I move: "That the Bill be now read a Second Time."
The Government is bringing forward this Bill to give effect to the age-related pension reforms for new entrants to the public service announced in budget 2004. These important reforms are aimed at securing the proper evolution of Exchequer spending on public service pensions over the longer term, while also ensuring that future public servants are provided with an acceptable and fair income at retirement.
In accordance with these objectives, the Bill introduces two key changes which will affect most new entrants to the public service from 1 April 2004. First, it raises the standard minimum pension age for new entrants in the public service from 60 to 65 years and, second, it abolishes the link for new entrants between age and compulsory retirement in most areas of the public service.
These changes will affect new entrants to the Civil Service, local government, teaching, the health sector, non-commercial State bodies, the Dáil and the Seanad and ministerial office. As recommended by the Commission on Public Service Pensions, the special nature of the duties of the Permanent Defence Force, gardaí, prison officers and fire-fighters means that maximum retirement ages will continue to apply in these areas. The Bill does, however, raise minimum pension ages for new entrants to the Garda Síochána and the Prison Service, as well as providing for new pension arrangements to be put in place for new entrants to the Permanent Defence Force.
I would emphasise that the measures in the Bill apply to new entrants only; neither serving staff nor existing pensioners are affected in any way.
The changes set out in the Bill have been decided on by Government following consideration of the report of the Commission on Public Service Pensions. On foot of the commission's report, there were extensive discussions between the Government and trade unions and staff representative organisations in the public service. Despite our best efforts, full agreement was not reached in the course of this dialogue. Following its own examination of the position, the Government took the policy decisions announced in the budget and presented here in this Bill. This is something I will return to later in my speech. I want to make the point now, however, that while the changes in this Bill are urgently needed, they have evolved from a background of lengthy consideration and extensive consultation. Demographic change dictates the urgent need to act to ensure the long-term budgetary sustainability of public service occupational pensions. In particular, the clear and definite trend toward greater longevity is central to the need for appropriate reform now.
We have grown accustomed to thinking of ourselves as a predominately young population with the advantages that come from that. We are fortunate that, while we still have one of the younger populations in the EU, we can learn from the experience of other EU countries now facing immediate "pension time bomb" problems. Significant demographic change will occur in Ireland over the coming decades and decisions on change must be taken now. Either we take moderate, reasonable steps now to secure the future or, like our EU partners, we must face the need for more radical changes in the years to come.
The demographic changes are striking. Since the foundation of the State, life expectancy has risen sharply. In the case of men, it has increased by about 15 years and, in the case of women, it has increased by more than 20 years. It is generally agreed that there will be continued improvement in life expectancy in the years ahead. While this is a welcome development, it will have the effect of significantly increasing the cost to the taxpayer of financing public service pensions in future unless appropriate reforms are put in place now.
Most forecasters agree that pension numbers are likely to treble over the next 50 years. While it is difficult to be certain about the likely size of the labour force at mid-century, especially given the size of immigration in recent years, the labour force would, in effect, have to treble to keep the pensioner support ratio at its present level.
A recent study published by the Department of Social and Family Affairs projected that the number of people of pension age in Ireland will rise from 430,000 currently to 673,000 in 2021, and then to 1.2 million in 2056. This means that our current ratio of five people of working age to every pensioner can be expected to fall steeply to fewer than two people of working age to every pensioner by 2056. The projected increase in life expectancy, combined with a declining birth rate, underlines the necessity for action now to forestall unsustainable impositions on the Exchequer in the future.
It would be irresponsible to ignore the following facts. Public service and social welfare pensions now cost the Exchequer about 5% of gross national product, GNP. Maintaining the present level of provision is expected to cost about 12.5% of GNP in 2056. Over the same period, the public service pension component of this spending is set to rise from 1.4% to 2.5% of GNP.
As Minister for Finance, I have been concerned to ensure that we do everything possible now to prepare for the challenges ahead. This Government has adopted a proactive approach in this area through initiatives such as the establishment of the national pension reserve fund, targeted taxation adjustments and the introduction of personal retirement savings accounts, PRSAs, to foster responsible pension planning by individuals in the workforce generally.
Public service pensions are paid on a pay-as-you-go basis as part of current expenditure at an estimated cost in 2003 of some €1.5 billion. With cost containment over the medium to longer term clearly posing a major challenge, the Bill is directed at lessening the Exchequer burden in years to come through the implementation of moderate and well-founded changes which, in the long-run, are expected to achieve annual savings of some €300 million at current prices. The need for reform of public service pensions has long been acknowledged. This was clearly recognised by the Commission on Public Service Pensions which was set up by Government in 1996 and which issued its report in 2001.
The commission's membership included the social partners, academic experts, pensions industry professionals and departmental representatives. Its terms of reference required it to examine the pension terms of public servants in the light of changes in their working environment and conditions of employment, claims for improvements in existing terms, emerging costs and the operational requirements of the public service. It recommended its package of measures as representing an integrated strategy aimed at securing the long-term viability and stability of public service pensions. In this context, it cited as key aspects the growth in long-term pensions expenditure, changes in the nature of public service employment, the issue of retirement age and claims for early retirement.
In 2001, the Government accepted the bulk of the commission's proposals, including those related to pension age. It is worth emphasising that the provisions of the Bill about increasing minimum pension age for new entrants are a direct implementation of specific recommendations by the commission. In endorsing such actions, the commission took a thorough approach. It examined all relevant factors, including in particular the demands placed on the different occupational groups, and cited increased life expectancy as a key factor in its decisions. The Government agreed with the commission's conclusions.
The commission made no general recommendation as such concerning compulsory retirement ages which the Bill will abolish for most new entrant public servants. In my view, however, this is an appropriate accompanying measure to the change in minimum retirement age for new entrants and will facilitate future public servants in continuing to make a productive contribution in the workplace at older ages.
From a pensions perspective, I believe that the forecast decline in the dependency or support ratio as the first half of this century unfolds makes it especially opportune to dispense with mandatory age-based retirement for most new entrant public servants. As the worker to pensioner ratio falls in the decades ahead, people will live longer. In the context of the major impact these changes will have on the labour force, it makes sense to allow people to continue to work and contribute for so long as they are able and willing to do so. The benefit for the Exchequer should be a reduction in pension costs.
In September 2001, the Government agreed the recommendations of the commission in principle and set up a working group with the public service unions to advise on their implementation. The group was established in January 2002 and reported in October 2003. Parallel groups with similar remits were set up in respect of the Permanent Defence Force and the Garda Síochána, and the Government also had the benefit of reports from these groups in informing its decision making.
In addition, individual meetings were held between officials of relevant Departments and representatives of the Irish Hospital Consultants' Association, the Irish Medical Organisation and the Psychiatric Nurses' Association of Ireland. Bilateral discussions were held with SIPTU, the Prison Officers Association and the teachers' unions, ASTI, INTO and TUI, on specific commission recommendations.
Although the trade union and employer participants on the main working group were able to make good progress on several important aspects of the commission reform package, agreement was not reached on some other critical items, notably the raising of minimum pension age for new entrants. Every opportunity was given for agreement to be arrived at in the course of these talks, but this did not prove possible.
Against this background, I considered that action was urgently required following the prolonged phase of study and consultation. To delay further risked missing the opportunity for reform created by the commission's work. The Government agreed that change had become a pressing priority.
Accordingly, I announced in my Budget Statement last December that the Government had decided to implement the bulk of the recommendations of the commission. More specifically, I announced the intention of bringing forward legislation, as now embodied in the Bill, to increase minimum pension age and remove compulsory age-based retirement for most new entrants to the public service.
Given the value to public servants of a guaranteed system of pay-related pension increases, the commission recommended that all serving public servants should make an additional explicit 1% contribution towards the cost of pay-related pension increases. However, in line with the Government's concern to secure a balanced reform package which would not have implications for pay negotiations, I announced in my Budget Statement that the Government would not proceed with this recommendation. Similarly, I decided not to proceed with the commission proposal for the use of a new index for the purpose of determining public service pension increases, a proposal which was generally opposed by both pensioner groups and public service unions.
In addition, I announced my intention of drawing up a further set of pension changes arising from the commission's recommendations in respect of existing public servants. These changes, which are not part of the Bill, may include amendment of the formula used for integrating public service and social welfare pensions to make better provision for current and future staff on lower pay levels, a new single additional voluntary contribution type of scheme for the public service, and the possibility of optional early retirement on the basis of actuarially reduced benefits. It is proposed to examine the feasibility of implementing the commission's recommendation for the payment of survivors' pensions to non-spousal partners. These further changes are the subject of ongoing discussion with the public service unions.
I am sure that this outline of the recent background will have impressed on members that the Bill has its roots in a lengthy and thorough deliberative process and is a measured timely response to the challenges that lie ahead. The provisions of the Bill are in no way rushed or improvised but instead have been developed by the Government in the context of expert independent analysis and appropriate consultation with all the interested parties. I will now deal with the structure of the Bill.
Some public service pension schemes, such as the scheme for established civil servants, are provided for in primary legislation. Others, such as the pension scheme for unestablished civil servants, are provided for by administrative arrangements. However, the majority of public service pension schemes, for example the local government superannuation scheme, are provided for by means of secondary legislation. To ensure that the pension reforms for new entrants have effect across the public service on the same day, this Bill amends the relevant primary legislation and overrides the relevant secondary legislation and administrative arrangements as appropriate.
The first two sections of the Bill deal with definitions, including the definition of "new entrant". These are followed by sections which remove, raise or leave unchanged compulsory retirement ages for new entrants to the public service. The Bill then deals with the design of new superannuation arrangements that will be introduced for the Permanent Defence Force and provides for the chaplaincy service to the Permanent Defence Force. The next sections provide for the increase in the minimum age at which pension may be paid. The concluding sections are essentially technical in nature, covering matters such as removal of doubts and collective citation.
The Bill contains two Schedules. The First Schedule is a list of State bodies, mainly commercial, which do not come within the definition of public service body in this Bill, but the employees of which, in certain circumstances, will not be deemed new entrants on assuming posts in the public service. The Second Schedule lists those areas of primary legislation which the Bill is intended to amend.
To clarify some issues raised in the Seanad debate on this Bill, I point out that the first Schedule is an exclusion list and identifies those commercial State bodies that might, by virtue of the definition of "public service body" used in the Bill, be deemed to come within the ambit of its provisions. It is intended that such bodies be excluded from the terms of the Bill. As noted, however, employees of these bodies will not be deemed new entrants on entering the public service. The Second Schedule, as outlined earlier, amends those areas of primary legislation which state pension and retirement ages.
Members will acknowledge that I, as Minister for Finance, and the Government have been very proactive in securing reasonable entitlements for those who find themselves on the benches of either House.