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SELECT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 4 Nov 2009

Vote 7 — Superannuation and Retired Allowances (Supplementary).

The purpose of today's meeting is to consider the following Supplementary Estimates: Vote 7 — Superannuation and Retired Allowances; and Vote 12 — Secret Service. I remind members these are Supplementary Estimates rather the totality of the Estimates.

I welcome the Minister for Finance, Deputy Brian Lenihan, and his officials and thank them for attending and assisting our consideration of the Estimates. Briefing notes providing details of the Supplementary Estimates were circulated to members. The Minister may wish to make an opening statement.

Before we commence the agenda I mention a request I made earlier that we would call in the two banks.

That concerns the joint committee.

It is for the joint committee.

We will discuss the matter with the clerk.

I asked that we call in the two banks and the regulator.

We shall look at that under joint committee conditions. Does the Minister wish to make a statement?

I seek the approval of the Select Committee on Finance and the Public Service for a Supplementary Estimate of €65 million for Vote 7, bringing the net total Vote for 2009 to €333.735 million. This Supplementary Estimate of €65 million is to provide for the excess expenditure on the Vote arising from the significant increase in retirements of civil servants this year. The total number of established and unestablished pensioners has risen by 95% to date compared with 2008. The rise is due to an increase in normal retirements and those retiring under the incentivised scheme of early retirement.

It is likely the initial surge in retirements earlier in 2009 was due to the announcement in the supplementary budget in April that the Commission on Taxation was examining various aspects of pension tax treatment, including the treatment of lump sums, and that its recommendations were likely to be dealt with in the 2010 budget in December. The introduction of the incentivised scheme of early retirement also gave rise to a further increase in numbers retiring. Perceptions about future salary levels may also affect decisions to retire. In addition, the rise in retirements may be associated with the reduction in public service net salaries resulting from the pension-related deduction, or levy, as it is more commonly called.

To date approximately 1,000 civil servants have applied for early retirement under the incentivised scheme. It is estimated that some 960 will retire under the ISER this year, while the remainder will retire next year. The cost of the scheme in 2009 is estimated to be of the order of €12 million, for which no provision was made in the 2009 Estimates. There will be off-setting savings in salaries that over time will reduce the net cost to the Exchequer.

The subheads principally affected by the increased numbers of pensioners are subhead A, concerning superannuation allowances, compensation allowances, pensions and certain children's allowances. Subhead D concerns additional allowances and gratuities in respect of established officers and payments in respect of transferred service, namely, lump sums, death gratuities and marriage gratuities. The first heading related to the pensions of retired established civil servants, the second subhead relates to the payment of lump sums, death gratuities and marriage gratuities in respect of established civil servants. It also includes payments to public sector organisations in respect of the scheme for the transfer of pensionable service.

The third and final subhead, E, provides for the payment of pensions, lump sums, death gratuities and spouses' pensions in respect of unestablished civil servants.

Are there any questions?

I did not catch everything the Minister said. Did he say the cost is €12 million? The Estimate is for €65 million. There was a scheme like this before. How many years does it take to break even? In the longer term do such incentive schemes reduce the cost to the Exchequer?

We should make money on it. We reckon we will make money on this within a year but the payment of lump sums at a future date must be factored into future years because the payment of a lump sum is deferred under the incentivised scheme of early retirement.

Regarding the lump sum payments made is it possible to state the average payment per retiree?

I ask the Deputy to bear with me. Does he refer to the ISER scheme?

The 10% payable now is, on average, €8,323. The full lump sum, on average, is €83,235.

Was the Minister surprised by the 95% increase? There was the levy and many civil servants are retiring early. Does the Minister expect the surge to continue between now and budget day?

It is difficult to assess because of psychological factors. As I indicated earlier in the year, we are examining the recommendations of the Commission on Taxation. That appeared to prompt a large-scale number of retirements, especially among gardaí. I realise that does not come under this Vote. On the other hand, the commission has now reported and indicated it envisaged taxing a lump sum beyond €200,000. Notwithstanding this, there has been a drift towards early retirement because of speculation about possible pay reductions in the public service having a knock-on effect on lump sums and pensions.

From that figure of 1,000 is it possible to get a breakdown as to which Departments people are retiring from?

We have some figures for the Deputy, based on the revenue amount going out. The Departments of Social and Family Affairs and Agriculture, Fisheries and Food, and the Revenue Commissioners are the big three.

That is very interesting.

It is related to staffing numbers. Revenue have upwards of——

Perhaps they know something that we do not know.

Deputy Barrett can read no significance into that. I will not let him away with that. The reason the figure for the Revenue Commissioners is high is because there are many more civil servants there than in an average line Department. The Deputy is letting another hare out of the trap with that.

Is the Minister concerned at the high numbers of public servants taking early retirement? We have read in the newspapers of concern among senior management in the Garda Síochána because of the number of senior officers taking early retirement. In recent weeks in Galway five senior detectives have retired. They are the cream of the crop and have been very successful. It is a great loss to Galway that these people are going on early retirement and it strikes me as——

That matter does not come in under this subhead or Estimate.

Since the Minister referred to the Garda he may wish to comment.

I recognise that but we will stick with the particulars of the matter at hand.

The Garda is not covered by this scheme because it has an arrangement whereby within a certain distance of the actual retirement date, members can retire on a full pension, as I understand it. Few branches of the public service have this arrangement. In the case of an officer of the Garda Síochána, early retirement can take place without prejudicing the pension arrangements.

As the Minister stated earlier——

That is once 30 years have been served.

That is because of speculation about what may happen. It is a pity we are losing top talent on the basis of speculation. The public service is not served well by senior people leaving early for whatever reason. We should try to retain these people.

Management must examine this issue and it is a matter for it and the Minister responsible. It is a matter for them to decide what steps to take. I cannot be accountable for rumours and much of this is grounded in rumour. For example, a significant number of members of the force retired earlier in the year on the basis that the lump sum would be taxed. However, the Commission on Taxation report suggests it should only be taxed in excess of €200,000. Few gardaí will be affected by that.

Can that be confirmed?

I cannot confirm anything in advance of a budget. However, I simply drew attention last April to the fact that the matter was under consideration by the Commission on Taxation. I draw attention now to the recommendation of the Commission on Taxation related to sums in excess of €200,000. However, some members have retired on that basis. I cannot be accountable for rumours. The difficulty we have is that the State is trying to reduce payroll costs in a variety of ways, whether through early retirement or work, pay or numbers reductions. There is pressure on the payroll bill of the State in all its aspects and in that context rumours can abound. A group guaranteed a pension in advance of retirement is clearly a vulnerable group in that context.

It will cost the State more to lose quality people, such as those we have lost in Galway. There is no question about it.

Is there any way, if the Minister places an upper limit on it, that it would not be reduced the following year or beyond then?

That is my point. One may continue to speculate.

That is correct and that is the problem. No doubt the Department of Finance would like it to go down anyway.

I refer to unestablished officers. Does everyone in the Civil Service know with which pension fund they are associated or what category of person they are? Recently, I encountered a case involving a person who worked in the Civil Service for several years. This person understood he was an established officer and paid pension contributions at the established rate all the time. The person retired during the year but was informed of a clerical mistake, that contributions should not have been deducted at the established rate and that the person would not receive the pension which he understood he would receive, but would only receive 20% of it. The person was given a refund of contributions. It seemed very strange to me. Given the Minister's professional experience from his previous career——

My previous career is long behind me. I could not be relied upon to give accurate advice, now that I am so distanced from my former career.

I realise that the Minister will not go back to his previous career for a long time, if ever. However, my point is that I am surprised at the intransigence. Clearly a mistake was made. As a layman this would seem to be a good case for someone in the Minister's previous profession. How could such a mistake be made? If it was a paperwork-related mistake, that is tough and the Minister might as well come out with his hands up and give the man his bloody pension.

In 2007 a circular was distributed to the whole Civil Service requesting people to check their pension entitlements and ensure that they were aware of them. If the Deputy wishes to give me some papers in respect of the matter to which he referred, I will have it examined.

I have done so already. The answer is——

The Deputy should give them to me.

I will do so, personally.

Was the Commission on Taxation recommendation relating to the €200,000 limit only in respect of the public service?

As I understand it, it relates to lump sums generally.

Some of the subheads relate to lump sums, death gratuities and marriage gratuities. Are marriage gratuities still in place?

Few are, but they may apply to pre-1974 public servants.

Has the Minister ever considered that perhaps the lump sum should be provided under an insurance scheme from the private sector? It would be a good deal cheaper to underwrite it in the private sector by way of paying an annual premium, rather than be faced with a bill for large sums. The Minister would have a steady annual premium to pay rather than having to mete out day-to-day expenses.

One could average the amount over time but we would end up paying a premium to the insurance company above and beyond the cost to the taxpayer.

No, the premium would substitute for the Minister paying the lump sum. The company would pay the lump sum in the event of a death.

I meant a premium in the economic sense. The cost of such an arrangement to us might be more expensive than an arrangement directly funded by ourselves, if one compared it over time.

I do not believe so. The Minister pays it out of day-to-day——-

We pay it out of voted current expenditure.

Yes. Lump sum insurance is fairly cheap and it should be considered. There is no difference between it and the private sector under which there is simply a lump sum payment. Members have such a scheme.

There is a voluntary scheme.

There is a voluntary scheme under which we may pay for up to three times our salary.

That is only in the case of death.

That is what I am talking about, in the case of death only.

This lump sum is payable on retirement.

I am talking about a death sum.

I am sorry we are at cross purposes.

I am referring to death gratuities.

It is worth examining. That is a different issue. I assumed the Deputy referred to other lump sums and he will understand why I suggested it would cost us a good deal more. We will examine the matter of death gratuities for the Deputy.

I thank the Minister.

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