Deirdre Clune
Ceist:7 Deputy Deirdre Clune asked the Minister for Finance his views on the adequacy of provision for pension liabilities in the public sector; and the policy options open to him. [45151/08]
Amharc ar fhreagraThursday, 11 December 2008
Ceisteanna (9)
Freagraí ó Béal (11 píosaí cainte)
Total expenditure on public service pensions in 2007 was €2.3 billion and the most recent projections carried out by the Department of Finance are for expenditure on public service pensions to increase from about 1.3% of GDP in 2007 to 2.1% in 2025 and to 2.6% by 2050.
The projected increase arises from the growth in public service employment in recent years and from increasing longevity. Measures to contain the cost of this increase in public service pensions have been put in place in recent years and policy options for further reform are outlined in the Green Paper on Pensions. These policy options are now being examined in the context of preparing a framework for comprehensively addressing the pensions agenda over the long term.
Ten years ago the value of the public service pension liability was €25 billion. In 2007, it had trebled to €75 billion, 50% of GNP. The Minister claims it will double again. By then, 100% of GNP will be tied up in pension liabilities to public servants who constitute 15% of total employment. Is that a sustainable model? We have defined benefit schemes which are being closed in other countries. Can we continue to sustain this model in the public service? If not, does the Minister believe there needs to be some action rather than report after report?
The growth in the public service provision will increase from 1.3% of GDP in 2007 to 2.1% in 2025. I do not believe it will encompass the whole of GDP.
No, I was referring to the liability being 50% of GNP. The Minister is referring to the annual payment on that liability which has trebled in a decade.
The Deputy is referring to the liability as a proportion of GNP while I am referring to the expenditure in proportion to GDP.
To address the issue, the State established the National Pensions Reserve Fund. Austria is the only other EU member state which has made such a provision. We also enacted legislation to extend the period of service for public servants, as the Deputy is aware. This Government and the previous Government have taken steps to address this issue. Strategic decisions will have to be taken if we wish to minimise this liability for the future.
The question raised by Deputy Bruton on the sustainability of public service pensions is a fair one. If pension rates are to grow in line with wages, total expenditure on social welfare and public sector pensions would, in the absence of policy changes, rise from 5% of GDP to 13% of GDP by 2050, as a result of the projected increases in the numbers qualifying for a pension. That would be an unsustainable position.
The sustainability, therefore, of the overall public pension system is a key policy question. It figured prominently in the Green Paper, published in October 2007. Options for addressing the sustainability issue are now being considered with the prospect of developing a framework for comprehensively addressing the pension agenda over the longer term.
Earlier in the summer we were told of the Minister's arrangement to take on the assets and liabilities of certain semi-State and public bodies, including universities. Has an actuarial analysis being carried out as to the extent of these assets and liabilities and the further liabilities the State may be taking on? Will legislation be necessary in this area?
In his Budget Statement, the Minister stated he was carrying out a review of the terms of reference for the National Pensions Reserve Fund. When is this report due? When will any necessary legislation be brought before the House? The Minister has not made it clear whether he intends to continue contributing 1% of GNP to the National Pensions Reserve Fund. From some of his more recent comments, I gather he does not intend to do so because it may force him to borrow.
The latest figures from the fund show that in the nine months to September 2008, it lost 17% in value. Is that a concern, given that it is an important element in meeting provision for certain public service and social welfare pension liabilities in 2025?
Legislation may be required for taking over the assets of semi-State and public bodies as announced over the summer. With regard to the liabilities, the position is that the State already undertakes them. This is why the State came to this arrangement.
I asked the former Governor of the Central Bank, Mr. Maurice O'Connell, to prepare a report on the operation of the National Pensions Reserve Fund. I recently received it and it is under consideration in my Department. I share Deputy Burton's concern that the fund has lost a substantial sum, 17% of its value, in the past year. That loss mirrors those which have occurred in stock markets across the world. As it is a pension fund, it is invested in accordance with commercial criteria, so a small proportion of the fund is invested in Ireland.
Borrowing for the 1% of GNP contribution to the fund was also examined by Mr. Maurice O'Connell's report. When I have finalised my consideration of the report, I will announce a decision in that regard.
From the dependency ratios published by the Minister, we will move from six workers for every dependant to two workers for every dependant. The Minister has already envisaged that the costs of pensions will double. The irresistible force and the immovable object are at stake here. These are trends that will cause major problems. While the Minister talks about reviews and funds, I do not see the plan or strategy to deal with this. The pension fund will be capped at a certain stage and will start to pay out. It will not be there forever as a bottomless pit to meet growing obligations. There must be some direction coming from Government on what we will do.
I agree that a pension strategy must be devised and the Government's intention is to build on the work already done by producing more definitive signposts on how we go forward in the coming months.
How many months?
In the coming months. We have enough difficulties with pension funds, as Deputy Bruton is well aware.