction of the new scheme on fast accrual groups is disproportionate compared with other groups.

Deputy Kieran O’Donnell

If someone is heavily involved in shift work in the early part of their career, could these people end up with a higher pension under the new scheme than they would under the current scheme? I am trying to understand the nuances of the new scheme.

Mr. Shay Cody

If there is one element of the new scheme that we made a good job of in the Labour Relations Commission, it is the case where someone has a long, flat career earning less than €45,000 and where there was not much of a gap between inflation and wage increases. In that case, that narrow segment of people could do better and everyone else will do worse. There are several assumptions in that and if these do not hold true, no one will do better.

Deputy Kieran O’Donnell

When considering the reform of public sector pensions, were additional voluntary contributions by public servants considered? Do the witnesses understand what I am asking?

Mr. Billy Hannigan

It is not provided for in the legislation but we have discussed with the Department of Finance the concept of a facility for people to make additional contributions to enhance their benefits. That will be discussed further in the development of the rules on the administration of the scheme if and when it is introduced. The difficulty for some employees is that those who need to make additional voluntary contributions, such as part-time women workers, cannot do so because they are on half pay when they want to make contributions.

Deputy Kieran O’Donnell

Can Mr. Hannigan elaborate on the case of part-time, lower paid workers? How will they be affected with the introduction of a new scheme?

Mr. Billy Hannigan

People are on incremental salary schemes when a person works part time. In the case of a half-time worker, she is paid half her pay. Generally, people do it at a time when they are rearing children and then return to the workforce. After the woman has returned to the workforce, the woman may be able to progress in her career or go up the salary scale and reach a particular point. Currently, the pension benefit is based on her final salary.

Deputy Kieran O’Donnell

When she is full time.

Mr. Billy Hannigan

Wherever she got to. Her service is counted at a reduced rate because she was not there for part of the time. Under the new scheme, for every year she was working part time, for example with a salary of €20,000 reduced to €10,000 for part-time work, only a portion of the €10,000 is set aside. All she gets as a pension benefit in respect of that period is a salary of €10,000. Currently, assuming she retires on €30,000, she gets the benefit of €30,000. It has a disproportionate effect on those who must change their working pattern to suit child minding.

Deputy Kieran O’Donnell

If someone is working for 30 years, is career averaging based on a certain number of years?

Mr. Billy Hannigan

If I am earning €10,000 in year one, a proportion of €10,000 is put into the pot and is up-rated. In year two, if I am earning €10,050, a proportion of €10,050 is put into my pot. In any year where I am not earning full-time wages, my pension is being directly disadvantaged.

Ms Phil Ní Sheaghdha

There are 19,500 part-time nurses according to HSE figures. Their contributions will outweigh the benefit that a CPI pension will provide under the new scheme if that many remain part-time workers.

Mr. Billy Hannigan

The figures we received from the Civil Service indicate 20% of civil servants are effectively part-time and 95% of them are women.

Acting Chairman (Deputy Peter Mathews)

Has this legislation been gender-proofed? Has a regulatory impact analysis been carried out?

Mr. Shay Cody

The answer to both questions is "No". We have not seen too many women on the management side.

Deputy Kieran O’Donnell

They are well represented here today.

Mr. Shay Cody

The matter is being treated in a very technocratic way. There has been no willingness to entertain gender equality or regulatory aspects. We made the point that this hits and hurts people who are in and out of the workforce or work part-time disproportionately. A fairer scheme would have been to retain the existing one, but to maximise pensions.

Mr. Billy Hannigan

Deputy Boyd Barrett referred to higher pensions. We have figures in respect of Civil Service pensions but I do not know how they are replicated across the public service. Over 25% of Civil Service pensioners have a pension of €5,000 a year or less. Figures were provided by the Department of Finance. Some 50% of Civil Service pensioners are in receipt of a pension of €20,000, which some may or may not think is a good pension, or less. The view that large numbers of people who put out fires or attend to the problems that arise in the lives of citizens are on a pensions gravy train is a myth.

Deputy Mary Lou McDonald

I thank Mr. Hannigan for clarifying that point. According to the figures I have, it is replicated across the public service. The vast bulk of civil and public servants have a pension of between €10,000 and €30,000.

On gender proofing, when the Minister was before the committee I raised the issue with him. Clearly I was not at my persuasive best if there has been no gender impact. I will have to brush up.

I want to ask Mr. Ward about the Trident report. Ms Ní Sheaghdha echoes a concern that has been raised consistently by teachers, namely that more will be put into the scheme than one gets out. When this matter was put to the Minister, Deputy Howlin, he said it is because of confusion around the so-called pension levy, which of course is not a levy for pension purposes but rather a tax which is called a pension levy. Is that the same basis upon which some of the delegation's calculations are made?

The Minister also made clear in the Dáil on a number of occasions during Priority Questions that the so-called pension levy is not a permanent fixture. I raised the Trident report with him, and he said the levy is not a permanent fixture and he fully intends to abolish it. Is there any news on that?

Mr. Noel Ward

The public service pension levy is raising about €900 million a year. To imagine that any Minister or Government would let that go easily in the current context is fanciful. We all have the view that it is a temporary arrangement but it may go on for quite a while. We commissioned the Trident report arising out of our concerns about the new scheme. Trident is an independent and reputable consultancy. We did not seek any outcome from it or ask it for arguments against the new scheme, rather we asked it to examine it. We gave it a number of typical careers in teaching.

We were taken aback by what the report showed, which is that a number of typical new entrants to the public servants who work until the age of 68 would pay more into their pension pots than they would get out of them. Standard actuarial assumptions of discount rates, longevity and so forth were considered. One argument we have consistently heard to explain why the results are not right is that we took account of the pension levy in regard to what people pay for pensions.

The pension levy attracts taxation benefits, as is the case with pension contributions. It is called a pension related deduction in the Long Title of the legislation. Even if we had entirely discounted it, the Trident report shows the employer contribution if there was no levy would be 4.3% which is a very small employer contribution in any employment, private or public service, where there is a pension scheme. We recognise there is no occupational pension schemes in a lot of private-sector employment. The Trident report stands and predicts an horrific situation in the future.

One feature which shows that the proposed scheme will bring about real concerns about pensioners' incomes is that the private sector pensions industry is already designing products to sell to new entrants to the public service. We are aware of this from talking to pension companies and brokers. In five years' time they will try to persuade the new generation of public servants that their pensions are so inadequate that by the time retire they will need to purchase AVCs on the private market.

Part of the reason they will say that is because people will be working until the age of 68. It is difficult to envisage many teachers, nurses and other professions whose contracts who cannot pursue paths working until the age of 68 given the work they do. The private pensions industry involves charges and costs and its approach shows up the inadequacy of this proposal.

Deputy Richard Boyd Barrett

I was reminded of some of the things I was trying to understand when the issue first arose. I hope the information will penetrate my head fully and I will be able to deal with it on Committee Stage.

On raising the pension age to 68, is it not fair to say any benefit the State might hope to accrue from this move will be counteracted by the fact fewer jobs will be available for young people at a time when people are mouthing great concern about the rise in youth unemployment? I was shocked to hear the Government say recently it is now 27% in this country. It is a fair point. I do not know whether it was emphasised strongly. I would like the delegation to comment on it. It is an obvious consequence of this measure.

Deputy Alex White resumed the Chair.

Mr. Shay Cody

We would be more comfortable if this was a national rather than a public service debate. We can make arguments about primary school teachers or nurses. The country has moved from understanding the old age pension is available to people aged 65 and 66 to the new regime without any public debate. Other countries have debated the matter.

We met unions in Norway where, ironically, they bought into the argument for change. They had a national debate that lasted four or five years. I suspect most people in the country do not know changes are being made. Trade unions are attempting to raise some consciousness about this because the first step is only around the corner. It would be better if there was a national debate about dock workers, bus drivers and truck drivers, as well as public servants, on whether it is reasonable to expect people to continue to work. Some physical work is quite onerous. Some people never want to retire but many have to because they just cannot do the work anymore. The new regime seems to have slipped through without the political system ever having had a debate. One would be misrepresented in the public arena if the debate were regarded as a debate only on the public service. Perhaps the members will reflect on that point.

Ms Louise O’Reilly

This is a considerable national issue rather than a public service issue. SIPTU would not like to see it categorised solely as a public sector issue because it affects a wide range of the people we represent. Not all jobs can be done until one is 68 years of age. There needs to be an element of choice. This debate needs to form part of a massive national debate rather than one that centres only on the public service. The latter would not necessarily help.

Chairman

I thank Mr. Cody, Ms Ní Sheaghdha, Mr. Hannigan, Mr. Ward, Ms O'Reilly and Mr. Mitchell for attending, briefing us and assisting us in regard to various questions that were asked. I have no doubt the contributions will help inform the discussions we will have on Committee Stage. We have managed to focus on and identify the outstanding issues associated with the legislation in so far as the trade union is concerned. I propose to have the transcript of this afternoon's session prepared and sent to the Minister for Public Expenditure and Reform following this meeting. Is that agreed? Agreed.

The joint committee adjourned at 5.45 p.m. until 4 p.m. on Wednesday, 7 March 2012.