This Bill is designed to remedy, and I gladly recognise that it does remedy in very substantial measure, the injustice inflicted by the stabilisation of the bonus on retired civil servants who were superannuated during the stabilisation period, i.e., between 1st July, 1940, and 31st October, 1946. The effect of Section 2, which is the main section, and which may be said to embody the principle governing the other provisions of the Bill, is to provide that, as from the 1st November, 1946, a retired civil servant shall receive the pension which he would have been receiving if there had been no stabilisation, subject to one limitation viz: that in calculating his revised pension the cost-of-living index must be taken to be not more than 270, i.e. 170 per cent. above the index as at July, 1914. We know that, even after making allowance for the reductions recently effected in the prices of flour, bread, tea and sugar, the index figure is still over 300; but I am not objecting to the adoption of the figure of 270 for the purpose of the Bill. As Senators will, probably, be aware, the Minister has recently effected an arrangement with serving civil servants for consolidation of their salaries, that is to say, the bonus has been abolished and absorbed into the salary, new scales of salary being fixed. In determining the new scales, an index figure of 270 was, after discussion with the service associations, adopted, and it is reasonable that the same index figure should be adopted for the purpose of determining pensions. My criticism of the Bill is that it does nothing whatever for the older pensioners, many of them very advanced in years and all of them hard hit by the high cost of living. It appears to me that, as a matter of simple justice, these older men who retired before July, 1940, should come within the scope of this Bill. In order to explain why I hold this view, it will be necessary to explain the nature of the so-called "bonus" and the nature of the pension and to refer to the British Acts under which civil servants become entitled to pensions.
Speaking in this House on the 17th July, 1946 (Official Debates, column 765) I said :—
"The Civil Service bonus is not a bonus in the sense in which we ordinarily understand the term ‘bonus' in the business world. It is simply a sliding scale adjustment by reference to variations in the purchasing power of money calculated by reference to the cost-of-living index. All basic salaries of civil servants in this country are still fixed in terms of 1914 monetary values and an addition to the salary, computed by reference to changes in the cost of living and called a ‘bonus' is paid to the officer. The bonus takes full cognisance of such changes only in the case of the lowest paid officers and is progressively scaled down as the basic salary rises."
Now, what is the pension? Payment of pensions to retired employees of the larger concerns in the world of business is nowadays quite usual. In some cases, the cost of pensions is met wholly by the employer. In some cases, a superannuation fund is created, to which both the employer and the employees contribute, and pensions are paid out of this fund. But, in all cases, the arrangement is simply a matter of business. There is no element of charity or philanthropy involved. The fact that a pension will be payable is held out to the candidate for employment as a valuable consideration for his services and, in one way or another, that fact is reflected in the salary paid to him during his service. If there were no prospect of a pension, his salary would be higher. If there is going to be a pension, that fact will be taken into account both by the employer and the employee when fixing the scale of salary. The pension, therefore, is simply further pay for past services and is of precisely the same nature as the salary paid to an employee during his period of active service. I do not imagine the Minister will differ from me on this point. He is, no doubt, aware of the view of the Revenue Commissioners on the subject of pensions. When dealing with a business concern which, by contract or established custom, pays pensions to retired employees, the commissioners regard such payments, and also normal annual payments by an employer to a duly constituted superannuation fund, as ordinary business expenses of precisely the same nature as wages and salaries and, therefore, admissible as proper deductions in determining the trading profit of the concern. Similarly, in the hands of the pensioner, his pension, under the provisions of the Income Tax Act of 1918, ranks as earned income—income earned in the past—and he is entitled to earned income relief when his pension is being assessed.
Civil Service pensions are, in the main, still governed by the provisions of the Superannuation Act of 1859 and the Superannuation Act of 1909. The Act of 1859 provided for the grant of a pension equal to one-sixtieth of the retiring officer's salary and emoluments for each year of approved service, subject to a maximum of forty-sixtieths (or two-thirds) for 40 years' service. The 1909 Act continued the chief provisions of the 1859 Act, but, for future male entrants, it substituted an annual pension of one-eightieth for each year of approved service subject to a maximum of forty-eightieths, plus a lump sum on retirement. Existing civil servants were allowed to elect to be superannuated under the provisions of the 1909 Act if they signified their election at once and it may be assumed that all those with whom we are concerned did so elect and, therefore, that, apart from what is or may subsequently be put into this Bill, the maximum pension any of them can receive at any time is a pension equal to half the annual remuneration he was receiving when he retired. This has come to be known as the "overriding maximum". It is most important, however, to bear in mind that, when the Acts of 1859 and 1909 were passed, economic conditions were completely stable. There were no appreciable variations in the cost of living and the provisions of the Acts, in the circumstances then prevailing, were perfectly fair and equitable. Then came the 1914-1918 War and the cost of living rose steadily. After some very half-hearted attempts to mitigate the hardships inflicted on civil servants by the reduction in the purchasing power of money, this so-called bonus scheme was introduced when the cost-of-living index was 230, i.e., 130 per cent. above the figure as at July, 1914. In November, 1920, it was 276 and it then started to drop.
The bonus was regarded as a normal part of the remuneration of a civil servant, as, in fact, it was, and, therefore, had to be taken into account when fixing the pension of the retiring officer. But, as the index figure started to fall as from November, 1920, and it was obvious that it would continue to fall the British Treasury decided that only 75 per cent. of it should be taken into account for the purpose of computing pensions. The practice had always been that, once a pension had been awarded, the amount of it was never varied. The Acts contained no provision for any variation. A pensioner might lose his pension if he were guilty of certain offences against the law but, as long as he behaved as a law-abiding citizen, his pension was regarded as sacrosanct.
In 1921, when the cost of living was still high but was showing signs of a continuous fall, staffs were being reduced and, in addition to the ordinary retirements under the age limit, officers were being encouraged to retire on abolition terms—i.e. with added years of service. In these circumstances, the commercial interests in England took the view that the fixed pensions being granted constituted an unreasonable burden on the Exchequer and pressed for an alteration in the practice. After resisting any change for some time, the Government finally gave way and on the 21st February, 1922, the Financial Secretary to the Treasury announced in the House of Commons that, in the case of civil servants who retired as from that date, pensions would be computed by taking into account the full amount of the bonus but would be varied periodically by reference to variations in the cost of living. In reply to questions, he made it quite clear that the pensions would be increased as well as reduced. He said that every pension granted in future—I am quoting his words—would be—
"granted on such a basis that it shall be brought by periodic reassessment into relation with the cost of living."
He also said that a scientific scheme based on the cost of living must allow for "bilateral movement".
This scheme as outlined by the responsible Minister, and accepted by the House of Commons, was perfectly fair. It guaranteed the pensioner that the real value of his pension would not vary. On the other hand, it guaranteed the Exchequer against having to pay an unreasonably large pension at a time when, owing to a continuing fall in the cost of living, the purchasing power of money would have increased. If the Minister's undertakings had been implemented, much hardship to elderly pensioners in this country would have been avoided and I should not have been compelled to take up the time of the House to-day. Unfortunately, they were implemented only in a partial and one-sided fashion, with the result that the Exchequer got its guarantee, but the pensioner did not get his.
What happened was this: The Treasury had power to award a pension subject to a provision that it would be reduced if the cost of living fell. Owing to the maximum laid down in the Superannuation Acts to which I have already referred it had no power to grant any increase in the pension originally granted if the cost of living rose, and fresh legislation would have been necessary to give effect to the undertakings which the Minister had given in the House of Commons. Everyone concerned took the view at the time that the point was not material. Great Britain and her allies had just won the war that was to end war. Another world war was regarded as inconceivable. The cost of living was falling month by month. In fact, it went on falling continually in this country until 1933, when the index was only about 50 per cent. above the 1914 figure, and there was no increase in the index in Great Britain until 1938. When, therefore, on the 20th March, 1922, the Treasury promulgated a scheme for superannuation which indicated that the pension originally awarded would have to constitute an "overriding maximum" the provision was regarded as unimportant, because it was assumed that the cost-of-living index would never again show an increase and consequently the overriding maximum would never operate to the detriment of any pensioner.
Unfortunately for the elderly pensioners in this country the optimistic forecasts prevalent in 1922 have been falsified, another world war has driven the cost of living to an undreamt-of-height, and the provisions of an Act passed into law 88 years ago, provisions which were perfectly reasonable and equitable at that time, but which are utterly anachronistic in the conditions of to-day, have been retained on the Statute Book to inflict gross injustice on men who had not been born when they were enacted.
In this Bill the Minister takes power to get away from the overriding maximum in relation to the superannuation awards of men who retired between 1st July, 1940, and 31st August, 1946; but he refuses to take power to remedy the even greater injustice suffered by men who retired before July, 1940. Let me give one example, by no means an extreme type of case, that of a junior civil servant with a salary of £200 per annum who reached the age of 65 on the 30th June, 1940. The cost-of-living index was then 85 per cent. above the July, 1914, figure. His bonus would have been £120, so that his total remuneration would have been £320. His pension is therefore £160, just over £3 a week. He is now 72 years old. Instead of the percentage increase of 85 by reference to which his pension was computed, the percentage increase in the cost-of-living index is now over 200; but he cannot get one penny of increase in his pension. On the other hand, if his retirement had come about three years later, under this Bill, he would have been entitled, as from the 1st November, 1946, to have his pension increased by reference to a percentage increase of 170.
I have shown that pensions are precisely the same as salaries in their nature. The Minister has full power to increase salaries by reference to increases in the cost of living. Yet, apart from the limited field to which this Bill applies, he persists in keeping himself shackled by the out of date provisions of this ancient Act of the United Kingdom Parliament, so that he shall have no power to do justice in relation to pensions.
The Minister, speaking in the Dáil on the 30th October, defended his attitude in these words (Parliamentary Debates, column 1212):—
"My first submission is that we cannot guarantee, on any permanent basis, the value of pensions in relation to goods."
Now I suggest that this argument ignores the facts.
The pension is made up of two figures, which are separately worked out and, in fact, separately shown in the official minute awarding the pension. The first figure is the basic pension called the "annual allowance". This is based on the salary and does not vary. The second figure which is called the "supplementary annual allowance" is based on the cost-of-living bonus and does vary. Is there any sense in paying a separate allowance calculated by reference to cost-of-living bonus except to provide for adjusting the pension in relation to the prices of goods? The answer, of course, from the Minister's point of view, is that the variation of the supplementary allowance is to be in one direction only, that is to say, downwards. The Exchequer must have a guarantee that the pensioner shall not gain through an increase in the value of his pension in terms of goods, but the State must not give any converse guarantee to the pensioner.
I can illustrate by reference to the example I have already given. It will be remembered that the officer's salary when he retired was assumed to be £200 and his bonus £120. The minute sent to his Department would have stated that the Minister.
"has been pleased to grant to Mr. ——an award of (1) an annual allowance (pension) of £100 a year, plus a supplementary annual allowance, reassessable in the usual manner subject to an overriding maximum of £60."
The pensioner was told in effect: "You are getting a fixed pension of £100 and a bonus pension of £60. If the cost of living goes down, your bonus pension will be reduced; but, owing to something embedded in an Act passed before you were born, your bonus pension will never go up, however much the cost of living rises."
I hope to move a recommendation on the Committee stage of the Bill next week and I would earnestly urge the Minister to reconsider the matter sympathetically in the meantime. It seems fairly obvious that the cost of removing the hardship imposed on the men for whom I am speaking would be comparatively small. They are all advanced in years and the cost would be diminishing rapidly in future, as they retired at 65 and now are around 72 and upwards. I would not suggest at the present time any increase in public expenditure if I were not convinced that a principle of justice were involved. Civil servants are employees of the State, that is, of the people, and the standard set by the State should not be lower than that of the best employer. No good employer would differentiate between his employees and his ex-employees in an arbitrary manner by taking a date and ignoring the circumstances of the case.
The Minister argued in the Dáil that he could not deal with the case of these Civil Service pensioners without dealing with the case of other State pensioners also. There is no other section of State pensioners whose pension scheme is designed to reflect automatically periodic changes in the cost of living, and if my information is correct, as I think it is, the Minister's argument fails. I will endeavour to draft a recommendation dealing with this on the Committee Stage of the Bill and I would earnestly urge the Minister to reconsider the position sympathetically in the meantime.
