Topical Issue Debate on Public Sector Pensions Issues

Deputy Olivia Mitchell: I appreciate the opportunity to raise this issue. It concerns an individual case in which I believe an injustice is being done, whereby a person’s public service pension is erroneously being reduced. While I would not normally raise an individual case, I do so for two reasons. First, others in similar circumstances may now or in the future be similarly treated and second, I believe the existing injustice may now be compounded by the legislation Members are due to pass tomorrow and which will be discussed later this evening.

In a nutshell, the pensioner concerned worked for more than 30 years in the private sector and during that time, accumulated a substantial pension fund. Towards the end of his career, he transferred to the National Treasury Management Agency, NTMA, which is in the public service, and transferred his accumulated pension fund assets to the NTMA’s pension fund. The bottom line is that 62% of his pension now comes from his privately-purchased pension pot. In other words, he paid into the NTMA scheme a sum agreed with the agency that allowed his agreed pension to be paid to him without any cost to the NTMA or to the State. The public service pension reduction, PSPR, is targeted at pensions funded by the public purse but although almost two-thirds of this gentleman’s pension is not funded by the public purse, it is all subject to the reduction. He made prudent provision for his old age in good faith by purchasing these added years of service. He could have kept his pension pot or cashed it in. He could have spent it foolishly or could have put in a bank and saved it and now be earning interest from it. However, he did what was advised by the NTMA when he went to work for that agency. At present, €22,929 is being deducted from his pension and is being paid to the State but only €4,400 of that reduction is attributable to the NTMA or public service portion of his pension. In short, €18,524 is being deducted from the privately-funded portion of his pension and this appears to me to be an egregious injustice.

I understand that section 6 of the Financial Emergency Measures in the Public Interest Act 2009 gave discretion to the Minister to write this kind of unintended consequence, and I assume it is an unintended consequence. I ask the Minister to utilise his discretion in this matter to ensure this situation is ended.

Minister for Public Expenditure and Reform (Deputy Brendan Howlin): I thank Deputy Mitchell for raising the matter. It is a matter which was the subject of a recent parliamentary question and I set out in my reply to that question the position regarding the public service pension reduction, PSPR.
Before addressing in detail the particular point raised by Deputy Mitchell, it is important to set out the context in which these measures are introduced. As is clear to all citizens, there is a very serious crisis in the economy and a very serious deterioration in revenues into the State. Ireland is availing of financial assistance programmes provided by the EU-IMF and has undertaken to meet spending targets set out in that regard.

In introducing the PSPR from 1 January 2011, the then Government effectively decided, in the context of the serious national budgetary position, that retired public service pensioners should make a contribution to the overall required fiscal adjustment. This decision was taken having regard to the gap between the burden being borne by those currently in public service employment, where the pension related deduction, PRD, and the direct pay reduction were having an impact, and their retired counterparts.

The current Financial Emergency Measures in the Public Interest Bill proposes limited further reductions to high value public service pensions. That Bill is to be discussed later today. It is one of a number of measures taken or proposed by the Government as part of our plans to restore stability to the public finances. None of these measures were or are being adopted lightly but are considered necessary in view of the wide gap that has emerged between our income as a State and our expenditure, and our commitment to restore order to the public finances by reducing the general Government deficit to under 3% of GDP by 2015.

Any reduction in pension payments is a serious step. However, the grave condition of the public finances and the threat to Ireland’s economic well-being provide the context for such an exceptional measure. I would note that the first €12,000 of anybody’s pension is exempt from the reduction and that the bands and rates of the reduction are progressively structured so that persons on lower pensions are proportionately less affected than those on higher pensions.

I would add that as recently as yesterday, I met representatives of the Alliance of Retired Public Servants to hear at first hand their concerns about the impact of pension reductions on the lives of public service pensioners. As I indicated to them, I would genuinely wish economic circumstances were otherwise but the reality is the Government must continue to take all necessary steps to ensure the economic survival of the State, and this inevitably impacts across society.

I also informed the alliance representatives that it is my intention, as a matter of priority, to move towards reducing the burden of the public service pension reduction, with the initial focus on people in receipt of low pensions, at the earliest date economic progress permits. I am very aware of how critical this matter is for pensioners and I intend to keep this matter under review to see when we can begin to take steps to reduce the burden on public service pensioners in particular.

On the particular question of whether identified portions or specific elements of public service pensions could be exempt from the PSPR, the long-standing norm in public service pension schemes is that service which is purchased or transferred-in is treated in the same way as ordinary accrued service for the purposes of calculating pension benefits initially and on an ongoing basis. This parity of treatment also applies in respect of the exposure of pensions to the public service pension reduction. Since its introduction on 1 January 2011, the PSPR has applied to affected public service pensions in an across-the-board fashion, with no distinction being made in respect of any part of a pension which derives from purchased or transferred service, and I do not have plans to change this arrangement.

Deputy Olivia Mitchell: I thank the Minister for coming into the House to respond to this matter. I am disappointed with the response. Nobody understands the situation facing the country more than me, and I fully appreciate the need for financial emergency measures, but given that they are extraordinary powers, they must be used judiciously and justly. The proportion of the pension from the fund, which was privately accumulated, is so large relative to the portion of pension that comes from the State contributions, it makes this a special case. I may not be explaining it properly but the pension pot that was transferred to the fund was actuarially determined to ensure there was no cost to the National Treasury Management Agency for that portion of pension that would later accrue. In other words, there is no cost to the State or no reduction in terms of what is due to the State. I accept that the portion of pension that comes from the contributions – the NTMA – is fair game but the privately funded part, which was actuarially determined to ensure there was no additional cost to the State, should not be included. This case will probably end up in the courts but the Minister might examine cases like this one where the majority of the fund comes from private sources.

Deputy Brendan Howlin: I fully appreciate the case being made by Deputy Mitchell, and it is a fair and reasonable one, but it is very difficult to disaggregate pensions into the proportion that is transferred-in. As she is aware, because of the vulnerability of many private pensions, for example, in academia, most of them have now been transferred into the State and most of them are in deficit. Should somebody have exempt a portion of their pension which they happened to have paid in before it was subsumed into the State pension, it would be extraordinarily difficult. We cannot have individual cases. We have to have a general application of a rule such as this one. While I am mindful of what the Deputy has said, the general provision that has gone on always is that where the State takes on the payment of a pension, it is treated as if it was accrued through State contributions, regardless of what was brought into the equation.

I will reflect further on what the Deputy has said. As she will know, there is provision in section 6 of the existing legislation for individual anomalies to be addressed, and that provision has been replicated in the provisions I will bring before the House later this evening, which, if an anomalous situation arises, will allow me, as Minister, to make an order and an exemption. That is an important provision to have. I will reflect further on what the Deputy has said but I am mindful of the general application of rules like this in that it is very difficult to establish precedents that do not have wide application subsequently.