Available revenues have gone back to 2003 levels and, in order to assist growth in the economy, the cost of public service pensions must be brought back into line with revenue. There is a widening gap between the emergency burden being borne by those in public service employment and those in retirement.
The reduction in pensions will apply to everyone in receipt of a public service pension greater than €12,000 per annum. It is a tapered measure which provides for a greater reduction for those with larger public service pensions and will be progressive. Former public servants in receipt of high rates of superannuation benefit, including former members of the Government and the Oireachtas and other officeholders, including the Judiciary, will bear the highest reductions.
The Bill does not alter pension terms; pensions will be calculated in the standard way and then reduced by reference to the table included in section 2. The Bill will have no effect on lump sums or gratuities. The reduction applies to public service occupational pensions only. It does not apply to any State pension which a pensioner may receive from the Department of Social Protection.
The Bill provides for an average reduction of some 4% of pensions in the case of existing public service pensioners and those public servants who retire before the ending of the pay cut grace period, within which pensions will continue to be calculated prima facie on the basis of December 2009 pay rates. In that connection, the Minister for Finance will make regulations to extend the grace period — the period during which the pensions of retiring public servants will be calculated by reference to pre-1 January 2000 pay rates — to the end of February 2012 which will then become the “relevant date” mentioned in the Bill. The proposed extension is to avoid the effect of a spike in lump sum costs in 2011 caused by public servants bringing forward their retirement plans in order to benefit from the grace period. Such a spike would have consequences for the general Government balance. The pension reduction will not apply to anyone who retires or whose preserved benefits come into payment after the grace period ends. Such pensions will be calculated on the basis of the salary rates currently in payment.
The exemption limit of €12,000 proposed is roughly equivalent to the State pension and the following rates and bands are estimated to produce some €100 million in savings in 2011: a 0% reduction on the first €12,000, 6% on the next €12,000, 9% on the next €36,000 and 12% on the remainder. This means a public service pensioner on, say, €27,000, will be subject to a reduction of about €1,000 per annum. Any spouses' and children's pensions awarded to pensioners affected by the measure will be subject to the reduction provided for in the Bill, that is, their pensions will not be calculated by reference to the pay rates applicable to pensions awarded at the time of the pensioner's death. The majority of spouses and children affected by the measures proposed are also in receipt of widow or widower State pensions.
The proposed reduction in public service pensions should also be placed in the context of the general reduction in prices, that is, the CPI is now at 2007 levels, whereas public service pensioners received general round increases of 2% in June 2007, 2.5% from March 2008 and 2.5% in September 2008 — an increase of approximately 7%.
In contrast to the public service position, the majority of private sector workers have no occupational pensions and for those who have made some provision, the prospects are not good as many funds are in deficit. For those pension scheme members who have defined contribution arrangements or personal retirement savings accounts, negative market returns have greatly reduced their pension savings and the minority who have defined benefit promises face the prospect of not receiving all they have been promised.
The Bill is necessary to give effect to the €100 million reduction identified in the national recovery plan. The savings to be made under the Bill will play an important part in the task of bringing Ireland's public finances under control and the deficit into line with agreed EU targets.
The Bill makes further cuts in the pay of the Taoiseach, the Tánaiste and Ministers. At the beginning of this year, like all public servants, the Taoiseach, the Tánaiste and other members of the Government accepted a substantial cut in their rates of pay. The cuts applied were in accordance with the recommendations of the Review Body on Higher Remuneration in the Public Sector which was established in the 1960s to make recommendations to the Government on the levels of remuneration appropriate to senior public service posts. For the purposes of this new exercise, it benchmarked the rates of pay of the Taoiseach and Ministers against their equivalents in a number of countries and recommended reductions of 20% in the case of the Taoiseach and 15% in the case of Ministers. These reductions which were the highest applied in the public service were accepted and implemented in full by the Government. The reductions reflected the fact that, in good times, pay rates in the public service had moved ahead of what we can now afford.
The reductions in public service pay generally which were introduced in budget 2010 brought pay levels back to a more reasonable and affordable level. By accepting a higher level of reduction, the Taoiseach and Ministers have shown that they are fully prepared to shoulder an additional burden. It is the strong view of the Government that they should take a further reduction in their pay because they are asking so much of others in the budget. Under section 7 of the Bill, the Taoiseach's gross pay will, therefore, be reduced again by over €14,000, the Tánaiste's by over €11,000 and Ministers by over €10,000. There can hardly be clearer or better evidence to show that the Government is taking an appropriate adjustment that reflects the difficult circumstances facing the country. The combined change is reflected in the Bill which amends section 2 of the Financial Emergency Measures in the Public Interest (No. 2) Act 2009 by substituting the increased reductions for those applied on 1 January this year. The reduced pay rates will have effect from 1 January 2011.
I turn to the reduction in the national minimum wage. According to various surveys, there are between 50,000 and 80,000 workers earning €8.65 per hour or less and they represent between 3.5% and 5% of the labour force. A recent study entitled, Review of Labour Force Competitiveness, undertaken by Forfás for the Department of Enterprise, Trade and Innovation, concluded that it was likely that the presence of the national minimum wage influenced wage levels for a further 26% of the labour force, that is, those within 1.5 times of the national minimum wage. The Forfás report found that the national minimum wage impacted on sectors in different ways. Sectors such as wholesale and retail, hotels and restaurants, and other services sectors tend to have significantly more workers engaged on or just above the national minimum wage than internationally trading sectors. The sectors and occupations in which the greatest job losses have occurred generally coincide with those in which the national minimum wage is most prevalent, although these sectors have also experienced a major collapse in demand for their output. The national minimum wage was introduced during a period of sustained economic growth and rapid wage increases. Our circumstances have changed dramatically in the past three years. Price levels have reduced and earnings have adjusted downwards to help to preserve jobs. A reduction in the minimum wage level is needed to remove any possible barriers to job creation.
Where a minimum wage is imposed at an excessively high level, unemployment will result. Some workers will be willing to work for a wage lower than the minimum wage but employers are restricted from providing these job opportunities. Other negative effects include it acting as a barrier for younger and less skilled workers to enter the labour force and take up jobs; preventing small and medium-sized enterprises, SMEs, from adjusting wage costs downward to maintain viability and improve competitiveness; and reducing the capacity of the services sector to generate additional activity and employment through lower prices for consumers. The Government has reluctantly decided, therefore, that it is necessary to reduce the rate of the national minimum wage by €1 per hour to €7.65.
Of the 27 member states of the EU, 20 have national legislation setting statutory minimum wages. Our minimum wage is the second highest in absolute terms compared with other EU countries and is sixth highest when expressed in purchasing power terms. The minimum wage has been increased six times since its introduction in 2000 and is currently 55% higher than its original level. By contrast, it is forecast that the consumer price index will have increased by approximately 28% since 2001. Therefore, the current national minimum wage of €8.65 is significantly higher in real terms than when it was first introduced more than ten years ago.
The Bill has a preamble and recitals similar to those used in the Financial Emergency Measures in the Public Interest Acts 2009, situating the measure in the context of the severe budgetary and fiscal crisis facing the State. Section 1 is the interpretation section and repeats many of the definitions used in the legislation last year with regard to the public service pension scheme, etc. A new definition is that of "pensioner", who is defined as a person who is entitled to a public service pension payable under a public service pension scheme, or has a preserved benefit in a public service pension scheme with preserved pension age falling before the relevant date, or is a surviving spouse or child of a public servant or former public servant who was himself or herself entitled to payment of a public service benefit before the relevant date. This is because someone in receipt of a public service pension benefit, such as a spouse, may never have been a public servant.
"Public servant" is defined to cover office holders or employees of public service bodies. "Office holders" include the President, Members of either House of the Oireachtas, members of the Judiciary, a military judge appointed under Chapter IVC of Part V of the Defence Act 1954, members of local authorities, Members of the European Parliament, and qualifying office holders such as Ministers, the Attorney General, the Chairman and Deputy Chairman of the Dáil and Ministers of State.
"Public service body" means the Civil Service, the Garda Síochána, the Permanent Defence Force, local authorities, the National Treasury Management Agency, the Health Service Executive, the Central Bank of Ireland, vocational educational committees, the Economic and Social Research Institute, the Institute of Public Administration, primary and secondary schools, third level institutions, and the non-commercial semi-State bodies where a public service pension scheme exists or may be made.
"Public service pension" is a periodic pension payment, which is not a lump sum, payable to or in respect of a public servant or former public servant under a public service pension scheme. It is important to note that unlike the pension benefits to be calculated after the end of the grace period, the lump sum is not affected by this Bill. The definition of public service pension scheme does not include a scheme or arrangement in respect of a body specified or referred to in the Schedule, that is, bodies considered "commercial" in nature, or bodies whose schemes are subject to the minimum funding standard under the Pensions Act.
The "relevant date" is the date specified by the Minister under section 3(1)(b)(ii) of the Financial Emergency Measures in the Public Interest (No. 2) Act 2009, that is, the date which ends what is commonly known as the grace period within which retiring public servants would have their pensions calculated by reference to the pay rates applying before the application of the pay reductions introduced by section 2 of that Act. The Minister for Finance will extend this to the end of February 2012.
Section 2 requires that the proportionate reduction must be made by the paying authority with effect from 1 January 2011 from the public service pensioner's pension by reducing the annual pension using the annual rates and bands decided by the Government: no reduction on the first €12,000, 6% on the next €12,000, 9% on the next €36,000 and 12% on the remainder. The section also provides that the reduction shall be made notwithstanding existing arrangements, including enactments, statutes including university statutes, pension schemes, circulars, instruments, contractual or written arrangements or verbal agreements, arrangements or understandings or any expectation.
Section 3 provides that the calculation of the public service pension entitlement shall not be affected by the reduction measure, which is applied after the pension is calculated in the normal way. Section 4 provides that the reductions of public service pensions under section 2 shall be paid or disposed of as the Minister may direct and that where the amount of any reduction in a public service pension under section 2 has not been duly remitted in accordance with this section, the Minister may recover the amount from the paying authority concerned as a simple contract debt in any court of competent jurisdiction.
Section 5 states that a pensioner is not entitled to receive an amount of public service pension greater than the amount provided for in section 2. It also provides that if a paying authority pays to a pensioner an amount of public service pension greater than the amount provided for in section 2, then the pensioner shall have no legal entitlement to the overpayment, which shall be recovered. The Minister may direct a paying authority in writing to recover the overpayment. If the overpayment has not been recovered by the paying authority, the Minister may reduce or adjust the financial support given to the body accordingly.
Section 6 provides that where the Minister is satisfied that there are exceptional circumstances because of some particular aspect or condition relating to the pension, the public service pension or the public service pension scheme concerned, including the funding of that scheme in respect of a particular class or group of pensioners, and those circumstances materially distinguish that class or group from other classes or groups of pensioners to which section 2 applies, then the Minister, if he or she considers it to be just and equitable in all the circumstances to do so, may by direction exempt that class or group from the operation of section 2, either entirely or to such extent as the Minister considers appropriate, or modify the operation of section 2 to reduce their public service pensions in such manner as the Minister thinks fit, having regard to the nature and degree of the financial burden that would otherwise be borne by that class or group. This is an important section modelled on similar provisions in the earlier legislation.
Section 7 amends the Financial Emergency Measures in the Public Interest (No. 2) Act 2009 to provide for an additional reduction in the remuneration of the Taoiseach, the Tánaiste and Ministers of the Government to take effect on 1 January 2011. The remuneration of the Taoiseach will be reduced by 25% instead of the 20% reduction applied on 1 January 2010, to €214,187. The remuneration of the Tánaiste will be reduced by 19.5% instead of the 15% reduction applied on 1 January 2010, to €197,486, and that of Ministers of the Government will be reduced by the same percentage, to €181,283. Subsection (2) is a clarification.
Section 8 amends section 3 of the Financial Emergency Measures in the Public Interest (No. 2) Act 2009 to include a person who was at some time before the date specified under paragraph (b)(ii) of that section a public servant and has a preserved benefit in a public service pension scheme in respect of which the preserved pension age of the person falls on or before that date.
Section 9 inserts a new section into the Financial Emergency Measures in the Public Interest (No. 2) Act 2009, thereby providing that the ministerial direction under section 6 of that Act on the pay of Civil Service deputy secretaries and assistant secretaries and related grades elsewhere in the public service will not apply to the determination of their pension entitlements after the relevant date, that is after the grace period has expired. For the purposes of calculating pensions for those who retire after February 2012, the effect is that the pensionable pay of these groups will be reduced in line with the general reduction being imposed on all public servants.
Section 10 provides for an annual review of the operation of the measures in the Bill, consideration of whether the provisions of the Bill continue to be necessary, and the making of findings as the Minister thinks appropriate. A report of the review will be laid before each House of the Oireachtas.
Section 11 provides that the Minister may make regulations for the general implementation of this Act. Section 12 provides that where a doubt, question or dispute arises in the operation of this Act in respect of whether a person is or is not a person whose public service pension is subject to section 2, then such doubt, question or dispute shall be submitted to the Minister by the person who authorises or would authorise the payment of the public service pension concerned, and be determined by the Minister after consulting such persons, if any, as the Minister considers appropriate in the circumstances, and the determination of the doubt, question or dispute by the Minister shall be final.
Section 13 provides for the amendment of the National Minimum Wage Act 2000 as follows: section 11(1) provides that the Minister for Enterprise, Trade and Innovation shall, by order, vary the minimum wage rate to €7.65 per hour; section 11(2) provides that the Minister for Enterprise, Trade and Innovation may amend or revoke the order from time to time; section 11(3) provides that the Minister for Enterprise, Trade and Innovation may amend or revoke the order, whether or not a recommendation has been provided for in a national economic agreement or in a Labour Court recommendation made following an application made by one or other of the main social partner interest; and section 11(4) sets out the criteria to be taken into account by the Minister for Enterprise, Trade and Innovation before making any future order. These are the same criteria that the Labour Court is obliged to consider under the Act before making a recommendation to the Minister. While the text is presented differently from that in the current legislation, it is expressed in a clearer manner and represents no policy change on the issue. Section 11(5) provides that the national minimum wage may include an allowance for board and-or lodgings. Such an allowance is provided for under the current legislation. Consequential amendments are made to sections 12 and 13 of the Act.
Section 14 provides for the Short Title of the Bill. The Schedule contains a list of bodies that are not covered by the measures introduced in section 2.
The budget announced on Tuesday began the process of implementing the national recovery plan with a wide range of taxation and expenditure measures designed to secure the budgetary position and put the economy on course to recovery. The preamble and recitals to the Bill show the scale of the difficulties Ireland faces. The future of the country is at stake and we must move at once to put in place the necessary policy response. This is the reason the Government decided to introduce this legislation to the House immediately. We do not have time to delay. The changes to the national minimum wage show we are determined to support employment creation and to restore competitiveness to our economy. It is entirely reasonable that some retired public service pensioners make a fair and proportionate contribution to the required adjustments in light of the generally favourable terms of public service pensions and the fact that, up to now, no adjustment of any kind has been made to those pensions.
Together with the pay reductions in the Bill, the Government has shown yet again it is prepared to shoulder the burden and will lead by example. The Government cannot and will not ask those in public service employment at the moment to bear significant additional burdens, or indeed ask the community as a whole to accept tax increases or expenditure reductions, while nothing is asked of those public service pensioners who can afford to do so to make a reasonable contribution. The measures in the Bill are a central and vital part of the Government's response to the economic crisis. I commend the Bill to the House.