All mobile phones should be switched off as they cause interference even if on silent mode with the recording equipment in committee rooms. Today's meeting has been convened to consider in part A a Supplementary Estimate for Vote 35 - Army pensions; and in part B a Supplementary Estimate for Vote 27 - international co-operation. These were referred to the select committee by Dáil Éireann on 21 November 2018 and a briefing has been circulated to members. I thank the Minister of State, Deputy Kehoe, and his officials for attending and assisting our consideration of this Supplementary Estimate. I also thank the Minister of State and his Department for the briefing material circulated to all committee members. I remind members that in accordance with Standing Orders, discussion should be confined to the items constituting the Supplementary Estimates only and not other matters relevant to the Departments. I ask the Minister of State to make his opening remarks.
Vote 35 - Army Pensions (Supplementary)
I note the Austrian ambassador is in the Gallery.
I thank the committee for the opportunity to present for its consideration the 2018 Supplementary Estimates on Vote 35, the Army pensions Vote. The Vote makes provision for retired pay, pensions, allowances and gratuities payable to or in respect of members of the Defence Forces and certain dependants. The 2018 Estimate provides a gross sum of €239.1 million for the Vote; however, gross outturn this year is expected to be approximately €242.6 million, which leaves a shortfall of €3.5 million. The €3.5 million required is 1.5% of the original gross Estimate. I will deal with the recent spending review of Defence Forces pensions expenditure, which is particularly relevant in the context of this Supplementary Estimate, later.
I will set out the position regarding the relevant subheads of the Vote. Subhead A2 is the largest subhead of the Vote. It covers spending on all pension benefits for former members of the Permanent Defence Force, PDF, and their dependants. It accounts for 96% of all military pensions spending, including gratuities. It is demand-driven and non-discretionary. The original provision of approximately €229.2 million for the subhead will not be sufficient to meet all requirements for the year. In the circumstances, the shortfall on this subhead is estimated at €4.7 million.
I refer to the main reasons for the shortfall in the subhead. The number of Defence Forces pensioners has continued to rise during the past year and at the end of October 2018 there were approximately 12,450 military pensioners of all categories. This is a net increase of approximately 460 since the end of 2013. Based on available information, it is projected that approximately 340 military personnel will retire with a pension and lump sum in 2018. Overall, this turnover during the year was greater than what was provided for in the original Estimate. This is driven by natural turnover of Defence Forces personnel annually, allied with increased life expectancy generally. New retirees going on pension continue to outnumber deceased pensioners by a ratio of about 2:1 on average.
In other areas of the public service, most people leave at a standard retirement age and so their numbers and timing of departure can generally be predicted well in advance. However, the PDF is different because the vast majority of military personnel who retire on pension do so voluntarily; that is, before reaching maximum retirement age and at a time of their own choosing. As these voluntary early retirements are not known in advance, this can contribute to greater than expected expenditure on military retirement benefits in any given year. This situation is a product of the availability, for operational and human resources, HR, policy reasons, of the early payment of pension benefits immediately on retirement after relatively short periods of service and regardless of age. In any given year, forecasting of Defence Forces pensions expenditure and the exact number of retirements is very difficult. In 2017, some 70% of military personnel who retired on pension did so voluntarily and the picture is much the same for 2018. In addition, many retirees qualified for the maximum retirement benefits, which also contributes to the ongoing increased expenditure.
The shortfall of €4.7 million under subhead A2 will be partly offset by expected savings of €1.2 million under subheads A3 to A6, inclusive. To sum up, the purpose of the Supplementary Estimate for Vote 35 is to seek additional funding of €4.697 million for subhead A2 and to reallocate savings of €1.197 million from subheads A3 to A6, inclusive, to subhead A2. This leaves a net Supplementary Estimate requirement of €3.5 million.
Earlier, I referred to the recent 2018 spending review of Defence Forces pensions expenditure. The review, which was published on budget day, was carried out as part of the 2018 round of spending reviews and was undertaken jointly by officials from my Department and the Department of Public Expenditure and Reform. Briefly, the review came to the following conclusions. Defence Forces pensions expenditure and pensioner numbers have been increasing progressively year on year. This trend is forecast to continue in the short to medium term. Military pensions expenditure, in common with public service pensions generally, is demand-driven and non-discretionary, so it cannot be arrested or reversed in the same way as may be possible with other aspects of Exchequer expenditure. Defence Forces superannuation arrangements differ in a number of key respects from the wider public service. These distinctions include earlier and more unpredictable retirement turnover with entitlement to immediate pension benefit, and atypical faster rates of benefit accrual. These factors make it more difficult to predict annual funding requirements accurately in any given year. Of particular relevance is the review’s conclusion that funding allocated in the annual Estimates process for Defence Forces pension benefits has proved insufficient in recent years. This has led to an annual requirement for a Supplementary Estimate, largely met through identified savings from the Vote 36 - Defence. In noting the Supplementary Estimates that have been required in the past, the spending review goes on to recommend that the Army pensions Vote should be allocated resources in line with the cost analysis in the review from 2019 onwards, to ensure that the full cost can be met.
As the committee will be aware from previous Estimates debates, it has been my stated intention to seek extra funding for military pensions as part of the overall budgetary negotiations. I am pleased to report that solid progress has been made on that front. As announced in budget 2019, an extra €10 million has been allocated in the 2019 Estimate for the Army pensions Vote, a 4.2% increase. This follows an additional €6 million in the 2017 Estimates and an extra €9.5 million in the 2018 Estimates. As stated in the pensions briefing material provided to the committee for today’s debate, the extra €10 million in Vote 35 for next year is generally in line with the forecast for Defence Forces pensions expenditure for 2019. The situation will be constantly monitored over the course of the coming year to ensure that appropriate funding is in place to meet all requirements.
I commend this Supplementary Estimate for the Army pensions Vote to the committee. I will be happy to take any questions regarding the Vote.
I thank the Minister of State and call Deputy Niall Collins.
I do not have any questions. I am happy to accept the Supplementary Estimate.
I have a general question. Should we be holding on to Army personnel for longer rather than giving people attractive pensions at a relatively early age? I am throwing out the question, not necessarily making a suggestion. The question has to be answered, however. Can we afford to have a situation where people can retire on these terms? It is part of their right under the existing scheme, so this would mean a change in rules and regulations for new people coming in, but it strikes me that it is an uphill battle all the time. Are the Defence Forces under-strength as a result of retirements? This naturally becomes a bigger problem when the economy is going well and people have other options. We rightly spend a great deal of money on training people and on all the other things that go with the Defence Forces. Then we are left at the mercy of whether these people are going to stay the course or take early retirement. Has there been any thought of reviewing the conditions under which people join the Defence Forces and the length of time we expect them to serve? It is a constant issue that we do not really know when people are going to take up other options.
That is a very important question. The pensions for personnel changed in 2013. A person leaving now will be on the old pension regime and there is an attractiveness there that they get their 21 years and then they get the pension. They are fit and well and can go out and work. The wider question the Deputy asked is a HR issue. The White Paper on Defence was published in 2015. The issue to which the Deputy refers is being looked at in the context of the White Paper. He has a very valid point. However, we have to reach a balance. We have to have members who are fit, healthy and able to perform the day-to-day duties expected of them, whether overseas or at home, whether the person is male or female. I fully understand where the Deputy is coming from. I expect we will have some progress made on the issue shortly as part of the White Paper project.
So we wait for the White Paper.
A few years ago, I recall there were quite a number of members of the PDF who had to cease membership after 20 years' service. They were still very young men and women. Is the 20-year fixed term gone now? Those people were disappointed to be leaving. They had a lot of knowledge, experience and skill and they were a loss to the Defence Forces. It is a fairly blunt instrument. If a person joined at 17 or 18, he or she would still be young and fit after 20 years. Is there a different retention measurement in place now in regard to age or length of service?
The answer is similar to what I said to Deputy Barrett. Within the White Paper project, there is a gap analysis project which I am bringing forward to examine where we have gaps within the organisation.
We can consider the criteria for extending the service beyond retirement age. The examination of retirement ages for enlisted personnel has been prioritised also. Given the retention challenges we face at the moment annual recruiting will not get us out of the problems we have and we have to examine other areas. This is one the Chairman and Deputy Barrett have referred to.
It strikes me that in this day and age when people are healthy, living longer and are active and fit, especially Army personnel, it is a great loss, not only in terms of having to recruit people to replace them but of experience. That cannot be bought. Twenty years is a very short time. If somebody goes in at the age of 18 they are gone at 38. The best part of their working life is still in front of them. I am not saying they should stay until they are 65 or anything like it. We have to be practical but we need to keep people with experience. People are trained, they do a great job and we are very proud of them but our troops are not actively engaged in warfare or dangerous work. By and large, they do peacekeeping missions and do that exceptionally well.
I am glad to hear that as part of his White Paper the Minister of State is reviewing all these things. They can trundle along. Maybe people are leaving but experience cannot be bought in any walk of life. I would suggest but maybe I am wrong that when the economy picks up and other opportunities arise it puts a tremendous strain on the Defence Forces, because there are plenty of options for people to leave and get other employment. They are very good personnel. An employer in any walk of life would love to have them. From the country's point of view and that of the Defence Forces, and the role we play in peacekeeping which is very important and which I am very proud of maybe we should be seriously reconsidering. I accept what the Minister of State said, that he is producing a White Paper and is considering this. I am glad to hear that is the case.
I have been working with their representative organisations on this issue and this has been raised with me through them. It is not the first time it has been raised. It is an issue we have to face. The Deputy is quite right in saying that there are some people who could stay on in the organisation. There are many opportunities for personnel to progress through the organisation in terms of promotion and so on and they have an opportunity to stay on well beyond the retirement age for a regular soldier. There were more than 700 promotions last year and 600 so far this year. There are opportunities but there is definitely an issue. The gap analysis is in the White Paper project and we are seriously considering it.
I very strongly share Deputy Barrett’s view on experience. As a society, not just in Ireland but around the world, we do not value experience and corporate knowledge. Unless people are putting stuff up on Facebook and tweeting, and all this type of social media stuff that is governing too many people's lives today, there is not the respect or appreciation for experience, skills and knowledge that is built up over years by a person through their profession or trade. I am sure there are plenty of people leaving jobs through natural retirement with very important corporate knowledge that is not in a file. I am not saying people omitted to leave notes on a file but society does not value knowledge that is built up through interaction at meetings and participation in work to the extent that it should. I do not know how that trend could be counteracted but we should be cognisant of the value of the corporate knowledge, the skills and experiences.
The Chairman is right and specifically those who go overseas have that corporate knowledge which they could show the younger personnel within the organisation. That is the same in every organisation. People would say the older people have the corporate knowledge and it is very important that they are able to hand it down to the next generation.
I thank the Minister of State for his presentation today. We all agree with the need to ensure there is adequate funding put in place to meet the requirements of the people who have served our country well. This is our last engagement with the Minister of State in 2018. I thank him and the officials for their co-operation and engagement with us over the course of 2018.
Could the Minister of State extend to the members of the Permanent and Reserve Defence Forces our appreciation as a committee for the work they do on our behalf, on our island and on missions overseas too? I would very much appreciate if that message could be sent to the serving members, of all ranks, to assure them of our full support for and appreciation of the work they do so well on behalf of all of us. They do much good work in promoting the interests of our country abroad in their different peacekeeping missions too.
I would like to join in the Chairman's remarks. One of the nicest experiences I had in my 37 years in public life was the short term I spent as Minister for Defence. It is a unique position and very rewarding, dealing with people who are always very committed to what they are doing. Like everywhere else in life there is the odd bad apple but as a force they are tremendous and they represent this country very well, here and abroad. One could not buy the good publicity this country gets from the missions they participate in. I would like to think that the Minister of State would send, as the Chairman has asked, our good wishes and thanks to all members of the Defence Forces for the work they continue to do.