I welcome the Minister for Public Expenditure and Reform, Deputy Howlin, to the House.
Public Service Pensions (Single Scheme and Other Provisions) Bill 2011: Second Stage
I am very glad to be back in Seanad Éireann.
Since coming into office, this Government has repeatedly shown that it is committed to reform. We are determined to change crucial aspects of government and public administration, with the long-term interests of the public in mind. In this context, I am today proposing this Bill, which provides for far-reaching reforms of public service pensions. The Bill's principal purpose is to introduce a new, single pension scheme for all new entrants to the public service. This is a major reform and a far-reaching application which will deliver reduced spending and significant efficiencies, while retaining decent, defined-benefit pensions for those who work in the public service.
As Senators will know, the new scheme is a commitment under the agreed EU-IMF programme of financial support for Ireland. The Bill aims to strike a balance between the reasonable need for the Government and the State, as the employer, to provide decent pensions for public service workers and the need to recognise that the cost of these pensions must be sustainable. The Bill will ensure that public service workers continue to have to access to good pensions and a reasonable standard of living in retirement, while the Exchequer benefits from greater control over the associated costs of providing these pensions and the future burden on tax payers is reduced.
Now that all of the Dáil Stages of the Bill are complete, the general landscape of what is being proposed is clear. Therefore, I would like to take a step back and elaborate on the general policy behind the Bill and the scheme, as is usual in a Second Stage presentation.
I want to underscore the magnitude and the nature of this change. This is a very important and major reform of our public service superannuation provisions. It is a single scheme for all new public servants and, in the years to come, will grow in size until in time it covers all of the public service which currently employs some 300,000 people.
Senators will agree with me that the current model of public service pension provision is clearly not tenable in the longer term. Getting these decisions correct is essential to make the system work in the future. The Government and the Oireachtas must decide how public service pensions should be provided. As we know, there are significant increases forecast in public service pension costs owing to the growing number of public service pensioners and rapidly increasing life expectancy. Improved life expectancy has placed us in the welcome situation where Irish people now expect to enjoy longer and healthier retirements. These social benefits bring with them costs to the individual, public service employers and the Exchequer.
The statistics are clear and compelling. In the next ten years the number of people over the age of 65 years is expected to increase by about 50%. We have a situation where some public servants who have worked for 30 years are drawing a pension for as long as that or even longer after retirement. Attempting to sustain this into the future is simply not possible or practicable. Demographic projections suggest there will be only two people of working age for every person aged 65 years or over by the middle of the century compared to six people of working age for every person aged 65 years or over today. We must be sensible and realistic about, as well as plan for, the burden which the current and future working population can bear in this context and the increasing strain on the public finances which could result were action not to be taken. When we recruit new people into the public service, we must ensure they have a certainty there will be provision for them when they retire.
Public service pensions operate on a pay-as-you-go unfunded basis. The reality is that, for public service pensions to be paid for, financing must increase, whether from the State, the public servant or the taxpayer. In 1997 expenditure on public service pensions was some 1.5% of gross national product, GNP. By 2027 it is expected to account for 3% of GNP and around 3.5% by 2050. Of course, long-term projections are notoriously difficult to make with complete certainty. However, the core point is valid. The costs of public service pensions have substantially increased for several years and will, relative to the country's output, double in the medium term. It is both important and fair that the pension arrangements for the public service be adjusted to take account of this cost.
There have been some changes in the area of public service pensions in the past. Since 1995 all newly recruited established civil and public servants are subject to full PRSI, accordingly giving them an entitlement to State social insurance pensions. Integration of contributions and benefits applies as part of these arrangements, that is, the occupational pension is reduced by the amount of the State pension. In 2004 the pension age for new entrants to the public service was increased from 60 years to 65. In 2009 there was the introduction in the Financial Emergency Measures in the Public Interest Act of the pension-related deduction, more commonly known as the public service pension levy. With effect from 1 January 2011, public service pensions were reduced on foot of the public service pension reduction legislated for in the Financial Emergency Measures in the Public Interest Act 2010. I added a new top rate of pension reduction last year for those on a pension in excess of €100,000.
The new single scheme was developed having regard to these important reforms and measures and in the light of several reports, including the extensive and foundational work of the Commission on Public Service Pensions established by my colleague Deputy Ruairí Quinn when he was Minister for Finance. The 2005 national pensions review, the Green Paper on Pensions from 2007 and the national pensions framework published in March 2010 all showed the need to move to situate pension provision on a sustainable, modern and flexible basis. Extensive public consultations took place during the years when these reports were being produced and they underline the difficulties faced in securing understanding, let alone consensus, in this area.
The range of reforms recommended in respect of public service pensions by these reports included raising the minimum public service pension age; increasing the rate of pension contributions; modifying the earnings-linking of pensions; adjustment or abolition of fast accrual terms; and moving to the calculation of pensions on the basis of career average earnings. All of these reforms are contained in the Bill. We have taken advice, listened to competing views and synthesised the results. My Department convened a working group consisting of relevant Departments, consulted widely — more extensively than on any other legislation with which I have been involved — negotiated with the public service unions, as well as engaging with the Labour Relations Commission which made recommendations on the scheme that the Government accepted.
The introduction and implementation of the scheme will help to ensure that, when Ireland emerges from the current difficulties, public pension policy is on a sound footing. The Government values public servants and is committed to providing them with good quality pension arrangements. Such arrangements will continue to be a defining feature of employment in the public service, a feature that attracts people into it. The changes I am proposing will make the public service pension system simpler, more transparent, fairer and better able to deal with the changes that we know are coming, thereby assisting us to remain sustainable in the long term. Making these changes is not easy or straightforward. Long discussions took place with interested parties. We had a long and detailed debate on all Stages in the other House. Dealing with the fundamental challenges posed to our pension and benefits system as a result of rising life expectancy and other aging pressures, while ensuring productivity and value for money for taxpayers, requires difficult choices to be faced and made.
The most important feature of the single scheme is that pensions will be based on career average pay, not final salary as at present. Pensions based on career average earnings will be fairer and more equitable to the majority of public service members who do not have high salary growth rewarded by way of final salary schemes. It is unfair that the current scheme means people's pensions are determined by their final salary. We all know of cases of people promoted into a job for the last year of work to determine their pension forever more. The new scheme will pay a career average salary. It will, therefore, be fairer to those who do not have meteoric rises in pay such as teachers and nurses whose career paths tend to be even, as opposed to those of Secretaries General who enter as administrative officers and end up on the top of the scale, with their pensions determined forever more by their final pay. Career average means public servants will each year accrue a specific amount towards their pension and lump sum. For most public servants, this will be one eightieth and three eightieths, respectively. There will not be a fund. These referable amounts will be calculated annually and uprated each year by reference to the consumer price index, CPI. The total accrued will be aggregated to produce a person's pension and lump sum on retirement. This is a significant change from the current position where the pension is based on final salary on retirement.
The other two major cost-reducing changes from existing terms are the increase in the pension age to 66 years and linking it with the State pension age which will increase to 67 years in 2021 and 68 years in 2028; and the indexation of post-retirement pension increases with the CPI instead of pay.
The new scheme will apply to new entrants in all areas of the public service, including the Civil Service, the education sector, the health sector, local authorities, the Garda Síochána, the Defence Forces, non-commercial State bodies and other regulatory or similar bodies. For certain public servants such as qualifying and designated officeholders, including the Taoiseach and the President, members of the Judiciary, Oireachtas Members and those who must retire earlier than other public servants such as gardaí, members of the Permanent Defence Force, prison officers and firefighters, higher accrual rates and linked higher contributions will apply.
As stated, there was lengthy and detailed engagement with the public service unions and representative associations, including those which represent teachers, by my Department. At the unions' request, these discussions were brought under the auspices of the Labour Relations Commission in 2010. The commission made recommendations concerning the CPI linkage and the integration formula to be used in the scheme and these are reflected in the legislation before the House.
There are a number of other issues I want to bring to the attention of the Seanad. The new scheme makes no provision for enhanced pension arrangements for senior new entrant appointees such as Secretaries General of Departments and the chief executives of non-commercial State bodies. Such persons will be treated in the same way as other public servants, with pension accruing relative to pay. In addition, annual accrued amounts will be indexed to the CPI and then aggregated to produce a pension and lump sum at retirement. In this way, pension will be a function of pay and higher salary will mean a higher pension proportionate to one's time earning that salary. This will not be accompanied by special pension enhancements such as added years. As Senators will be aware, the TLAC terms — so-called — which had applied since 1987 were abolished by me last year for all new entrants. A number of Secretaries General have been appointed on the basis of the new non-TLAC terms which apply.
I take the opportunity to make it clear that there is no change of any kind in the position on the public service agreement — also known as the Croke Park agreement — or the associated clarifications concerning the indexation of public service pensions. There is an enabling provision in the Bill which will allow me to make an order to apply a CPI link to public service pensions should a decision in this regard be made in the future. As is well known, there are to be discussions on this issue under the agreement. If the outcome of these discussions should lead to a decision to make the change to which I refer, I will have the powers necessary to allow me to proceed. I would not, therefore, be obliged to seek approval by way of new primary legislation. The enabling provision should not be used to create an expectation that it will be unilaterally implemented. I give a commitment to the House in this regard that the discussions will not be pre-empted in any way. This approach is entirely in keeping with both the letter and the spirit of the Croke Park agreement. Any changes would not, in accordance with the clarifications I have provided, be implemented during the period relating to the current agreement. Should I or one of my successors make the relevant order in the future, the support of both Houses would be required to implement it. Therefore, it will not be possible to proceed by way of ministerial order alone.
I will now outline the main provisions of the Bill. The Bill is in four Parts, of which Part 1 is preliminary and general. Part 2 deals with public service pensions, with five chapters: (i) preliminary and general, Part 2; (ii) single scheme; (iii) pre-existing public service pension schemes; (iv) provisions applicable to all public service pension schemes and (v) consequential amendments, Part 2. Part 3 deals with the remuneration of judges and certain court officers, while Part 4 deals with the amendment of the Financial Emergency Measures in the Public Interest Act 2010.
Part 1 contains standard provisions providing for the Short Title of the Bill, commencement, repeals of legislation and expenses and defines "Minister" as being the Minister for Public Expenditure and Reform.
Part 2 is the most substantial element of the Bill and deals with all aspects of the new scheme and public service pensions. The sections in chapter 1 — preliminary and general — define the terms to be used in the Bill and the scheme. Owing to the legal position of the Central Bank as part of the euro system, the new scheme will apply only with the agreement of the Governor of the bank. This is explicitly set out in the Bill. I have engaged in discussions with the Governor and his counterpart at the European Central Bank in order to safeguard their independence in this matter. This chapter also gives the Minister power to introduce, by regulation, the administrative measures necessary for the operation of the new scheme as defined in the Bill.
Chapter 2 provides for the establishment of the single scheme and sets out the age-related and other criteria for membership. It also provides a definition in respect of new entrants to the scheme. It further provides, from the operative date, for a six month holding period outside of public service employment beyond which someone who was at one time a public servant and who, on returning to be a pensionable public servant, would be regarded as a single scheme member and could not claim pre-single scheme pension terms. Essentially, this is a roll-over period which will ensure someone who temporarily leaves the Civil Service will not be excluded from continuing under the old terms.
Chapter 2 also provides for a public servant to retire at the age of 66 or the age at which the person would, from time to time, become eligible for the State pension. The proposed new retirement age of 70, at the latest, is also specified in this chapter, with exceptions made for elected officeholders and certain uniformed public servants. This provision attracted some debate in the Lower House. There are those who believe we should not be ageist and that we should not specify a compulsory retirement age. I am of the view 70 is a reasonable age for retirement. Most of us would at least have a target age for retirement and the matter should not simply be left open-ended. People within public administration must make general arrangements and plans. It cannot be open to someone to work for as long as he or she likes. There must be some level of planning involved. However, we can debate the matter further on the Committee and Report Stages.
Chapter 2 also sets out the provisions concerning pension contributions which will generally be integrated with the social insurance system. It further provides that all contributions charged under the new scheme shall be paid directly to the Exchequer. It goes on to stipulate that members of the scheme will earn money amounts which accrue to their pension and lump sum benefits annually. This is the core of the career average. In other words, a person will make his or her annual contribution proportionate to his or her wages. This will be updated with reference to the CPI and the person's final pension will then be determined.
The earned referable amount is calculated as a fixed percentage of actual pensionable earnings. In this way the accumulation of future pension benefits will reflect a person's evolving actual pay during the course of his or her career, while also ensuring the real value of these pensionable earnings will be protected through indexation with the CPI. The money amounts accrued will be integrated with the social insurance system. The integration formula applicable to the vast majority of new entrant public servants includes an accrual rate of 0.58% up to earnings of €45,000. This figure was recommended by the Labour Relations Commission. It represents 3.74 times the value of the contributory State pension, which provides for some occupational accrual in addition to that being provided by the State pension until pay exceeds this figure. The pension accrual rate above this threshold is 1.25%, or one eightieth, of the scheme member's pensionable remuneration. The lump sum will accrue at the rate of 3.75%, or three eightieths, of the scheme member's pensionable remuneration. I am sure that, like me, Senators find their eyes glazing over to some extent in respect of the mathematical formulations relating to this matter. All I can say is these formulations were hammered out under the auspices of the Labour Relations Commission and that all concerned were allowed to have an input into the process.
For certain public servants, including the President, qualifying and designated officeholders, members of the Judiciary, Oireachtas Members and those who must retire earlier than other public servants such as gardaí, members of the Permanent Defence Force, prison officers and firefighters, higher accrual rates and employee contributions will apply.
Provision is made in this chapter for a pension to be paid to a surviving spouse or civil partner of a deceased member and, where applicable, eligible children and sets out the rates, terms and conditions attaching thereto. These include cessation on cohabitation or marriage, a standing scheme rule which is in line with the social welfare rules and practice with which the scheme is integrated. The chapter also provides for the payment of benefits in the case of cost-neutral early retirement from age 55, retirement on medical grounds and death in service. The post retirement pension increases under the new scheme will be based on the consumer price index with the Minister having discretion over the timing of paying pension increases due under the scheme. I want to be clear because there was some debate in the Dáil on this issue. This means the Minister can decide when the pension increase should be paid not if the pension increase should be paid. If we are saying it is linked to the consumer price index, a mechanism on the timing of applying the index must be specified. It will not be done weekly or monthly, but regulations must be drawn up for applying it. The increase must be paid in line with increases in the CPI. There was also a debate in the lower House about whether decreases in the CPI would be reflected in the pension payment. That is not reflected in this legislation. It is a valve. If there is deflation, which is reflected in the CPI, pensions will not be reduced. I would be interested in hearing the views of Members but my view and that of the Government is that this is a reasonable way of progressing.
The Minister may from time to time cause to be carried out an actuarial review and revaluation of the scheme and on foot of same to revise by order the rate of contribution to the scheme. These latter two provisions can only be done on foot of a positive resolution in each of the Houses of the Oireachtas.
Chapter 2 provides for a number of technical matters and also includes the repayment of pensions overpaid and other matters including the treatment of simultaneous employment in more than one public service position under the scheme.
Chapter 3 includes the enabling provisions to allow the Minister to make an order to apply a CPI linkage to existing public service pensions.
Chapter 4 requires those in receipt of a public service pension under the new or existing scheme to give such information as is necessary for the proper operation of the scheme concerned. It also provides for the use of PPS numbers as a unique identifier for recording relevant details under the scheme.
Chapter 4 also provides that a pension abatement would apply where a retired public servant is rehired in the public service, regardless of the sector of the employment where the person is rehired. In the process of preparing this legislation, I discovered that where somebody retires on pension and is rehired in the same area of operation, for example, if a distinguished academic retired on a pension and went back to work in academia in the same institution, the pension would be abated but if the person went into some other area of the public service, it would not. I think that is unfair and I will apply the same abatement across the public service. It also imposes a cap of 40 years on the qualifying pensionable service accrued in different schemes.
Chapter 5 sets out the consequential amendments to ensure existing superannuation provisions do not apply to members of the single scheme.
Part 3 provides for cost neutral early retirement for judges and certain court officers. This part of the Bill deals with the introduction of the facility for judges. Senators will recall that when we held the referendum putting the issue on judges pay to the people, we made a commitment that it would be applied on the basis of parity, in other words that any negative impact on judges would reflect only what would be the general provision in the public service. Since there is a provision in the general public service for cost neutral early retirement schemes, I propose to apply the same provision for judges.
Part 4 amends the Financial Emergency Measures in the Public Interest Act 2010. The purpose of these amendments is to provide for aggregation of public service pensions for the purpose of applying the public service pension reduction under the financial emergency measures in the public interest, FEMPI, legislation. Again a very interesting conundrum arose of which I do not suppose Members were aware, no more than I was. If a Secretary General retired on a pension in excess of €100,000, the pension levies that we introduced and the previous Government had introduced, the so-called top slicing, were applied to the full amount, but if one was a former Minister, the pension was calculated in two parts, one had a TD's pension and a ministerial pension, so the higher top slicing did not apply. I think that is unfair and I propose we aggregate the pensions so that the total quantum is determined and the appropriate reductions are made accordingly.
The public service reduction applies separately to each individual public service pension which was in payment before March 2012. For those who retired after that date their pension was reduced by reference to the pay cut. Going forward, this aggregation will apply to all public service pensioners who receive two or more public service pensions. The pensions will be added together for pension levy purposes.
This is a far reaching provision. Many will be affected by the provision. When the legislation is in place, public service pension scheme administrators will be required to forward details, for example PPS number and annual pension payments of all active pension cases.
An administrative system to facilitate aggregation is being developed in my Department. In essence, I want to ensure that everybody is treated in the same way; so that whether one gets €100,000 from two separate pensions or from one pension, one is treated in exactly the same way. It addresses the notion that once a pension came from one paying authority it was subject to a greater reduction than if one had two pensions payable from two separate paying authorities.
The Schedule sets out a list of bodies that are not covered by the measure introduced in Part 2 of the Bill.
This is a complex and wide ranging piece of legislation. I know the Senators I have spoken to understand that. I look forward to hearing the views of Senators and I trust we will have a useful and productive debate. This major initiate which the reform of the public service pension provision represents, together with the other measures in this Bill should be recognised as being careful, reasonable, equitable and balanced.
The new scheme will be more easily administered and will be more transparent in terms of its costs and this will mean it is more clearly accounted for in our national accounts. It will produce timely and significant savings for the Exchequer, not for some time because it will only impact when the new recruits come to retirement age, when our dependency ratios are likely to have significantly declined. This will help to control public service retirement costs and give certainty to newly recruited public servants that there will be a fair pension for them.
It will show our determination to provide properly and fairly for a secure retirement for former public servants.
I commend the Bill to the House.
I welcome the Minister, Deputy Howlin, to this House. The Fianna Fáil Party was responsible for the policy behind this Bill. It was announced by the then Minister for Finance, the late Deputy Brian Lenihan, in the 2010 budget, which the current Government ruthlessly and wholeheartedly opposed and used it in an election that came up two months later. We support the principle of the Bill but we oppose it on Second Stage primarily because of section 47, which we believe puts a gun to the head of those negotiators who will be negotiating the forthcoming review of the terms of the Croke Park agreement. It is unfair to put this into legislation. It is not correct to put something into legislation which may or may not come about as a result of negotiations. It is not necessary. It is a provocation that will do more harm than good.
We support the principle of the Bill. We understand and recognise the need for reform of public service pensions which is an essential part of the longer-term strategy of putting the public finances on a sound sustainable footing and tackling what is a significant burden on pension in the future.
The Bill shows the significant contrast in the Government's attitude to private pension schemes. This Government hit the private pension schemes very hard a year ago with the promise of jobs in return but unfortunately this promise did not materialise.
The Bill, apart from being a commitment of the previous Government, is also a commitment under the EU-IMF programme of financial support for Ireland, which like everything else in that programme is deeply necessary for the future of the country. In fact, it is only a recognition of what has to be done. It applies in general to new entrants from the operation date of the Bill. It does not apply to all new entrants as we have seen from section 47. The policy aims of the reform, something which we accept and agree to, is to bring public service pension terms more into line with those that apply in the private sector, although it must be said that those in the public sector will have significantly better pension arrangements than most people in the private sector.
We support any improvement in the efficiency of pension administration within the public service. We support the ideal of managing the growth of public expenditure in relation to public service pensions over the much longer term.
The retirement age will be linked to the State pension and that is a reasonable suggestion. There is a maximum retirement age of 70 years. From my point of view a maximum retirement age is justifiable in the context of high unemployment and gives new people a chance to have jobs. I hope that there will be a return to relatively full employment when the provision could be examined again. This year two federal judges died in the United States; one was 104 years and the other was 99 years and both were still hearing cases. One had been appointed by John F. Kennedy and the other was appointed by Richard Nixon. The American federal system has a retirement age but judges can still hear cases subsequently. People can do these jobs and we should not send the message that people become incapable on reaching 70 years. In an era of high unemployment a maximum retirement age, like we have at present, is justifiable. I encourage the Government to examine the provision again when there is higher employment and lower unemployment.
We need the Bill because the State is the largest employer in this country and thus is the largest pension provision provider. It provides pensions for people who work and those who are in the social welfare system. There are about 300,000 staff and 90,000 pensioners so the Bill will have a big impact on a lot of people. Many of the people who will be affected, perhaps they are in training or seeking work in the public sector, are examining the legislation and some of them are concerned. Our uniformed colleagues in the Garda and the Army significantly disagree with the way their entitlements and accelerated service calculations and the Minister disagrees with them. They have expressed their concerns to us. People who are involved in the Croke Park agreement and its negotiations also have severe concerns about section 47 and it is on that basis that we oppose it.
The Financial Emergency Measures in the Public Interest (Amendment) Bill was mentioned by the Minister and in some ways it was lauded by him. That is ironic because that Bill was ruthlessly opposed by the Labour and Fine Gael Governments at the time.
The general principle behind the CPI linkage is important and the step needs to be taken. I can see why a Government would not want to make provisions for a decrease in the CPI. It is noteworthy that when the FEMPI Act was enacted subsequent legislation provided for a reduction in pensions somewhat later. There was also a reduction in pay under the FEMPI Act. We had cumulative deflation of about 5.5% for the period 2009 and 2010. It was a cruel cut and public servants were hit in their pockets. There was severe deflation over those two years but the costs of ordinary goods and services was reduced, particularly interest on mortgages. There was an economic justification for reducing State wages and pensions for those years. It was a difficult political argument to make but the reduction was the easiest way to get around it and avoided raging debates and sudden cuts in income which were necessitated by a sudden reduction in tax. It might be appropriate to examine a CPI decrease. It could be set in stone at the start so that if a downturn were to happen in 20 years time that the public would expect it and thus avoid a raging debate contributing to political instability. I would not like to propose it. I acknowledge and recognise that there is a political difficulty in doing do. A CPI decrease could make life easier for the country and give people greater certainty.
My party supports the principle behind the Bill. We understand that it must happen and that there must be significant changes made to reduce costs. In the other House the Minister did not accept amendments on section 47 proposing its deletion so we oppose the Second Stage because we feel that the provision is unnecessary. He stated: "There is an enabling provision in the Bill which would allow me, as Minister, to make an order to apply a CPI link . . . should this be decided in the future. As is well known, there will have to be discussions about this issue . . . and if these should lead to a decision to make this change, I will have the necessary legislative powers without having to seek further approval." He has anticipated the results of negotiations which is wrong and put severe pressure on the negotiators. That is utterly unnecessary. If we are to make changes on foot of any future discussions let us have further legislation here so that we can have a debate; not just lay an order before the House that would go through on the nod because of the Government's majority.
I welcome the Minister to the House. He always displays such enthusiasm when he comes here. I agree with Senator Byrne that Fianna Fáil was responsible for the legislation. I never saw public ire rise so much as when former Fianna Fáil Ministers retired after the last election and walked off into the sunset with big pension packages. Today is a good day for people who are struggling. The issue of people in the higher echelons riding off into the sunset with big pensions and big pay offs has been raised with me several times. I welcome the legislation because it is fair, more equitable and it gives the small man a sense of worth.
I am all in favour of the small man.
I apologise. I meant the small man or woman's sense of worth.
And the low hanging fruit.
No pun intended.
In the medium and long term we need to improve and maintain our competitiveness internationally. As a single scheme the proposed new arrangement will, over time, produce cost savings and efficiencies not least by simplifying administration, sharing services and reforming the present situation whereby each new public service body must have a bespoke pension scheme. Action is required to demonstrate to the markets our intention to ensure realistic and affordable pensions costs funded by the Exchequer in the medium and long term. I think I understood the Minister's speech correctly when he said that six people work for every person who draws a pension at present but in the future there will only be two people working for every person on a pension. That is unsustainable and it is the stark reality facing us. It is unthinkable.
The new arrangements, as currently constructed, seek to secure affordable public pension costs for the medium and long term while ensuring that the Government, as employer, continues to provide its staff with fair and adequate incomes in retirement. Other than the proposal to remove a pay linked pension increase to the consumer price index tracking and the public service wide abatement provisions, current staff and pensioners will be insulated from the cost reducing elements of the new regime. The approach is considered fair and reasonable. It represents a more moderate approach to that taken, for example, in other EU states where the benefits of serving staff were amended as part of a reform process, namely, Greece and others.
The new scheme also includes the following provisions such as raising the minimum public service pension age. It is proposed that it is increased initially to 66 years to bring it in line and link it henceforth with the social welfare State pension age, rising on a phased basis to 67 years and then 68 years, setting a maximum retirement age of 70 years. At present for most new entrants to the public service there is no maximum retirement age and this has led me to ask the Minister the following questions. Will Deputies and Senators have to retire at 70 years of age?
The Senator will be long retired by then.
A few colleagues of mine in the last Administration and in the last Dáil would not have been happy with the provision.
The calculation of pensions on the basis of career average earnings is a change from the current position where the pension is based on final salary and is generally considered a fairer and more equitable system and one which is progressive in application. For example, it affects the pension paid to those who have high earnings, especially in late career. There are examples of people who in their last year or two who become a grade 8 officer in the public sector and achieve the top position for, perhaps, a year and their pension is decided pro rata. A civil servant promoted to top management late in his or her career has a bigger pension than those who have a relatively flat career progression, for example, nurses and teachers.
It also provides that a change in the overall rate of pension contributions from staff will remain broadly as applies at 6.5% but will be higher for certain fast accrual occupations. The new scheme provides for post retirement pension increases to be linked to the consumer price index, not pay. The expense of retaining an earnings link is estimated in the past 20 years to have resulted in increases twice those that would have applied had post retirement pensions been linked to the cost of goods in the form of the consumer price index. The reduction would not absolutely eliminate post accrual terms, those generally apply to emergency service groups such as the Garda, the Permanent Defence Forces, firefighters, the Judiciary and Oireachtas Members. The uniform services will retain their early retirement age which reflects operational needs.
For the President, Oireachtas Members, the Judiciary, the Attorney General and others who earn accelerated pension benefits the new scheme acknowledges their special circumstances by providing for a double rate of accrual together with a double rate of contribution at 13%. For all new entrants to these offices, it is proposed that the Taoiseach and President continue to receive a pension on retiring from these offices. The definition of "new entrant" will mirror that in the Public Service Superannuation (Miscellaneous Provisions) Act 2004 which will mean that anyone who is or was an Oireachtas Member prior to the enactment of the Bill retains those benefits and scheme membership if they have a break in the Oireachtas service. The scheme will help ensure that when Ireland emerges from the current difficulties, our public service pension policy is on a better long-term and more sustainable footing.
On the matter of the consumer price index, the Minister will be aware that in the context of the public service agreement, that is, the Croke Park agreement, it has agreed that there will be no change in current arrangements for the indexation of pensions for public service pensioners and serving public servants due during the life of the agreement. In the case of public service pensioners and serving staff, the draft legislation provides for the linking of post-retirement pension increases for pensioners and serving staff to the consumer price index, subject to a commencement order to allow flexibility in regard to the timing of its introduction. In the current climate, given that no pay or pension increases are envisaged, it is considered wise to reflect carefully on the timing of a move to a consumer price index link. The new scheme makes no provision for any enhanced pension arrangements for senior new entrants, appointees such as Secretary Generals and non-commercial State body chief executives. Such persons will be treated the same as other public servants with pension accruing relative to pay and with annual accrued amounts indexed to the consumer price index and aggregated to produce a pension at retirement.
In regard to the banking sector I ask whether the Irish Banking Resolution Corporation, Allied Irish Bank which is State-owned, Irish Nationwide and NAMA come within the remit of the Bill.
I welcome the Minister. Senator Tom Sheahan referred to the Minister's enthusiasm. He also referred to the small man which I saw the Minister bristle at as I tend to do. I have found a wonderful way to grow taller, that is, to switch to metric. I used to be only 5 ft. something, I am now 166 cm.
A part of the Bill I did not welcome was the reference to the retirement age of 70 years. I spent last night with Professor James Watson who discovered DNA in 1953 and is now 84 years of age. He spoke in Trinity College last night with much enthusiasm. I am not sure if he is still paid by Cold Spring Harbor University in New York.
Last week I spoke with Betty O'Reilly who works in Superquinn in Sutton at the bakery counter and who is celebrating her 85th birthday this week. She comes back for a few hours each week. Senator Sheahan asked about those Members of this and the other House. I passed my 70th birthday some years ago and I am happy that nobody has told me to get out. I hope my electors continue to allow me to stay.
The Minister spoke with real interest in and commitment to the Bill. I welcome the Bill as it will modernise and rationalise public sector pensions and will bring about significant savings. I note the significant change where one's pension will be based on one's average salary throughout one's career. That is welcome. I am glad action is being taken especially considering future trends. For example, the OECD expects government expenditure on pensions to rise from 8.4% to 11.4% of GDP between 2010 and 2050. Clearly there is a problem which the Minister has explained. It is clear that spending on public sector pensions creates a need for higher taxes and increased costs for things like businesses. It restricts the money that the Government has available for investment in infrastructure, education, health and other areas. This then restricts the capacity of the economy to supply goods and skilled labour. Should we go further and implement a cap on public sector workers to bring it more in line with private sector workers? Mr. James Fitzsimons, writing in the Sunday Independent said: “At the lower end of the pay scale, it is true that the [public] pensions are small and do not provide for a lavish lifestyle but they are ten times better than the State pensions that the rest are expected to live on . . . Public sector schemes are largely funded on a pay-as-you-go basis.”
In the late 1980s when he was Minister for Finance, Mr. Albert Reynolds called in a number of us who were involved in different functions to attempt to do away with the pay-as-you-go system and establish a fund but never did so.
Nothing is put aside during the employee's career. Instead, the pensions are paid from tax revenue. When everyone else's pensions were affected by the global downturn, public servants claimed that theirs were not because they had no fund to be affected. The fact is that the State put nothing aside. That is what their pensions were worth — nothing. However, they will not accept this. It is not as if the rest of us would claim that they should not have any pension but things have changed. In a country where we are forced to borrow €20 billion a year to run the public service, nobody can claim their pensions are safe.
These are intriguing points to consider. An interesting example comes from Brazil where a proposal would cap the defined-benefit plans of future federal government employees at around $2,000 — the same level as private sector workers. Those who want more would have to contribute to a separate fund. It is said that would make the system less unfair and, in the long term, considerably cheaper.
In the state of Rhode Island in the US which has a population of approximately 1 million, it has had to change state pensions in order that the state does not go into bankruptcy. The State Treasurer, Ms Gina Raimondo, persuaded the state legislature to overhaul the pension plan. She said, "We focused on the math . . . it should not be a political decision, but a financial one." The changes included suspending cost of living adjustments, delaying retirement and transferring all workers into a hybrid scheme, with a defined contribution plan, as is the norm in the private sector.
She fought to change the State's assumed return on pension investments from an unrealistic 8.25% to 7.5%, which is still very high. It was interesting to note that these changes affect current employees as well as the newly-hired state employees. The changes will save around $4 billion per year and the state has a population of 1 million people. If we are serious about pension reform, surely we should follow the example of places like Rhode Island. Such a move is blocked by the Croke Park agreement but we must consider the example.
Regarding pensions in general, we must seriously consider giving some people access to cash now rather than wait. One of the ways this could be done is by allowing people to draw down part of their private pensions or additional voluntary contributions to spend now. Could they be allowed to access 10% to 15% so they could fund small businesses or pay off debts when needed? Such a move would release €1.3 billion into the economy. This would mean pressure would be lifted from people and allow them to pay things like their mortgages. The Government recently dismissed the idea but we cannot go on forever with the current position. South Africa offers access to pension savings and research by Alexander Forbes, a consultancy, finds that 70% of members take their benefits in cash before retirement. It is also believed that allowing people early access to a portion of their pension encourages people to sign up to a pension scheme.
Australia's pension system requires compulsory enrolment in a pension scheme but members are allowed to take all of their benefit as a lump sum at the age of 55. Many people use the money to pay off debts and some spend it. They have a choice. In that case they may eat up all their savings and have to fall back on the means-tested state benefit at the age of 65. Should people not be able to access funds now if they have voluntarily paid a pension or have several pensions and need to pay the mortgage? Giving citizens access to pensions earlier frees up pension funds, allowing people to spend and stimulate the economy rather than save cash. That is what we need at the moment.
There is a misconception that people would be worse off in the future but early withdrawals might reduce other lifetime costs by virtue of them being met earlier. Such a proposal will also mean that people may be more willing to invest in pensions at an earlier age. We live in a free society and we should allow people to make choices, good or bad. It would be good for the country if people had more freedom and more independence. If people spend part of their pension they may have to fall back on living solely on the State pension. If that is so, that is so.
I welcome the Minister for Public Expenditure and Reform, Deputy Howlin. Senators Sheahan and Quinn commended the Minister for his enthusiasm. I also commend the Minister for his clarity in explaining a complex Bill in clear and accessible terms. Like others, I welcome the Bill. Everyone has welcomed the Bill even though Senator Byrne has suggested he will oppose the Bill on Second Stage. I welcome the Bill as part of the Government programme for reform of the public service. It is also timely to point out that we all welcome the positive seventh review by the troika yesterday, given that this item of legislation is one of the commitments under the programme.
I listened to the comments of Senator Thomas Byrne on taking an oppositional position on Second Stage. Is a different position to that of Fianna Fáil in the Dáil and it surprises me, given the Bill has had a long genesis over a number of Governments dating back to when Deputy Ruairí Quinn was Minister for Finance.
We opposed it on Final Stage when amendments were not accepted. We are now opposing it on Second Stage in the Seanad because of that.
Senator Byrne's stated opposition is on the basis of one provision, section 47. I listened carefully to what the Minister said on section 47, making the point that the enabling provision should not be used to create an expectation that it will be unilaterally implemented and that discussions will not be pre-empted in any way. The Minister has addressed the point made by Senator Byrne on the potential impact of the provision on negotiations under the Croke Park agreement. The Minister also made clear that any changes would not be implemented during the current agreement in accordance with the clarification. It is clear under the terms of section 47 that it cannot be implemented by ministerial order alone and it requires a positive vote in both Houses of the Oireachtas. I do not see why it is necessary to oppose a whole Bill, particularly on a complex matter and one that will implement comprehensive modernising reform of the public service and public service pensions, just for the sake of that point.
I welcome the ongoing public service reform taking place in the framework of the Croke Park agreement. The Government is committed to it and I am a strong personal defender of the agreement. It brought us great stability at a time when we needed it, a time of grave economic difficulty and at a time when we see a real impediment to economic recovery in the shape of depressed domestic consumer demand. It is important to ensure stability in the public sector and in public sector pay. We have seen industrial peace as a result and immense reform. There have been unwarranted attacks on public servants and unwarranted comparisons between the public and private sectors. It is undoubtedly the case that the public sector enjoys greater security of tenure, although many of those employed part time in the public service have seen their jobs go. It must be remembered that those working part time in the education sector have seen their jobs diminish or wither away. The recruitment freeze has meant public servants have worked harder and the reforms implemented ensure greater workloads for many people, and rightly so, at a time when they are facing reductions in pay, particularly due to the pension levy. There must be a balance. It is fair that public servants must take a share of the economic hit but it is not fair to criticise the public sector without acknowledging that point. It is important to express the view that the Government values public servants and is committed to providing good quality and decent pension entitlements, even when public service pension schemes are being reformed.
The key reform in the Bill is to create a new single pension scheme for new entrants to the public sector. I listened with great interest to the speech of Senator Quinn, as did the Minister, and some of his proposals are very interesting. I refer particularly to the idea of people gaining access to cash now on foot of additional voluntary contributions. There would be serious constitutional issues in Ireland about interfering retrospectively with established or preserved rights. That is why the Bill applies specifically to future entrants.
I am pleased to see the level of consultation and planning in the Bill. The Minister expressed clearly that this has had a long genesis and the provisions have been carefully prepared. Given the demographic projections, it must be carefully worked out. Senator Sheahan referred to the ticking timebomb of dependency ratios dropping from six to two by the middle of the century. It is a very happy event that we have longer life expectancy and people living and drawing pensions for decades after retirement. However, it requires a change in public policy. I am reminded of the saying that growing old sucks but is a lot better than the alternative. It is a good news story that people will be drawing pensions for much longer but there are implications for public policy. It justifies the increase in the pension age. We had a lively debate in this House about the merit of a mandatory retirement age. Other speakers touched on the point. At a hearing on the rights of older people in the Seanad Public Consultation Committee, interesting views were expressed on potentially having an open-ended retirement age. In the Bill, the Minister has set out 70 as the maximum age and that the pension age will be increased in line with the State pension age. Senator Quinn refers to some people working well beyond that age. In the Judiciary, the age for retirement for senior judicial office holders is 72. I presume the Bill will not have an impact on that. Having examined sections 13 and 22, I am not clear whether that will still be the case after the Bill is enacted. I have had colleagues in the Law Library, for example, who continued to work into their 90s. There is an important debate to be had regarding the merits of a mandatory retirement age. However, I take the Minister's point about the importance of people being able to plan ahead with some degree of certainty.
The Minister set out clearly and comprehensively the detailed provisions on calculations and the linkage to the consumer price index. The provision that there will be no reduction where there is deflation seems fair to me. I also welcome the provision that revisions of the rate of contribution will require a positive resolution of both Houses of the Oireachtas rather then merely being subject to ministerial order. I have a particular interest in the provisions in sections 33 and 34 on pensions for surviving spouses or civil partners. It is important to note the progress we have made such that civil partners are now, just like spouses, eligible to succeed to pensions. However, I am aware of certain schemes in the public sector, known colloquially and rather pejoratively as anti-gold-digger schemes, under the terms of which a marriage or civil partnership must take place before a certain age, usually 60, if a spouse or partner is to be eligible to succeed to the pension. Will this Bill have any impact on those schemes?
The legislation includes very sensible measures in regard to abatement and aggregation. Indeed, one might well ask why these provisions are not already in place. Will the Minister confirm that it will still be possible to top up public service pensions through additional voluntary contributions? In regard to the provisions regarding aggregation, in Part 4, I am surprised at the Minister's observation that they will impact a large number of people. Senator Tom Sheahan referred to the former Fianna Fáil Ministers in respect of whom people were greatly angered to see such large lump sums being given. Will the Minister indicate the numbers affected by the provisions regarding pensions aggregation?
I thank the Minister for his comprehensive explanation of the provisions of the Bill. Apart from the stability and certainty they will provide for public servants, they will also lead to substantial savings for the State by the middle of the century. That may seem a long way off, but action must be taken now to ensure it is achieved.
I call Senator David Norris.
I think it appropriate to defer to my colleague, Senator Sean Barrett, who has a professional expertise in this area. In doing so, I assume I will have an opportunity to contribute later.
That is fine. I will return to Senator Norris later.
I welcome the Minister, Deputy Brendan Howlin. As is so often the case, I agree with much of what my colleague, Senator Feargal Quinn, has said. It is interesting to consider a number of the recommendations by an bord snip nua in the context of what is proposed in this legislation. In a period when the total number of public servants rose by 27%, the numbers in senior management increased by 82%. That is clearly a significant aspect of the problem the Minister is seeking to address, particularly in regard to the question of final year pensions as compared with average earnings pensions. There was clearly some degree of grade inflation going on during these years.
An bord snip nua addressed, on page 7 of its report, the precise problem the Minister has described to the House, namely, that the cost to a private sector worker of purchasing these types of final year pensions would be prohibitively high. Some of the figures in this regard are astonishing. They obviously astonished the Minister since he decided to bring forward this legislation. The bord snip nua report indicted that to purchase the pension benefits for which they are currently eligible, including the earnings link, would require a contribution of 27% of annual salary in the case of a typical civil servant, 31% for a teacher entitled to retire at 55 years of age, 33% for a hospital consultant, 48% in the case of gardaí, and as high as 87% for a High Court judge. This burden simply cannot be carried forward in a situation where public pay and pensions account for 35% of all current expenditure. I understand the pensions element alone runs to 6%. In particular, the inequitable situation whereby full pensions are awarded to persons who are in post for a very short time is no longer sustainable in view of the difficulties we face. According to a statement issued by the Oireachtas on behalf of the Minister on 29 September 2011, the savings arising from these changes will amount to some €1.8 billion per year. In my view, he has allocated the savings correctly across the various possibilities. I particularly welcome the move to tackle the problem of final year pensions.
On the question of retirement age, I agree it makes sense to increase it. When he introduced the old age pension in Britain, Lloyd George could have had no notion of future costs given the majority of people at that time did not live long enough to be eligible for it. Given that life expectancy continues to increase, people are now obliged to budget for a much longer retirement. In that regard, the Minister is being conservative in the provisions he has made for an increase in retirement age. They are merely reflective of economic realities. In fact, experts predict that one quarter of people born this year will live to 100 years of age. Given so many people now remain in third level education until their mid-20s, the period in which they are net contributors to the Exchequer rather than net beneficiaries is reducing. As such, the retirement age should be kept open as an issue. I have known people who were extremely unhappy at being obliged to retire because their work meant a great deal to them. Perhaps the Minister will indicate whether he has given any consideration to introducing some type of voluntary retirement mechanism in the future.
I can envisage a situation where successor Senators in the mould of Senator Ivana Bacik will argue for the raising of the retirement age past 70 as a human rights issue. The fashions in these matters tend to change.
I support the measures the Minister is introducing in this Bill as a necessary correction to the public finances. I take this opportunity to warn against any future recurrence of the benchmarking exercise, which must surely have added hugely to the difficulties facing the State in this area. Apart from anything else, it was not at all transparent. The evidence for the increases under that scheme, which was always hotly disputed, was kept secret so that those who wondered why they had done rather badly out of it could not discover why others had done so well. I am sure benchmarking is not on the Minister's agenda in any shape or form, and it should never arise again. It was a considerable factor in the inequities that arose in public sector pay in recent years, with the largest increases generally given to the most highly paid public servants while the less well paid received only the averages under the national wage agreements.
In addition, some public sector pension funds, including those in the university sector, in the Economic and Social Research Institute, Institute of Public Administration and elsewhere, went broke and had to be rescued by the former Minister for Finance, the late Brian Lenihan. The conduct of the trustees of those funds deserves some rebuke from the Minister and the House. With practices such as added years and so on, they almost became a type of slush fund for the beneficiaries. These trustees ultimately succeeded in bankrupting their own pensions, although that does not prevent them from giving advice to the Minister on how to run the country.
As well as dealing with public pensions, we must also look at the private pensions fund industry, including its poor overall performance and the general move from defined benefit to defined contribution schemes. Although I appreciate that it is a short-term measure, there is an inequity in the imposition of a levy on private pension funds in that it imposes further costs on those who are already bearing the cost of pensions which are far better than their own. The Minister has made a sizeable contribution to addressing the difficulties with public sector pensions. I would be glad to assign him the duty of reforming private sector pensions, if he has any spare time in the coming months.
I welcome the Minister to the House. He has been lauded for his enthusiasm and clarity, to which I would add my praise for his commitment, particularly his commitment to reform. I hope he continues to listen and take on board what people are saying, while maintaining that drive for reform.
I propose to focus in my contribution on the issues of access to one's personal pension, retirement age, increments and sick pay. In general, this Bill contains a number of changes that must be made and which are essential in the current context and in view of the need to reform. Right now there are six people working for each pensioner but if we did not make changes, we would have only two people working for each pensioner and that in itself would bankrupt the State.
The change to the retirement age for public servants from a minimum of 66 years to a maximum of 70 years is good and right. In 2004, the minimum retirement age increased from 60 years to 65 years for new entrants, so it is not just because of recessionary times that we are moving in this direction. I support the system of career averaging as a means of working out a fair pension to earn at the end of one's working life.
Regarding the lump sum, is the Minister intending to tax that at any point? Obviously, we would all prefer if the lump sum was not taxed but given that so many people have just retired from the public service and that the State is in incredible trouble, perhaps it should be considered.
There are a number of unfair aspects to the Bill. I do not agree with the exemptions in the scheme for Members of the Oireachtas and others, such as the Ombudsman, county registrars and Revenue appeal commissioners, to give just a few examples. I can see why an Oireachtas Member, if he or she reached 70 in the middle of his or her term, would be exempt but why should an Oireachtas Member who is 70 or over at the start of a new term not be requested to retire?
The people can elect whoever they like. We cannot tell who people will elect.
It is called the Constitution, I believe.
The Senator, without interruption, please.
This is the place for a debate on these questions. There are other people on the exemptions list, including the Ombudsman and Revenue appeals commissioners and the rationale behind this needs to be examined. After all, we are introducing tighter pension rules to the public service generally and, as far as possible, we should lead by example. Obviously, what I am saying would be against my own interests too, in the longer term.
That would be very popular with the voters. I would not say it would be against the Senator's interests at all.
In general, I agree with many of the essential reforms. I ask the Minister to answer a number of specific questions. Public service workers — be they nurses, doctors or whatever — in pre-2004 pension schemes were allowed to retire at 60 but after 2004, if they went into a different pension scheme, the retirement age was 65. What age applies there? What is the State's commitment to public service pensions in the future? In ten or 15 years' time, for example, when we might not be in government, what happens if the money is not available to pay pensions?
When will changes to TDs' and Ministers' aggregation take place? It is referred to in the written version of the Minister's speech but he did not discuss it here. Does it only apply to new entrants? If that is the case, I believe it is wrong.
The whole Bill applies to new entrants.
Changes to TDs' and Ministers' pensions should take effect from now. This is an issue that is really annoying the public and I agree with them that it is not right.
A review of the Croke Park agreement is imminent and the issue of increments has been raised in that context. In the midst of a recession I, along with others such as CORI, believe it is immoral that increments are awarded to anyone earning over €50,000. I am glad that Oireachtas Members do not get increments and we should consider pausing the payment of increments. Research indicates that a poverty-proof wage for a family of six is €50,000.
Regarding sick pay, I wholeheartedly reject the notion that an employer should pay it.
That has nothing to do with this Bill.
I am simply drawing the Minister's attention to this point because he is on the economic management council and it is very important that the responsibility is shared between the employee and the employer. Perhaps this is a matter for another day.
Finally, it is important that we examine, within the confines of the Constitution, how we can help people to access their personal pension funds. It would help with indebtedness and would reduce the duty of the State to help them with their indebtedness through other schemes.
I also welcome the Minister to the House and thank him for his very clear speech. Unfortunately, I did not have the privilege of hearing it, but I have read it. The cardinal points are raising the minimum public service pension age, increasing the rate of pension contributions, modifying the earnings-linking of pensions, adjusting or abolishing fast accrual terms and moving to the calculation of pensions on the basis of "career average" earnings. Generally speaking, I approve of the Bill but I have some difficulty with section 47 because it appears to give a power of retrospection, which I am against on principle.
I take a much more pessimistic view than most of my colleagues here because everyone else in this House is a capitalist of one kind or another and I am not. It appears to me——
The Senator is not the only socialist in the village.
Just as with the question of climate, my view is that the events we have witnessed are likely to become more frequent and more catastrophic. I find it very difficult to welcome the fact that we have been enabled to borrow significantly more money. We need a radical reappraisal of the entire system. However, we must deal with the system as we have it and one must be pragmatic. Within such limitations, the Minister, as a capitalist, is doing a reasonably good job. However, there are more extreme forms of capitalism in this House, as represented by Senator Feargal Quinn. While he is a colleague of mine, whose views I value, I do not think it is a good idea to follow the extreme, right-wing American view that citizens should be allowed to cash in their pensions, willy-nilly. That is a recipe for disaster.
They should be able to access a portion of it, at least.
However, the additional voluntary contributions, AVCs, should be accessible. That would be welcome because such payments are made voluntarily, as an attempt to gain extra years or an additional pension and there should be an element of option involved. I speak with some feeling on this because I paid AVCs over a number of years. When the crash happened, I tried to take them out but was told I was not allowed to and now they are worth virtually nothing. However, that is my problem and I am well able to cope with it. I would only recommend access to pension funds under the aforementioned terms.
The linking of pensions to the consumer price index raises the question of the index itself because a revision of the method of calculation of the consumer price index is long overdue. I do not see, for example, any reason to include the consumption of alcohol and nicotine in the calculation of the consumer price index. There are much more fundamental elements that should be considered in this and I do not see why taxpayers should support people in these habits, if they have them.
The Minister referred to the fact that more people are living longer now. They will not do the decent thing, it seems, and die in the interests of the State. It is a demographic fact that is a worry to many of us. Our pension fund has been raided and is consistently being raided. It is depleted and is depleting further all the time. The figures in this regard are even worse than some of my colleagues have suggested. The Minister said that demographic projections suggest that by the middle of the century there will be only two people of working age supporting every one person over 65, compared with six at the moment. However, that figure refers only to those of working age. It does not actually mean the people in question are working. The significant question is whether or not such people are working and producing the money needed to fund pensions.
On the issue of benchmarking, I agree with the comments of my colleagues and that is why I voted against it when it was before this House. However, being a human, I accepted whatever moneys accrued. I support my colleague, Senator Ivana Bacik, who made a point with a wonderful phrase the "gold-digger's pension".
It is not my phrase.
I know this and the Senator distanced herself from it, but it is a phrase I had not heard before. One of those involved has contacted both of us with regard to civil partnership and it would be humane of the Minister to examine it.
Another matter has been brought to my attention by an elderly clergyman of the Church of Ireland who has entered into a second marriage. This is also a question of people who have assumed benefits. The man's wife died after 40 years of marriage and this person, who is representative of other cases, was lucky enough to find happiness a second time late in life. It seems unfair there should be no benefit simply because of the lateness of the marriage. Had the first wife survived, the State would be paying. I realise there is a great difficulty for the State in these matters. They must be addressed because significant problems are created by the demographics. I have a difficulty with any element of retrospection. I accept the difficulties represented by the difference between defined benefit and defined contribution. I am lucky enough to have defined benefits as I believe we all do.
I welcome the Minister to the Chamber. I also welcome the Bill and the commitment to reforming public sector pension schemes in a coherent manner as we are required to do. There is a logic running through everything the Minister wants to do and I look forward to debating the Bill in greater detail on Committee Stage. I lament the fiendish complexity involved in everything to do with pensions. In recent days, trying to understand what we are doing has caused me to issue more than one expletive and several groans.
The level of consultation carried out by the Minister and his predecessor acts as a model of how complex law could be made. It is important that the Minister is commended on this but it is equally fair to mention his predecessors because, as Senator Byrne stated, this has been going on for a very long time.
The range of reforms recommended in the Bill represents a fundamental rebalancing of the entire public pension scheme. Raising the minimum public pension age is good. It puts me in mind of a former Fianna Fáil leader, Mr. Haughey, who referenced himself to Chinese leaders in his determination to continue into his 100th year, and terrified the country in doing so. This measure is not only positive in terms of pension legislation, but it is also a good social measure. Increasing the rate of pension contributions will be painful for many new entrants but it is unavoidable. Modifying the link to earnings is also good. Moving to the calculation of pensions on the basis of career earnings is not only sensible from an economic point of view, but it is also equitable, and it introduces a level of equity which often is missing from this type of complex legislation.
I wish to tease out a particular issue with the Minister with regard to the adjustment or abolition of fast accruals. Those benefiting from fast accruals are gardaí, members of the Defence Forces, prison warders, psychiatric nurses and fire personnel. The nature of these jobs means retirement is required to occur earlier and it is desirable that we maintain this. For pension purposes these groups generally retire at approximately 55 years of age and they must accrue their pension entitlements at a faster rate. We must be clear that this will be maintained. What is proposed is less attractive for new entrants. Concerns have been raised that while fast accruals groups recognise the necessity of bearing and sharing the pain, they will be placed at a disadvantage vis-à-vis other pension holders with regard to how pension formulae are determined.
Sections 19 and 25 cause most concern. It is not necessary to go into detail this morning, but it would be appropriate for the Minister and his officials to clarify this complex issue on Committee Stage. A large part of an individual's pension is calculated on the first tranche of income, which is approximately €44,900. For the Bill to achieve a consistent effect according to the logic pointed out in sections 19 to 24, an adjustment must be made to the percentage accrual to be applied over the tranche as opposed to larger adjustments being made to later earnings. We must be very conscious and clear that to do otherwise would introduce a level of complexity and inconsistency which would not be consistent with the rest of the Bill.
I have a great deal more to say on this and I wish I had more than five minutes. I look forward to discussing it on Committee Stage. Senator Quinn spoke about allowing people early access to their pensions but it is not something of which I am terribly in favour. We must treat this with great caution. The idea underpinning the provision of pensions in the first place is the diversification of risk and to concentrate risk is at variance with the principles of pension provision. I congratulate the Minister and the Bill and I look forward to discussing it in greater detail on Committee Stage.
I welcome the Minister as always. The crux of the Bill is that it is only relevant to new entrants to the public sector. While some concerns have been raised that new entrants will do the same job as others on different rates of pay and pension conditions, this is not new and has happened in the past in the Irish public service and Civil Service. I remember on one occasion when I visited RTE I met just about everybody working there because of dissatisfaction about pensions. Some were in a defined benefit scheme and others were in a defined contribution scheme. This is not the first time it has happened.
I can understand a new entrant to the public sector will probably not require the same earning capacity as those who entered in the past because the cost of living has decreased. However, all of the reports itemised and published in recent weeks have shown the greatest cost to everybody is property and the costs associated with it, and some of those in the public service paid horrendous prices for houses. It was insanity. The idea their pay could be affected outside of increasing taxation does not stack up because they would end up moving into the more than 10% in mortgage distress. This is not something the Government should do. A balance must be found which is not always the easiest to do. However, I believe the balance has been found. The Bill is reasonable and not excessive and somewhat fair. Perhaps this needed to have happened sooner which is why we are dealing with it now.
A point was made about people earning more than €50,000 and increments. I support the payment of increments, particularly to lower paid workers. I have previously made the point that the gap between the income of people who are working and those who are not working is not wide enough. That is the reality. The convergence figure, in terms of a family in receipt of income from social welfare versus its potential income from gross earnings, is €33,000 per annum. Also, a family with an income of €33,000 per annum is entitled to family income supplement, which can bring that family's income to €66,000 per annum or approximately €600 per week. A person earning €66,000 per annum does not have much more than €600 per week net. As such, the convergence, in terms of a family being paid almost the same amount per annum in welfare payments as a person earning €66,000 per annum, is remarkable. That is the reality of our taxation system. While there is much discussion about high earners, who pay high taxes, there is none on this issue. We need to have that discussion. One gets the impression that everyone who worked hard at school and college and is now working hard at a job in respect of which they are earning a decent salary is a "baddie". They are not bad people. I believe in a meritocracy. The harder a person works the more he or she earns and takes home. As I said earlier, we need to have proper discussion on this whole issue. We need to have a meritorious society rather than, as some people want, have everyone on the same income regardless of whether they are working and have a responsible job. That is folly. We need to have that discussion so that people are aware of these figures.
Cuirim fáilte roimh an Aire go dtí an Teach chun an Bille tábhachtach seo a phlé inniu. I am currently accruing a public service pension and also have a private sector pension, and as such I have insight from both sides. I have always believed that people who work hard within an organisation have an entitlement to a pension. I have always thought it regrettable that so many companies do not provide pension schemes for their staff. Given changing demographics, this is essential.
While the changes being made by the Minister are welcome, I do not believe they are sufficient. I see no reason we should not be aligning the full public service remuneration package with that which pertains in the private sector. In my opinion, there is no arguable merit for people working in the public service being paid an enhanced salary compared to those working in the private sector. A couple of years ago public servants were paid 22% more than employees in the private sector doing a similar job. While it was not easy to find comparisons, where they could be found there was a 22% difference. One could not purchase in the private sector the type of pension that has pertained in the public service up to now. The cost of that on the market would have been prohibitive.
While I initially thought the move from defined benefit schemes to defined contribution schemes was wrong, I can now see the reasons for this. Some years ago in the US companies could subscribe to pension pots which were transferable, as should all pensions be in my view. As stated by Senator Michael D'Arcy, there is need for a greater meritocracy ethos within the public service, wherein there are many excellent workers who may be underpaid and others whom, even if we cut their salaries in half, would still be overpaid in terms of their performance. A person with whom the Minister and I once served in a public service organisation once told me that he had been planning to avail of an early retirement scheme but had, following a conversation with a colleague in another part of the organisation, decided not to do so because he did not believe he should retire on half salary when he could retire on full salary and also claim expenses. In fairness, the person concerned was a good operator. However, there are people within that organisation who would not be retained by any other organisation.
I see no reason public servants should not pay the full PRSI rate.
No, we pay a lower contribution. If we paid the full rate, we would under that scheme be entitled to a State pension which would, in turn, be deducted, as is the case for private sector pensions. I am hoping that we will go in that direction.
I have some reservations about career averaging, particularly in respect of a person who works hard and who, based on merit, reaches a particular position. The salary of a person in a similar position in the private sector would be averaged over three years. As such, I have some concerns in regard to the change being made by the Minister in this area. In my opinion, applying the CPI is highly dangerous, in particular when it is not capped. A CPI-linked pension in the private sector would be index-linked to a maximum of 3% to 5% per annum, and the premium paid would reflect this.
Have actuarial costings been carried out for the current public service scheme and the new scheme? My understanding from reports I have read over the past few years is that the current scheme, if funded now to meet contingent liability and accruals, would probably cost somewhere north of 40% of salary. How will the changed system compare with this? Public servants are paying, at 15%, only a fraction of the cost of that pension scheme. I believe the maximum an employer should pay is 60%, with employees paying 40%. In many private companies it is now 50:50. The creation of a pension pot that is transferable and brings about greater mobility between the public and private sectors is something I would like to see happening. I believe it would enhance both sectors. The public service ethos would contribute to the ethics of corporate governance in the private sector and the productivity, drive and dynamism of private sector activity would enhance the public service. We should try to move in that direction.
I welcome the Minister to the House. I do not believe the public is aware of the enormous burden of public service pensions on the Exchequer, which is increasing year-on-year given that people are now living longer. Bismarck first introduced pensions in the late 1800s, which were payable when a person reached 70 years of age. However, life expectancy at that time was approximately 35 years. I think one of the reasons for his introduction of pensions was to try to keep people in Germany, because at that time emigration from there to America, which did not provide benefits, was high. While we have now reached a stage at which most people live a quarter of their lives on a pension, 30 or 40 years ago the life expectancy of a person who received his or her pension at 65 was 70 years. There are currently 100,000 centenarians in America, and that figure is set to rise. There are probably 2,000 or 3,000 people of that age in Ireland. We are faced with a massive problem.
I was not aware until I attended my first town council budget meeting in 1994 in Letterkenny that public service pensions were paid from current expenditure. I knew, coming from a business background, that private pensions were paid from subscriptions. I do not think we can sustain this any longer. As such, I welcome some of the measures being introduced by the Minister through this Bill. While I agree with some of the comments made by Senator Walsh in regard to career averaging, I welcome this change. In the private sector a person must build up a pension over a long time. Even with a director's pension scheme, when there is a massive fund at the end, there is an average of earnings over the last three or four years and a pension sum cannot be raised in the last year in order to get one and a half times an elevated amount.
There is much in public pensions that should be copied from the private sector, not because the private sector is any better but because the country cannot sustain the type of pensions being paid without us investing more efficiently. It is not this generation but the next that will have to fund this process, and the people who have not even left school yet will provide our pensions, with the pensions of the next generation funded by the following generations. We must use a model that gives us a decent pension scheme that can leave people in retirement well off. Everybody wants to live comfortably in retirement, which will last longer than the retirement period enjoyed by our ancestors. I have spoken to older relatives who did not know their grandparents as people seldom knew grandparents at the time because people died at a younger age. There is now an opportunity for people to retire with some ability to survive without struggling.
With regard to the connection to the consumer price index, will a pension value decrease if there is deflation? We are almost in a deflationary economy now, and the consumer price index may drop over the course of the year. Will it have an effect on pension values if the consumer price index goes into reverse? There are defined benefit schemes and defined contribution schemes. Not everybody in the public service realises the cost of a pension. In the private sector, I know from experience that I could not get near the value of a public pension, no matter how much is put into the fund. There is a graph often shown that deals with pensions and it is appropriate. A bicycle starts at the bottom of the hill, signifying a person starting to contribute to a pension at 20 or 21, but if a person waits until 50 or 55, the bicycle is near the top of the hill and there is a struggle to get to the top. The message should be to introduce compulsory pensions for everybody, and the earlier people start a pension, the smaller the burden on the State. We must look after people of pension age and people should contribute with their own money rather than having the taxpayers follow. I welcome the Bill.
I welcome the Minister and apologise for not being here earlier but I had some very urgent business to deal with. Some people in my constituency were in terrible trouble.
I am pleased to have an opportunity to speak on this debate and although my party opposed the Bill in the Dáil because of the powers going to the Minister under section 47, there are other aspects that I wish to discuss. As Senators are aware, I have taken a keen interest in issues of ageing and remaining active as we get older. Earlier this year I prepared a Fianna Fáil policy document on active ageing and quality care in which my party and I set out a number of recommendations. That document indicated that a woman reaching 65 today has an average life expectancy of a further 20 years, whereas a man can anticipate 17 additional years of life. There is an ever-growing number of older people in our midst, and their number is projected to double from some 500,000 today to 1 million in fewer than 20 years. At this time on the island of Ireland, there are 1 million people over 60.
With this Bill, the pension age for new entrants to the public service will rise in line with the changes to the State pension. This Bill will also provides for a maximum retirement age of 70 for new entrants in the public service. The discrimination against older people in being forced to retire at 65 is increasingly being challenged. The central issue is choice for older people, as a majority are probably happy to retire at the pensionable age in their employment. A major study carried out by the EU, published in January, indicated that almost half of Irish people, or 46%, would like to continue working after they reach pension age entitlement, and this far exceeded the EU average of one third being so inclined. This document, a very in-depth study of attitudes of older people, which I strongly recommend people to read, is Active Ageing — Special Eurobarometer 378.
Older people who want to continue working after pension or retirement age do so because they feel fit, active and capable, and they wish to maintain their current income level. In Great Britain and Northern Ireland the Employment Equality (Repeal of Retirement Age Provisions) Regulations came into force on 6 April 2011. The effect of those regulations was to repeal the legislation which permitted an employer to terminate the employment of an employee who reached age 65 without that being deemed unfair dismissal or unlawful age discrimination. It would be deemed unlawful age discrimination if people who are in the peak of their health were forced to retire. This is a denial of the human rights of older people who wish to stay in employment.
In a Fianna Fáil policy document, it was decided that people should have a choice in their retirement age. The party is seeking an end to the compulsory retirement of person aged 65, whether in the public or private sector, and to make it unlawful to require a person to retire at or above the age of 65, unless there are clearly specified grounds justifying such compulsory retirement, such as competence and performance. This is Fianna Fáil policy and we are determined, over time, to achieve the abolition of a mandatory retirement age, like the United States, Great Britain and the North. It is a blatant denial of older people's human rights. Some people do not want to retire and there should be a choice for people to stay on in work. If people continue to work they will not have to continue drawing down the pension and they would contribute to the tax take for the Government. They are also keeping their lives going.
I will be brief. I welcome the wide consultation that was part of this Bill, and it has been stated that it was the most significant consultation encountered by the Minister. It is an important aspect and it often does not get mentioned. The idea of a career average pension is something that most sensible people would think as the right approach to take. As with Senator White and others, I ask if this might have been the opportunity to abolish the mandatory retirement age on the grounds that it is a human rights issue. Even if we do not deal with it now, it will surely become a battleground. I am not entirely sure from the way it was phrased whether 70 is the mandatory retirement age. Will the Minister comment on this?
I would like to do justice to a very wide-ranging and good debate, with very thoughtful contributions from every Senator. Sometimes the issues were well beyond the scope of the Bill but that is no harm. We were discussing private pensions as well as public pensions, and much of that policy does not fall to me. Nevertheless, the issue is being actively considered by the Minister for Social Protection and the Minister for Finance. We must have much more discussion about pension provisions in particular.
The measure before the House has been in gestation for a long period. The adage is something must be done, and we have said something must be done about the growing pressure on public sector pensions for a long time. We are now acting on this. I agree that it is a very complicated piece of legislation but it is fair and balanced. Most elements of the Bill are a matter of debate, and we could consider the balancing of the issues. Members would be able to put together a coherent argument on such different elements.
Senator Byrne generally welcomed the legislation, and why would he not? The genesis goes back to the late Brian Lenihan, who did a great deal of work on this issue.
I acknowledge that it is part of the memorandum of understanding.
Senator Thomas Byrne has stated he has a difficulty with section 47 of the Bill which I debated because it is different from the rest of it. The Bill looks forward and as such does not impact on current employees. It will have an impact on everybody recruited from the day after the commencement order is signed. I thought it was important to include the provision when I drafted the legislation because pension legislation and vehicles of this kind do not come by very often. It was important to grant the provision either to me or a successive Minister to link future increases with the consumer price index, as opposed to linking them forevermore to the position from which one retires. That is the way accruals will apply, under the legislation, to new recruits. There may be a compelling case to be made, on which I have not made up my mind. The scenario may never arise in my time in office, but I will provide for it in legislation. If my successor or I decide to invoke the clause, it will require to have a vote in favour in both Houses, thus ensuring there will be a chance to reflect on the provision again. It is not my style, as characterised by Senator Thomas Byrne, to put a gun to the negotiator's head. Obviously, I sometimes like to encourage negotiations to move in a certain direction, but I am genuine when I say this is an enabling provision that may or not be used. That was the Senator's only criticism of the Bill.
Senator Tom Sheahan welcomed the Bill and asked specifically who was covered on the banking side. The staff of the covered banks are not public servants. It is clear, therefore, that AIB and other banks will not be covered by the legislation, no more than they were covered by the pension reduction. Staff of other financial institutions are public servants such as those of the National Treasury Management Agency, or, as I like to call them, the NTMA family because it has a group of subsets, including NAMA, which are covered by the legislation. If Members examine the Schedule, they will be able to read the list of exclusions whcih includes the commercial semi-State organisations.
Senator Feargal Quinn made a thoughtful contribution on the retirement age which was echoed by many other Senators. I debated the issue long and hard and wondered whether we should have a compulsory retirement age in the public service. The only reason the provision is included is that I was convinced on the planning side. Senator Thomas Byrne argued for a review of the issue in better times.
It is a question of human rights.
Senator Thomas Byrne argued that persons who had had a long career might make way for others when there was a scarcity of jobs, as is the case at present. I know that it is a matter of debate and that Senator Mary White, in particular, feels passionately about the issues involved. She is right to be passionate because we need strong advocates of reform. The reason I was convinced to include a retirement age was related to planning purposes. It is very difficult to make arrangements, particularly in a time of transformation, not knowing whether somebody is going to leave. Do people analyse their options annually? Will they decide to go next year, next month or in six months time? If it is left open-ended and there is no finality, it is very hard to plan. For example, will a hospital lose a cohort of nurses or doctors? I am sure they are practical difficulties that we can address in the fullness of time, but for now I am convinced that we need a general retirement age provision. From the soundings I have received, while there is a cohort of people who would like to continue working beyond 70 years, the vast majority want to hang up their boots well before that age and would like to see the horizon. That is a debate we can have another time.
Senator Feargal Quinn talked about the situation on Rhode Island and its gutsy financial controller who, apparently, was doing the devil and all. The constitutional issue was touched on by Senator Ivana Bacik; pensions are a preserved property right and that there is a lot of case law on the issue. A person will have paid contributions for 40 years with the expectation that he or she will receive a set amount — one may say there are plenty of people in the private sector, but the position is different when it is set out in law. Perhaps he or she stayed in the public service or chose to become a public servant because of this and I, as Minister, cannot arbitrarily change the position. My advice is that constitutionally it would not stack up. That is why I have been very careful in the measures I have taken when addressing egregious anomalies. For example, the TLAC terms could only apply prospectively, not retrospectively, when I abolished them very quickly after taking office. Similarly, when I wanted to place an additional levy on pension holders above a figure of €100,000, I had to judge the matter very carefully because it had to sit in the context of the financial emergency measures in the public interest legislation. It could not be confiscatory in its design because it would run foul of the Constitution. I could not have extraordinary measures aimed at a tiny cohort because it would be discriminatory. These are the tightropes one must walk when calibrating legislation of this kind.
Senator Feargal Quinn made another very important point that the Government has considered. As Members know, there is no pot of cash for public service pensions. There is no contribution one can draw down. I presume the Senator was talking about the private sector and AVCs, but we need to reflect further on the issue.
Senators made points about giving tax support in order that people would put money aside for their retirement. Do we allow them to reach into that pot during a time of financial crisis and thus diminish their capacity to pay their own way, while placing an extra burden on the State? That is the subject matter of a further debate. There are people in serious financial difficulty, particularly with their mortgage, to which we could usefully craft a response. The personal insolvency legislation will reach this House in due course and we might debate that issue then. I understand the strong case that has been made in that regard.
Senator Ivana Bacik asked about judges. Under the legislation the general retirement age will be 70 years. I asked my officials to check the details and have been told there are very few serving judges who attain 72 years. That is no longer the norm. For District Court judges there is a retirement age of 65 years which with approval can be extended annually.
Senator Ivana Bacik also mentioned the issue of aggregation which I said would affect a large number of people. Let us say — I will not use names — a retired former Minister receives his or her pension from two sources — an Oireachtas and a ministerial pension — the figure of 20% I introduced does not apply as each pension is treated separately and neither breaches the €100,000 mark. That is patently wrong and unfair. A retired Secretary General with a single pension of over €100,000 would, however, be affected. I have introduced aggregation because it makes sense, but, like everything else, when one makes a policy decision, its practical implications are broad. When one drills down, a lot of people have more than one public service pension. For example, individuals who retire early such as members of the Defence Forces might join the Houses of the Oireachtas as staff members, not necessarily as elected Members. In such cases, they can accrue two pensions that will be treated separately. I have found that there are many anomalies. The same applies to abatements. If somebody retires on a pension and returns to the same sector, his or her pension is abated to take account of the new salary, as the new salary and pension combined cannot be greater than his or her previous pay. However, if one enters a different sector, the provision does not apply. I shall change that provision also in order that it will apply across the board. There have always been these anomalies and I have tried to pull them all together. That is why it is useful to have the architecture as one single scheme. Whether one is in the Army, a teacher, a nurse or a Member of the Oireachtas, one will be subject to one scheme.
Senator Barrett spoke about an bord snip and the actual costs. Some Members also presented some costs and Senator Walsh subsequently made the point that the actuarial cost of current pensions could not be afforded. I made the following point after a great deal of pressure in the other House because there was criticism, and still is, from the uniform bodies that they are somehow getting a poor deal. They are getting a genuinely good deal. Unlike everybody else, including Members of the Oireachtas who will not get a pension until they are 65, 66, 67 or 68 years old according to when the timelines come into play, the uniform bodies will get the pension from the age of retirement. In the case of prison officers, for example, it will be paid from the age of 55. Getting a pension at 55, if one is going to live until one is 90, is an extraordinary deal when one crunches the numbers actuarially. I genuinely do not believe they have much of a case to make in that regard. I have repeatedly said as much, but they still feel aggrieved by this.
Senator Barrett also mentioned the retirement age, and I have dealt with that. However, he introduced a new dimension and I probably should not allow myself to be brought into discussing it because I have strong feelings about it, but I cannot resist. It is the issue of university pensions. The former Minister for Finance rescued the university pensions, although not in all universities. The universities had bankrupted themselves through their generosity in that area. There are still cases pending, so I must be careful about what I say. It actually happened that the boards of universities met and decided to give X an extra ten years service and Y an extra seven years service. The actuarial cost of that is numbing in some cases. That is now in the purview of the State because we are funding it and the new people who must authorise that are the Minister for Education and Skills and myself. We will be objective in the determinations we make henceforth. As Senator Barrett correctly pointed out, there is a certain irony in people who were generous or profligate to themselves calmly advising austerity for everybody else, particularly in advising austerity for people whose circumstances are immeasurably worse than their own. However, they are the things one hears.
Senator Healy Eames made a number of points. I am sorry she is not here at present. She welcomed the Bill and discussed a number of matters. Some of them were entirely extraneous to the Bill but I will address them. She made two points about Members of the Oireachtas. One is that the age limit does not apply to certain officeholders, Members of the Oireachtas or the President. There is a good reason. The people can elect whomever they choose and we cannot be prescriptive about that. If they wish to elect somebody of whatever age to either House or to the Presidency, that is a matter for themselves.
There is a minimum age of 35 years for the Presidency.
The 35 years of age requirement and lowering it is something we should examine as well. It is something that might usefully be brought to the constitutional convention.
The Senator also spoke negatively about increments. It has nothing to do with this Bill but, again, I cannot resist. I have difficulties with the argument about increments. People classify increments as wage increases. Increments have been the structure for certain brands of public servants since they were created and certainly since this State was founded. One knew if one started as a garda one went up a salary ladder. One could end one's career as a garda but it was understood that somebody with 20 years experience as a garda had more to offer than somebody who had just walked in the door. That is the way it was.
What about politics?
Senator Walsh mentioned politics and the long service increment. We must be honest about this. The wage rate for Members of the Dáil is linked to the higher rate of pay of a principal officer. Deputies could start at the lower rate and work their way up but they start at the top of the increment. Why would they get an increment on top of the increment if their pay is already linked to the principal officer allowance? The determination of Senators' wages is the same pro rata. If people wish to talk about increments and the terrible sacrifices Deputies and Senators make by not having increments, it is because they start at the top of the incremental scale. I do not accept that argument.
Over half of the people in the public service who get increments are clerical officers. The starting rate of pay for clerical officers is approximately is €27,000. If I was going to make significant cuts in budgets, would I start with people on €27,000 who are the majority of the people who are getting those increments? I do not believe I would. Senator Healy Eames makes the argument for stopping increments for people on over €50,000 per year. That is a compelling case, but one cannot do that. It would be fiendishly difficult to craft the legislation. It would have to be financial emergency measures in the public interest, FEMPI, legislation that would target a narrow group of people for a very small sum of money. Is it not more sensible to have a more progressive taxation system and simply tax everybody, whether their income is public or private, on the basis of what they earn and not who pays them? That would be my view of it in the context of a progressive society. However, let us have this debate again.
Senator Norris unfortunately had to leave. He described himself as the only socialist here. He reminds me of a guy I once knew who described himself as an Italian communist. He was an Italian communist who lived in a palace, palazzo, but he had communist views, which is interesting. I have no doubt that Senator Norris has profoundly socialist views, which he outlined. On the question he asked about the gold digger, a point Senator Bacik raised as well, obviously that does not apply. For clarity, the gold digger clause was that in some private pension schemes there is a prohibition of beneficiary if one marries late in life. Therefore, if a 35 year old marries an 80 year old, the 35 year old might not necessarily get the pension because there might be a view that the marriage was not entirely motivated by the best of intentions. That is apparently the view in some private pension schemes. We do not take such moralistic views in the public sector. The entitlements to spouses will accrue whenever one marries or enters into a civil partnership, whether it is before one accrues the pension, as one accrues the pension or after one is a pensioner. One’s entitlement as a spouse would still exist. If there are gold diggers around, therefore, they should look to the public service.
Senator Gilroy spoke about the fast accrual terms. I believe I answered that question. Fast accrual will apply, but as they fast accrue the person will also be obliged to pay twice the contribution. That is the linkage.
Senator D'Arcy opened a very profound debate, which was picked up subsequently by Senator Walsh. We need to have that debate. We have all encountered the notion that anybody who works in the public service in a representative capacity should be paid nothing. One of the first demands of the Labour Party in Britain when it went into parliament at the start of the 20th century was to have paid Members of Parliament, so it would not be a career for the landed gentry or people breezing in from Bar after their duties were done. It was to ensure people of modest income could represent people. I believe in that principle. It must be fair, balanced and proportionate, and that is a matter for debate. We must have a general debate about these matters.
Senator D'Arcy made the very valid point that whenever public service pay is discussed, it is always in gross terms. In other words, the person is on €100,000 per year. When one digs further, however, a person in the public service on a salary of over €100,000 is paying a marginal rate of tax of 62% if one adds the 41% tax, the universal social charge, the pension levy and PRSI. It is a significant reduction. When one considers the net income of someone who is tax-free on some benefits, these matters can be blurred. It is a point made by Senator Walsh. Senator Walsh is opposed to career averaging but it is a fairer system. Senator Walsh and I served on local authorities and it was not unknown for a person to be promoted to a position for the final year of service. I do not think that is a great way of maximising pensions and the career average provision deals with that. Transferability is included in the Bill. All public servants recruited since 1995 pay full PRSI and those recruited since 2004 have a different pension scheme and a later retirement. The State pension is included in the calculation of final pension. That is reflected in the Bill's provisions.
People talk about gold-plated pensions in the public service. In the past, there have been such pensions. In the private sector, I see the salary scales and the pension pots in some of the exits from Independent House. They would leave the public sector in the ha'penny place.
I dealt with the issue of ageing. A passionate case was made for this by Senator White and echoed by Senator Harte in respect of its financial impact. Senator O'Keeffe also referred to the retirement age. In making a discernment, I left in the reference to 70 but I have no doubt that, with speakers as passionate as some of those we heard, we will return to the matter.
As I am the only officeholder in the House directly affected by the Bill, I will not vote on it.
Senator Leyden's declaration will be noted.
When is it proposed to take the debate on Committee Stage?
When is it proposed to sit again?
At 2.30 p.m. on Tuesday, 17 July 2012.