My colleague, the Minister for Finance, introduced this Bill to safeguard the long-term budgetary sustainability of public service pensions, while at the same time ensuring that future public service pensioners obtain fair and reasonable occupational pensions. In furtherance of these objectives, the Bill introduces two key changes, which will affect most new entrants to the public service from 1 April 2004. First, it raises the standard minimum pension age in the public service from 60 to 65 years, and second, it abolishes maximum retirement ages in most areas of the public service.
These changes will affect new entrants to the Civil Service, local government, teaching, the health sector, non-commercial State bodies, the Dáil and Seanad, and ministerial office. The special nature of the duties of members of the Defence Forces, gardaí, prison officers and fire fighters means that maximum retirement ages will continue to apply in these areas. However, the Bill raises minimum pension ages for new entrants to the Garda Síochána and the Prison Service, as well as providing for new pension arrangements to be put in place for new entrants to the Defence Forces. I emphasise that the measures in the Bill apply to new entrants only; neither serving staff nor existing pensioners are affected in any way.
The changes set out in the Bill have been decided by Government following consideration of the report of the Commission on Public Service Pensions. On foot of that report, there was full dialogue between the Government on the one hand and trade unions and staff representative organisations in the public service on the other. As I will explain later, full agreement was not reached in the course of that dialogue. While the changes proposed in the Bill are urgently needed, they spring from a background of lengthy consideration and extensive consultation.
The Minister considers the Bill constitutes a vital reform initiative in light of developing demographic trends. Demographic change, and in particular the trend toward greater longevity, is central to the need for reform of our public service pension arrangements. Since the foundation of the State, life expectancy has risen sharply. In the case of men, it has increased by about 15 years and in the case of women, it has increased by more than 20 years. While future life expectancy forecasts are open to debate, it is generally agreed there will be continued improvement in the years ahead. On that basis it is reasonable to conclude that future new recruits to the public service can expect, on average, to live beyond the age of 85. Most public servants currently have the option to retire on pension at the age of 60. If this option remained in place for new entrants, taxpayers would be faced with the prospect of financing pensions for many future public servants for periods of more than 25 years.
The rise in life expectancy, combined with a declining birth rate, will produce a pronounced ageing trend in the general population over the next 25 years. A recent study published by the Department of Social and Family Affairs projected that the number of people of pension age in Ireland will rise from 430,000 at present to 673,000 in 2021, and then to 1.2 million in 2056. This means that our current ratio of five people of working age to every pensioner can be expected to fall sharply to a ratio of less than 2:1 by 2056. This prospective decline in the support ratio further underlines the necessity for action now to forestall excessive impositions on the Exchequer in the future.
Public service and social welfare pensions now cost the Exchequer approximately 5% of gross national product. Maintaining the current level of provision is expected to cost approximately 12.5% of gross national product in 2056. Over the same period the public service pension component of this spending is set to rise from 1.4% to 2.5% of gross national product. The challenge posed by such stark projections has already led to a pro-active response by this Government through actions such as the establishment of the national pensions reserve fund. At the same time, the broader goal of fostering responsible pension planning by individuals in the workforce generally has been tackled in recent years by taxation adjustments and the introduction of PRSAs.
With costs over the medium to longer term clearly posing a major challenge, the Bill is directed at reducing the Exchequer burden in years to come through implementation of moderate and well-researched changes, which in the long run are estimated to achieve annual savings of some €300 million for taxpayers. This is set out in the explanatory memorandum accompanying the Bill.
The need for reform of public service pensions has long been acknowledged and was clearly recognised by the Commission on Public Service Pensions, which was set up by Government in 1996 and which issued its report in 2001. The commission's membership included the social partners, academic experts, pensions industry professionals and departmental representatives. I believe it also included a Member of the House.
Its terms of reference included changes in the working environment, claims for improvements in existing terms, emerging costs and the operational requirements of the public service. It recommended its package of measures as representing an integrated strategy aimed at securing the long-term viability and stability of public service pensions. In this context, it cited as key aspects the growth in long-term pensions expenditures, changes in the nature of public service employment, the issue of retirement age and claims for early retirement. The Government accepted the bulk of the commission's proposals, including those on pension age.
The provisions of the Bill on increasing minimum pension age for new entrants are a direct implementation of specific commission recommendations. In endorsing such an approach, the commission took a thorough approach by examining all relevant factors, including the demands placed on the different occupational groups, and cited increased life expectancy as a key factor in its decisions. The Government agreed with the commission's conclusions.
The commission made no recommendation as such concerning maximum retirement ages, which the Bill will abolish for most new entrant public servants. In the Minister's view, this is an appropriate accompanying measure to the change in minimum retirement age for new entrants and will facilitate future public servants in terms of their capacity to make a productive contribution in the workplace at older ages. From a pensions perspective, the Minister believes that the forecast decline in the dependency or support ratio as the first half of this century unfolds makes it a particularly opportune moment to dispense with mandatory age-based retirement for most new entrant public servants. At the same time as the worker to pensioner ratio falls over the decades ahead, people will be living longer. In the context of the major impact these changes will have on the labour force, it makes sense to allow people to continue to work and contribute for so long as they are competent and willing to do so. The return to the Exchequer should be a reduction in pension costs.
In September 2001, the Government agreed the recommendations of the commission in principle and set up a working group with the public service unions to advise on the implementation of those recommendations. The group's deliberations spanned almost two years, concluding with a report to Government in October 2003. Parallel groups with similar remits were set up in respect of the Defence Forces and the Garda Síochána. The Government also had the benefit of reports from these groups in informing its decision-making.
Although the trade union and management participants on the main working group were able to make progress on several important aspects of the commission reform package, agreement was not reached on some other critical items in the package, notably the raising of minimum pension age for new entrants. Every opportunity was given to arrive at an agreement in the course of these talks, but unfortunately this did not prove possible.
Against this overall background, the Minister considered that action was urgently required following a prolonged phase of study and consultation. In his view, to delay further created the risk of missing the opportunity for reform created by the commission's work. The Government agreed that real change had become a pressing priority and as a result the Minister was able to announce in his budget statement last December that the Government had decided to implement the bulk of the recommendations of the commission. Specifically, he announced his intention to introduce legislation, now embodied in this Bill, to increase minimum pension age and remove compulsory age-based retirement for most new entrants to the public service.
In line with the Government's concern about securing a balanced reform package, the Minister also announced in his budget statement that the Government would not be proceeding with the commission's recommendations for the introduction of an additional 1% pension contribution by all public servants or the use of a new index for determining public service pension increases. In addition, the Minister announced his intention to draw up a further set of pension changes arising from the commission's recommendations in respect of existing public servants. These changes, which are not part of this Bill, may include amendment of the formula used for integrating public service and social welfare pensions to make better provision for current and future staff on lower pay levels, along with a new single additional voluntary contribution-type scheme for the public service, as well as the possibility of optional early retirement on the basis of actuarially reduced benefits. These further changes are the subject of ongoing discussion with the public service unions.
I hope this outline of its historical context has impressed on Members that this Bill has its roots in a lengthy and thorough deliberative process. Its provisions are in no way precipitate or improvised, but have been crafted in the context of expert independent analysis and appropriate consultation.
I now turn to the structure of the Bill. The first two sections deal with definitions, including the definition of new entrant. These are followed by sections which remove or raise compulsory retirement ages for new entrants to the public service. The Bill then deals with the design of new superannuation arrangements that will be introduced in the Defence Forces, after which the concluding sections are essentially technical in nature, covering matters such as removal of doubts and collective citation.
The Bill contains two Schedules. The first is a list of State bodies, mainly commercial, which do not come within the definition of a public service body in this Bill but whose employees in certain circumstances will not be deemed new entrants on assuming posts in the public service. The Second Schedule lists those areas of primary legislation which the Bill is intended to amend.
Members will note that the Bill's provisions on minimum pension age extend to new Members of the Oireachtas and office holders including Ministers and Ministers of State. This is in line with the Budget Statement for 2004, in which the Minister said that the minimum pension age for these groups would be increased to 65. Although the pension commission's remit did not include new Members of the Oireachtas and office holders, meaning the commission did not make any recommendations regarding their pension terms, the Government considered that they should be encompassed by the current changes.
The reason for including Oireachtas Members, Ministers and other office holders within the scope of this change in minimum pension age is that we are public servants. We serve the public in a fundamental way. However, unlike most public servants we do not have security of tenure. That is the nature of the job. We are subject to the will of the electorate from time to time, so there can be a considerable change in Oireachtas membership from one Dáil or Seanad to the next. It goes without saying that in many cases these changes are involuntary, but this does not change the basic position that we are public servants. The requirement to be re-elected from time to time means that Oireachtas Members are different from the general body of public servants.
The Minister considers it appropriate that this special factor should be taken into account in the Bill for serving or former Oireachtas Members and Ministers. Accordingly, the definition of "new entrant" in the case of Members of the Oireachtas and office holders does not include any Member of the Oireachtas or office holder who was first elected or appointed before 1 April 2004. This is an exception, but it is reasonable on the basis that even the most effective Deputy, Senator or Minister may not be re-elected and does not have the same security of tenure as other public servants. As I have said, this is not a voluntary matter. Accordingly, having once been elected or appointed as an office holder before 1 April 2004 should be sufficient to take a person out of the new entrant category when he or she is elected or appointed an office holder in the future. Persons elected for the first time after 1 April 2004 will be subject to the new entrant age limits. The Minister considers this reasonable as individuals going forward for Dáil or Seanad election for the first time will be aware of the new age limits and will be in a position to take this on board to fit their own circumstances.
Members may also notice that taoisigh who are first elected to the Oireachtas after 1 April 2004 will be exempt from new entrant status. This exemption applies only to the pension in respect of holding the office of Taoiseach; it will not extend to the person's entitlement under the Oireachtas Members' pension scheme. Perhaps this is an invitation for Senator Bannon's party to elect yet another new leader, who is not a serving Member of the Oireachtas. The existing provisions for office holder pensions recognise the status of the post of Taoiseach as leader of the Government. The Minister considers it appropriate that the respect accorded to the post and to former holders of the post should be preserved. However, this provision for new entrants has no implications for the pension entitlements of current or former taoisigh.
In the commission's view, the operational requirements of the Garda Síochána, prison officers, military personnel and firefighters continued to warrant special treatment in terms of minimum pension age and retirement age provision for these groups. Notwithstanding this, the commission did recommend certain changes for these groups and these changes are being proposed for implementation by the Minister in this Bill.
In the case of gardaí and prison officers, the Bill sets a minimum pension age of 55 for new entrants and a maximum retirement age of 60. For gardaí, service between the ages of 55 and 60 will require that members meet certain health, fitness and competence criteria. For new entrants to the Defence Forces, the commission recommends that payment of pension be dependent on age and service rather than service alone and that the earliest age at which a pension should be paid is 50 years. The Bill will implement this recommendation on minimum pension age as well as providing for the making of an appropriate pension scheme on this basis for new entrants to the Defence Forces.
The commission considered that firefighters should continue to have a minimum pension age of 55 and also a maximum retirement age of 55. The Bill proposes no change in this regard. However, the commission recommended that new entrant officers in the fire service should have standard public service terms. Accordingly, the Bill provides for them to have a minimum pension age of 65. The Bill also abolishes maximum retirement ages for new entrant officers in the fire service.
I now turn to the definition of a new entrant. The guiding principle adopted in the Bill is that a new entrant is a person appointed as a public servant, as defined in the Bill, on or after 1 April 2004. However, this does not include staff on leave or on secondment from public service bodies on 31 March 2004 or staff who are serving in the public sector on that date and who subsequently move within the public sector. Provision has also been made in the definition that any current public servant who leaves employment but returns within a period of 26 weeks to a public service job will not be regarded as a new entrant. The stipulated period of 26 weeks reflects similar provisions in employment law generally. The definition also takes account of seasonal and temporary workers. The definition of a new entrant also excludes a person who has received a written offer of employment prior to 1 April 2004 and persons training in the Garda College who were admitted to training prior to 1 April 2004.
The Minister, through Government officials' contacts with the unions, has been as sensitive as possible to concerns about the definition of a new entrant. He is confident that the definition contained in this Bill is fair, sensible and workable. A balanced approach is adopted, allowing a reasonable interim period within the overall context of a clear and practical definition. The removal of compulsory retirement ages will heighten the necessity for strong management and performance control in the public service. Guidelines are already in preparation for the civil service in the broader context of public service reform. In overall terms, this Bill is modernising, fair and balanced in its approach. It will shield the Exchequer from unsustainable future liabilities while ensuring the State can continue to provide reasonable levels of occupational pension income to its retired workers. Viewed in this light, I hope Senators will conclude that the case for change is incontrovertible and that this Bill is the right means of delivering that change. I commend the Bill to the House.