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SELECT COMMITTEE ON JUSTICE, EQUALITY, DEFENCE AND WOMEN'S RIGHTS debate -
Wednesday, 2 Dec 2009

Vote 37 — Army Pensions (Supplementary)

The purpose of today's meeting is to consider a Supplementary Estimate for the Defence Vote 37 — Army Pensions. I remind members this is a Supplementary Estimate rather than the totality of the Estimates. This section of the meeting will finish not later than 4 p.m. in order that we may consider the Supplementary Estimate for the Justice, Equality and Law Reform group of Votes. Is that agreed? Agreed.

I thank the Minister for Defence, Deputy O'Dea, and his officials for attending and assisting our consideration of the Estimates. A briefing note providing details of the Supplementary Estimate was circulated to members. If we adhere to a reasonably strict schedule, the Minister will address the committee for approximately ten minutes after which each of the Opposition spokespersons will have the same length of time to respond. We will then have an open discussion. Is that agreed? Agreed.

I again remind members they are considering only the Supplementary Estimate for Army pensions and they may discuss issues relevant to this subhead. They may not recommend increases or decreases in the Supplementary Estimates and there are no votes.

I invite the Minister to make a brief opening statement.

I thank the committee for the opportunity to present for its consideration the 2009 Supplementary Estimates for Vote 37 — Army pensions. This is for a net sum of €7.2 million. The Army pensions Vote makes provision for retired pay, pensions, compensation, allowances and gratuities payable to, or in respect of, members of the Defence Forces. The original Estimate provided a net sum of €202 million to cover a total of almost 11,000 pensioners, comprising some 8,700 retired members of the Defence Forces, about 1,750 spouses and children of deceased members and some 475 spouses of deceased veterans of the War of Independence. The numbers in the first two categories mentioned have increased during the past year, while there are now fewer than 400 recipients in the last category, that is, veterans of the War of Independence.

Subhead B is the main subhead of the pensions Vote and covers expenditure on all superannuation benefits in the case of former members of the Defence Forces and their dependants. It accounts for over 95% of all Army pensions expenditure, which is, of course, largely demand-led. The original provision of almost €197 million in this subhead will be inadequate to meet all requirements and the gross shortfall is estimated at €7.2 million. This shortfall arises from the higher than anticipated number of personnel leaving the Defence Forces during 2009 and qualifying for pensions and retirement gratuities.

In that regard, the number of military pensioners under subhead B has increased from 10,066 at the end of last year to 10,243 at the current time. This is consistent with an underlying upward trend over the last few years. It is also in line with the position in many other areas of the public service which are experiencing higher levels of retirements in 2009 than in previous years. Another contributory factor to this year's Supplementary Estimate requirement is that a growing proportion of retirees are in the long service category and thus entitled to maximum retirement benefits.

A shortfall is also anticipated in appropriations-in-aid. This arises from the refund of pension contributions over-deducted from post-2004 enlisted personnel. Numbering some 1,700, they are being refunded a total of €1.3 million, representing an average of about €775 each. The overall supplementary requirement will be offset by expected savings of €1.3 million in subheads C, D, E and F.

Committee members will be aware that the Public Service Pensions (Miscellaneous Provisions) Act 2004 made provision for a new pension scheme to apply to new entrants to the Defence Forces from 1 April 2004, for a minimum pension age of 50 for new entrant officers and enlisted personnel and for the exclusion of the Defence Forces from the removal of the compulsory retirement age in other areas of the public service. When I was before the committee for the Supplementary Estimate this time last year, I was able to report that formal agreement had been reached with PDFORRA on certain improvements in pension terms for enlisted personnel recruited prior to 1 April 2004 and on the new pension scheme terms applicable to enlisted personnel recruited after that date.

I am now pleased to inform the committee that, following the successful conclusion of lengthy discussions, corresponding agreement was recently reached with the Representative Association for Commissioned Officers regarding commissioned officers. This agreement comprehends the detailed terms of the post-April 2004 new entrant officer pension scheme, as well as some limited modifications to the existing pension arrangements of those already serving on 31 March 2004. The newly-agreed arrangements for enlisted personnel and officers collectively represent the successful achievement of a long-term key objective in the ongoing modernisation and reform agenda for the Defence Forces.

The main features of the new pension scheme terms include the following: benefits will be calculated by reference to total service and pensionable pay at retirement; the minimum pension age will be 50 years regardless of rank; the preservation of benefit to age 60 will apply where retirement is before the age of 50; maximum benefits will accrue over a period of 30 years; and benefits will be integrated with the social insurance system, as in other public service pension schemes generally.

The changes in new entrant public service pension terms which flowed from the 2004 Act will contribute to the achievement of a more secure financial basis for public service pension schemes in the medium to long term. While the principle focus in that regard has been on the pension arrangements of future new entrants to the public service, the aim has also been to ensure that pension scheme terms remain reflective of the particular operational requirements of the different groups involved.

The commission on public service pensions concluded in its report that the Defence Forces have different manpower policy objectives than other groups, requiring a combination of regular turnover coupled with the retention of career personnel, and that pension scheme design should be capable of supporting this policy. It will also be appreciated that the nature of military service requires the continued application of appropriate compulsory retirement ages.

The debate on public service pension reform continues. I refer in particular to the latest concerns expressed in their respective reports by the Comptroller and Auditor General and Colm McCarthy regarding the long-term cost projections of public service pensions over the next 50 years. The implications of this and the question of any further necessary reforms will be a matter for consideration by Government in due course. I commend the Supplementary Estimate to the committee.

I welcome the Minister and his officials. I have a number of questions. There is major concern about the number of personnel leaving the Defence Forces. The McCarthy report suggested that the strength of the Army should be 8,000, which a similar number to the current level of personnel, and that such a change should happen over three years. However, it has happened over three months, something which gives rise to major concern.

I understand that as a result of the current moratorium on recruitment and promotion there are unfilled ranks and people are operating at a level above the rank for which they are trained in the Army. That does not help the overall command structure and because the Defence Forces is a hierarchical organisation it creates certain difficulties and may damage the establishment of missions in the future.

There is a reason people are leaving are leaving in such huge numbers at the moment. The question must be asked. The same applies to the Naval Service. Unfortunately, in the navy——

The Deputy is supposed to deal only with Army pensions.

Yes, I know. In terms of the navy, it is very difficult to put somebody on a ship who is not trained for the role. Navy personnel are critical if one wants to keep a presence on the high seas. Has the Department established the reason we are here today, namely, the fact that a higher than anticipated number of personnel are leaving the Defence Forces? We are here today in order to allocate more money for the pensions of the people concerned.

Are people leaving because of the moratorium on recruitment or the salary structure? Are they leaving because they have received offers from private companies, which is unlikely? Are people leaving because of the inconvenience caused by the closure of barracks? Such personnel had to leave where they were living in order to travel to other barracks or may have decided to retire.

The issue of the gratuity should have been defined because one reason public servants, including teachers, are leaving service is because of a fear that the gratuity would be taxed and if they stayed in their posts until after the budget they would be at a disadvantage. A proposal was made by the Commission on Taxation that no gratuity under €200,000 would be taxed. We need clarity on the matter because if people are unsure about the situation there will continue to be a drain in terms of personnel leaving service. The Minister and his officials should determine the reason so many people are leaving.

I ask the Minister to give us a breakdown of retirees by seniority. How many senior officer and specialist posts are currently unfilled? The Minister announced he will lift the moratorium on promotions in the case of 50 vacancies. Can he give us an assurance that the key officer posts will be filled, notwithstanding the moratorium?

On the issue of retirement, do members of the Defence Forces need authorisation from the Chief of Staff, through the Minister's Department, to retire early? If so, is the grant of authorisation for leave to retire given automatically? If a person holds a certain position can he or she be asked to stay on because there is nobody to fill the position? Did the Minister or the Chief of Staff ever give consideration to the refusal of an authorisation for leave to retire? In recent times, has anybody been refused authorisation to retire? It is no harm to clarify that whole issue about methods of retirement.

In regard to the original calculations for retirement and pensions — and the reason we are looking for more money — what was the basis for the calculations originally used for the Department? Was it just a rough estimate? Why are we here today looking for more money to finance pensions? Is it because at the time we did not anticipate so many people would retire on pension? If so, surely it is not a good way of doing business if we underestimated to that extent the level of retirements and the pension requirements for 2009 and henceforth.

There is also the whole issue of pensions for cadets. There was a big issue about cadets last year as we did not know whether the cadet school would open but, thankfully it did, and for which I thank the Minister. Had it not opened that would have been the first time in history for that to happen. That it did open is welcome. What are the pension conditions for new cadets joining the Defence Forces? A concerned cadet asked me if the conditions have changed. I understand that in the 1990s the pension was substantially downgraded? Is the Minister satisfied with the pension deal? I attended the RACO conference last week and the announcement concerning the 50 promotions was well received. There was some relief but it is not enough. I am sure the Minister felt that gratitude. I understand the breakdown of those promotions is 15 officers and 35 NCOs. Who will decide on the operational requirements? Who will decide what positions will be filled? Surely that should be left to the military authorities. The word is out that people are being directed as to what posts should be filled. Surely the military authorities have the best knowledge as to how those 50 posts should be filled. Perhaps the Minister will clarify whether it will be the military authorities——

The Deputy is straying from pensions again.

I am not. Will it be the Secretary General of the Department of Defence who will decide those posts? Under subhead B, appropriations-in-aid, I am sure I am allowed discuss what is in the brief.

The Vote concerns Army pensions.

It is the brief we are addressing here.

We are discussing Vote 37.

I am on subhead G now——

The Deputy's ten minutes are up.

The Deputy cannot come back in again.

With all due respect to the Minister, we get about an hour to discuss the Defence Estimate and a budget of almost €1 billion and one is being advised to shut up or whatever.

We are not discussing all the Estimates. This is a Supplementary Estimate.

It is in the same context. According to the Minister's brief, a shortfall of €1.3 million is anticipated in appropriations-in-aid for 2009, arising from the refund of contributions over-deducted from post-2004 enlisted personnel. This raises some questions. When were these over-deductions spotted and by whom? There is mention of PDFORRA. Was it the Department, PDFORRA, the Comptroller and Auditor General or somebody else? When the last budget and this budget were being drafted, was the issue of the shortfall raised? If, as suggested, those arrangements were the subject of a formal agreement with PDFORRA in November 2008, why was the correction not built into the April 2009 budget? That is a fair question. Is it possible that due to error additional costs will be incurred in budget 2010?

Given that we are discussing Estimates and budgets, has the Minister or the Government looked at other aspects of the Department of Defence budget and other aspects of the pensions system to ensure that the miscalculations will not suddenly hit the taxpayer in the future? I suggest the Minister review other miscalculations to ensure they do not occur in the future.

I welcome the Minister and his officials. In regard to subhead G — appropriations-in-aid, contributions to spouses' and children's pensions schemes by officers, NCOs and privates, is it mandatory on all serving members of the Defence Forces to subscribe to those schemes? For those who have not subscribed to those schemes, is there any provision to enable them to opt in? Will the Minister agree that contributions to the spouses' and children's pensions schemes should be mandatory?

In regard to recoveries of overpayments, how did these overpayments occur? Given that it is included here as one of the four main headings, I take it there are significant overpayments which have to be recovered from time to time. It is difficult to see how overpayments can occur in respect of Army service and Army pensioners. I assume that payment continues after death or whatever but I would like more clarification on that issue.

I am also interested in payments received in respect of transferred service. What is the extent of transferred service? I take it that before joining the armed forces these people had service with some other State agency and that there was a pension entitlement to transfer. Obviously that figure would be down somewhat at present because of the embargo. Are there significant transfers to the pension? If somebody transfers from an existing pension, is it a pro rata situation? In other words, if I transfer from a pension scheme in which I have five or ten years entitlement, do I automatically get that entitlement in the transferred pension or is the sum that I contribute considered before my entitlement would be assessed?

Significantly, it appears that the number of spouses of deceased veterans of the War of Independence has decreased in the past year, from 475 down to 392. It is remarkable that so many are still alive. I do not know the reason for that but considering how long it is since the War of Independence, it is a compliment to something that these spouses have survived for so long. Unfortunately, however, a considerable number passed away in the past year. It is interesting to note that the number of Defence Forces pensioners at present exceeds the number of serving members of the Defence Forces, although not by a great deal. There are 10,243 in receipt of pensions. This includes spouses and children of deceased members, as well as the spouses of deceased veterans of the War of Independence. This trend continues to develop.

On the pension issue, I am aware of a case where a serving member of the Army succeeded in getting promoted to the rank of sergeant, subject to a medical examination. That examination was to take place on the Thursday following the day the moratorium was announced. I further understand, although I do not have the full details with me, that the person was close to pension age. Does the Minister intend to cater for situations where somebody misses out on promotion because of the embargo and retires? In other words, would somebody like this be retrospectively granted the promotion, which had been awarded subject to the medical examination, and would this subsequently apply to that person's pension?

The fund for compensation payments has hardly been touched this year. Is there a specific reason for that? The fund provides compensation for death or personal injury of members of the Defence Forces while serving overseas with the United Nations or with certain other forces. What other forces does the Minister mean? I am not clear about that. In general terms, it is something to rejoice about that there has been no death in the Defence Forces this year wherever they are serving, particularly in Chad. I have become a little alarmed by some of the news reports I have read about service in Chad. I welcome the fact that there has not been recourse to this fund in the current year because it means people are not being killed or seriously injured when serving overseas with the United Nations or otherwise.

What savings will there be as a result of the number of people who have retired in the current year? The McCarthy report recommended that the force be reduced to 10,000 with a target of saving 6.85% on the pay bill. That has been more than achieved. A total of 500 people have left the Defence Forces, which means that approximately 9% of the pay bill is now being saved. The Minister has not yet had the opportunity to answer the question asked by Deputy Deenihan about the levels where the retirements occurred, that is, at commissioned officer, NCO or private level. Where have the retirements taken place and is this trend on retirements continuing? Last week I put down a parliamentary question to the Minister regarding the number he envisages being in the Defence Forces on 31 December. Can he give an indication of what that will be? Obviously, he will also clarify the issue of the 50 posts in response to Deputy Deenihan's question.

As the Minister said, pension schemes are demand led. This money is required and must be provided. With larger numbers of people retiring their gratuity payments must be met in the current year but the savings will be seen in the new year. However, I am somewhat concerned about the number of people retiring. Deputy Deenihan made the point that in many cases people in the public service are retiring due to the fear that gratuity payments might be taxed after the budget. Obviously, the Minister cannot respond on that point today. He pointed out in the House last week that it is in the nature of defence forces to have a high rate of people leaving in any case, but we are all concerned about the Defence Forces remaining a credible organisation in the future. Is the Minister satisfied that the 50 posts he secured will be sufficient to retain that credibility?

The other issue is that there must be some continuing trend with regard to retirements. They are either continuing at the same level, abating somewhat or increasing. It is important that this be taken on board. I am not suggesting that the Minister will have to return to the committee for a Supplementary Estimate to cover additional retirements which happen after this Estimate is passed by the House, as it undoubtedly will be, but there is certainly a question mark overhanging the Defence Forces regarding the credibility of the organisation.

Deputy Deenihan asked about the number of personnel leaving. He made the point that the McCarthy report suggests we reduce numbers from 10,500 for the total Defence Forces to 10,000 over a two to three year period and that we are already down to that figure at nearly 10,000. The difficulty is that the moratorium has had a particularly severe impact on the Defence Forces. It is the nature of any military organisation to have a high level of turnover. We do not have turnover because while on the one hand people are leaving, we cannot replace them. That is taking a toll. I have had detailed discussions with my colleague, the Minister for Finance, about promotions.

As the committee will see, the first fruits of that appeared recently where I got permission for 50 promotion posts. I also have made submissions on recruitment and I have a commitment from the Government that we will not let the numbers fall beneath 10,000. As the numbers are approximately 10,000 at present,——

May we have a breakdown of that between the three main areas?

I will send that information on to the Deputy.

I suppose there are 8,000 in the Army.

I think there are 8,200. The number is changing daily. The Department will send on the latest figures.

The Army is down to nearly 8,000. That was the figure on the last occasion.

The point is that we will be recruiting shortly after the budget, according to the information available to me.

On Deputy O'Shea's last question on whether the 50 promotions would be sufficient, I would envisage further promotions in the context of fixing the numbers in the budget. I would anticipate that there will be more than 50, which is the down-payment.

Who decides on the promotion?

It is the chief of staff in consultation with myself. I will be informed. The 50 promotions will be spread across all ranks. To date no proposal has been put to me as to where they will go. As I stated, the chief of staff and his advisers will decide, but they will consult with me.

It is their view that is taken.

Unless there is some compelling reason they should be overruled. They are the people with the specialist knowledge and who are managing the organisation on a day-to-day basis.

Deputy Deenihan asked why so many people were leaving. I can only hazard a guess on that. I would imagine the moratorium probably has something to do it. Uncertainty about the future, I suppose, would also be a factor. One would find that in all ranks of the public sector. We have had difficulties in the Garda Síochána and in other ranks of the public sector. In my own Department people go because they are not quite sure what is coming down the line. The barracks closures had nothing to do with it, not in so far as I have an evidence on the matter.

Deputy Deenihan asked questions about the tax on the gratuity. As he will be aware, I cannot answer those in detail, except to say this if it offers anybody any reassurance. Whatever changes are made in the budget on taxing public service gratuities will not kick in until after 1 January anyway. As the Deputy will be aware, the budget is on 9 December and there is a gap there.

Time for reflection.

Time for reflection.

Deputy Deenihan asked for a list of the retirees by rank, and I have that here. In terms of officers, it is about 12 colonels, 29 lieutenant colonels and commandants, and 12 captains. In terms of enlisted personnel, it is about 15 sergeant majors, 37 company sergeants, 120 corporals and 150 privates.

How many of those would be retiring before their full time?

We will send that information on to the Deputy. I would say most of them are long-serving. I was looking at the figures the other day. I would say it is close enough to 50-50, but we will get the Deputy the exact figure.

As regards assurances that the key posts will be filled, on the 50 promotions for which I have got the go-ahead and any future promotions, the Chief of Staff will know where it is appropriate to use these promotions and he will do it in conjunction with myself. Of course, our common objective is to ensure that the Army retains credibility and that the posts are going to where they are most needed.

On whether we anticipated the shortfall, more retired than we anticipated. The figure this year for persons who are entitled to pensions retiring is 350 to the end of October. The figure to the end of October last year was 260. It was a little more than we anticipated.

Deputy Deenihan asked about the new pension scheme for cadets. There is not a pension scheme for cadets per se, but cadets become commissioned officers and then they avail of the new pension scheme for commissioned officers. The main features of that scheme are that benefits will be calculated by reference to total service and pensionable pay at retirement, the minimum pension age will be 50 years regardless of rank, preservation of benefits to age 60 will apply where retirement is before the age of 50, maximum benefits will accrue over a period of 30 years and benefits will be integrated with the social insurance system as in other public service pension schemes generally.

Deputy Deenihan asked who would decide what are the operational requirements of the Army. I answered that, it is the Chief of Staff and his advisers in conjunction with myself.

The over deductions were rather unusual.

I am advised that the amounts withheld on a prudential basis were somewhat larger than should have been withheld. This emerged, I am advised, in negotiations with PDFORRA. The problem manifested itself in 2008 and the arrears are now being repaid. It involves €1.3 million.

That is welcome. Only for PDFORRA identifying this, people would have been at a substantial loss. How many people are involved?

Some 1,700. They are being refunded a total of €1.3 million representing an average of approximately €775 each. Individual refunds range from approximately €230 up to €1,580 depending on length of service.

Could we distinguish here between the repayments made to people who came in after April 2004 and the issue of the recovery of overpayments which is part of the receipts on the appropriations-in-aid side? I raised that question earlier.

The total provision for recovery of overpayments is only approximately €40,000 for 2009.

How did these arise?

They are still working out the details. If somebody dies, for example, it might be a few weeks before the matter comes to the attention of officialdom. Generally speaking, as I understand it, that is what happens.

There are not similar cases in other aspects of the pension scheme. Is this a once-off, just one mistake that was made? Can the Minister assure us that there not others?

The €1.3 million is completely different. That was an over-deduction by the Department to be paid over.

Did that arise out of the November 2008 agreement? There was no issue of overpayment by serving members until that stage and it was at that stage that the business of recoupment arose on the part of the Defence Forces.

I am advised that we over-deducted and that we are repaying, which is self-evident. We made the deductions during the course of the negotiations in anticipation of the refunds to come afterwards. That, apparently, was done with the knowledge of PDFORRA.

We are making the point. Should it not have been contained in the 2009 budget? Could it have been?

I am advised that provision was not made for it.

Deputy O'Shea asked whether it was obligatory for all members to subscribe to the spouses' and children's scheme. It is obligatory for all new entrants to subscribe. The Deputy also asked about service transfer. My understanding is that the numbers are quite small. In general people transfer out of the scheme. I do not have any figures on service transfer. The note states that under the public sector transfer scheme, service with the Permanent Defence Force may be reckoned for superannuation purposes by certain public sector organisations, for example, the Civil Service, the Garda Síochána and semi-State bodies such as Aer Lingus, ESB and RTE. When transfers take place between the Defence Forces and other approved organisations, a contribution towards the pension and lump sum of the transferee becomes payable by this Department unless the second organisation has opted for what is called a "knock-for-knock" arrangement under the scheme.

I take it that it was not obligatory for people who entered the service before April 2004 to opt into the spouses' and children's pension scheme at that stage. Is there any scheme to allow them to opt in or buy back in at this stage?

Is the Deputy referring to the old entrants who were in prior to April 2004?

The scheme was introduced firstly for soldiers who were serving back in 1978. They were given the choice to opt in or opt out. I believe the Deputy is asking that if they did not opt in whether there is provision to allow them opt in retrospectively.

Subsequently another option was given in the mid 1980s and those who did not opt in are more or less out.

I presume that will not be revisited in the near future.

We will have a look at it.

That is not a problem solely in the Defence Forces. It goes right across the public sector.

Deputy O'Shea asked about the transfer of service. I can confirm that the contribution operates on a pro rata basis.

The Deputy mentioned compensation for death or serious injury while serving overseas. The reason we are not paying out is that fortunately death or serious injury has not occurred for the relevant year. It covers all United Nations-mandated missions, regardless of whether it is organised under the aegis of the European Union or a directly UN-led mission.

The Deputy asked me how many people I anticipate being in the Defence Forces on 31 December. At the moment we have approximately 10,000. The numbers may drop and other people may depart between now and the end of December and the recruitment will not have kicked in by then. I cannot say exactly how many. However, I can assure the Deputy that the Defence Forces will not be allowed to fall below 10,000 in total. So I will be given the go-ahead to recruit people very shortly after the budget.

The point is that by the time the people are in place it might have dropped below 10,000 if the trend continues as is.

There may be a temporary hiatus, but I can assure the Deputy it will be very temporary.

Deputy O'Shea asked me if I was satisfied that 50 promotions would be sufficient. I have already said that in the context of fixing the numbers in the budget, I anticipate getting the go-ahead for more promotions.

Do the Deputies have any other issues or remarks?

We tried to stick to pensions. There are several other issues.

I realise that.

That is what Question Time is for.

We could have a great general debate with the Chairman's tolerance, but I believe he is not too tolerant today

The tolerance is wearing thin.

I thank the Minister and his officials for attending the meeting, and I thank the members of the committee for their co-operation.

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