Pensions preserved but at a price

pensions

 

The proposed new ‘public service stability agreement’ will see an end to the FEMPI pay cuts for most, but some of the so-called pension levy will be retained in the form of an ‘additional superannuation contribution.’ Union leaders consider this a price worth paying for preserving the value of public service pensions. BERNARD HARBOR reports.

Thursday 1st June was almost exactly the mid-point of the recent pay talks. That was the day the Irish Independent’s front page splashed the news that Ireland’s largest pension provider was closing its own staff pension scheme.

The real tragedy is that over 1,200 Irish Life staff will be left wanting as the company walks away from its generous (“gold plated,” according to the Indo) final salary scheme, despite the fact that it had funds in surplus. But the timing of the news also placed a looming discussion of public service pensions – and employee pension contributions – in an awkward context, to say the least.

And it double-underlined the importance of the IMPACT approach of defending the value of public service pensions as a top negotiating priority – up there with pay restoration and maintaining protections against privatisation.

Prior to the negotiations, the Government had signaled its intention to attack the value of public service pensions. It had already passed (though not triggered) legislation to allow pensions be indexed to inflation instead of the preferable existing link between pensions and salaries.

And it had dropped heavy hints about calculating all pensions on the basis of ‘career average’ earnings, instead of the more favourable final salary-based pension now in place for most. IMPACT and other unions were able to negotiate an agreement that stopped both these measures, which would have substantially reduced the value of pensions, from happening.

But this vital victory had a price.

The Public Service Pay Commission (PSPC), whose May report had informed the Government agenda going into the talks, recommended that most public servants should pay more towards their pensions. This to reflect the fact that public service pensions are worth between 12% (the union estimate) and 18% (the employer’s) more than those available in the private sector.

While other aspects of the employer’s agenda could be more easily negotiated away, it was impossible to simply stonewall a PSPC recommendation that the Government was determined to push through.

The end result is that an ‘additional superannuation contribution’ or ASC will replace some – though not all – of the so-called pension levy which will, in turn, be reduced by €575 a year over the lifetime of the deal.

The amount of post-pension levy ASC paid will vary depending on how much you earn (see table). By 2020, a public servant earning €35,000 per annum will pay €50 (or 0.14% of salary) in ASC each year. A worker on €45,000 a year will pay €1,300 (or 2.9% of salary). Those on €55,000 will pay €2,300, or 4.2% of salary.

There are two important caveats. Staff who joined the public service after January 2013 will pay a significantly lower ASC to reflect the fact that their pensions are not as good as pre-2013 arrangements. And those on ‘fast accrual’ pensions (mainly firefighters, prison officers, Gardai and soldiers) will pay significantly more as their pension benefits are much better than most.

The ASC comes on top of the 6.5% that virtually all public servants already pay towards their pensions, but the so-called pension levy will be gone. And, when pay adjustments are taken into account, there will be a net gain of 7-7.5% for 73% of public servants.

When IMPACT’s elected executive met to discuss the proposals, it considered that the additional contributions were a price worth recommending in exchange for the substantial gain of keeping the value of pensions intact.

Importantly, IMPACT negotiators also ensured that the proposed pay deal specifically links the additional superannuation contribution to the existing level of pension benefits. By explicitly saying that the ASC “is intended to underpin the sustainability of public service pensions” the agreement makes it far more difficult for future Governments to meddle with pension benefits.

When pay adjustments are taken into account, there will be a net gain for everyone – 7-7.5% for 73% of public servants.