Submission to the Minister for Public Expenditure and Reform on Public Service Pension Restoration, 25 May 2017

Introduction

1.1      The Alliance of Retired Public Servants is comprised of pension organisations representing about 140,000 retired public servants – including former civil servants, local authority and health employees, teachers, nurses, doctors, Gardai, defence force and fire service personnel and others.

1.2      The Alliance has been recognised since 2013 by successive Ministers for Public Expenditure and Reform as representing public service pensioners. Public service pensions have been subject to reductions in pensions on foot of emergency powers under the Financial Emergency Measures in the Public Interest Acts 2010 to 2015.

1.3 The government decision in relation to pension restoration under the 2015 Financial Emergency Measures in the Public Interest Act, 2015, was taken following consideration of a submission in this regard by the Alliance. The Alliance does not, however, have any formal recognition or access to third party independent mediation or arbitration.

1.4      The current Minister for Public Expenditure and Reform, Mr Paschal Donohoe, T.D., has indicated that consultations about pension restoration would be held with the Alliance when the recommendations of the Public Service Pay Commission in relation to pay levels for serving public servants and the ending of the use of emergency powers to reduce public service pay under the FEMPI legislation were being discussed with the public service unions

Principal Concerns

2.1      There are three principal matters of concern to the Alliance and, no doubt, to the wider family of 150,000 public service pensioners, viz:

  • The restoration of pensions reduced under the Financial Emergency Measures in the Public Interest (FEMPI) Acts (including full restoration for post February 2012 retirees who are being seriously discriminated against);
  • Provision for increases in pensions; and
  • Access for retired public servants to State industrial relations machinery.  

2.2      The distinct case for early restoration of pensions is outlined below in this submission. The Alliance also welcomes the support of the Public Service Committee of ICTU for the principle of a faster rate of restoration of pensions as outlined in its submission to the Public Service Pay Commission.

The FEMPI Acts

3.1      The entitlement of public service pensioners to their pensions is a property right under Article 43 of the Constitution.   It is difficult to see how continuing public service pension reductions comes within the constitutional framework under which such rights may safely be regulated by law.

3.2      The principal FEMPI Acts relating to public service pension reductions were the 2010 and 2013 Acts.  The main effect of these was to provide for:

  • Reductions of between 6% and 28% on pensions above €12,000 per        annum of those who retired pre March 2012; and
  • Reductions of between 2% and 8% in relation to annual pensions above   €32,500 per annum of those who retired post February 2012. FEMPI cuts from salary had already been made from the post February 2012 retirees generating an ongoing reduced pension, yet unrestored.

The FEMPI Act, 2015 – Partial Restoration

4.1      The 2015 FEMPI Act provided for partial restoration of pay and pensions.  The position on pension restoration is set out in the Statement by the Minister for Public Expenditure and Reform dated 16th June 2015. (http://www.gov.ie/statement-by-the-minister-for-public-expenditure-and-reform-mr-brendan-howlin-t-d-on-government-agreement-to-reduce-public-service-pension-reductions/#)

4.2      Briefly, the legislation provided for restoration for individual pensioners of up to €400 in 2016, €500 in 2017 and, if still within the deduction net, €780 in 2018.

4.3      The cost of this restoration is €30m in each of the three years 2016 to 2018 and would at the end of 2018 leave approximately 25,000 public servants with pensions over €34,132 per annum still subject to emergency deductions initiated in 2011.  The gross annual pension reduction remaining at the end of 2018 is understood to be in the order of €45m (substantially less when net of tax).

Pension Restoration for Pre March, 2012 Public Service Retirees

5.1      The current position in relation to pension restoration under the 2015 FEMPI Act, for pensioners who retired pre March 2012, is outlined in Table 1.

 Table 1   Pension Restoration of Pensioners who retired pre March 20121

 

 

 

 

 

1 The pensions of those who retired between January 2010 and end February 2012 are based on pre-cut salaries with 2011 pension cut applied.

5.2      It should be noted that pay restoration under the 2015 FEMPI Act is on a basis agreed with public service unions under the Lansdowne Road Agreement and was brokered under the auspices of the WRC.  While the Alliance of Retired Public Servants made a submission in 2015 to the Minister for Public Expenditure and Reform on pension restoration and had consultations with his Department, it did not have the option of a third-party intervention to facilitate agreement.

5.3      Furthermore pay restoration for serving public servants under the Lansdowne Road Agreement has recently been enhanced, following a Labour Court recommendation in relation to Gardai. The Alliance sought an equivalent beneficial adjustment in the pension restoration schedule but this request was not acceded to at the time.

5.4      This is clearly inconsistent with the view expressed in Dail Eireann by the then Minister for Public Expenditure and Reform during the discussions on the 2015 Act and, subsequently in public, that priority should be given in future to the early restoration of pensions. The comparative disadvantage suffered by retired public servants should now be taken into account.

Grossly Unfair Treatment of post February 2012 Public Service Retirees

6.1      The current position in relation to pension restoration under the 2015 FEMPI Act for post February, 2012 retirees is set out in Table 2 below:

Table 2     Non Restoration of Pensions of post February 2012 Retirees

 

 

1 Pension values here are based on final service salary (before cuts) and full service.

2 Pensions in this column are based on 2010 reduced salaries (under FEMPI Act, 2010).

3 Pension cuts in this column are in respect of pensioners who retired post February    2012 whose pensions were above €32,500 on 1 July 2013.

6.2      Table 2 illustrates the extent to which post February 2012 public service pensioners will not return to full pension rates even when full pay has been restored to their serving counterparts. This group of pensioners will be in an extraordinary situation in that pre-March 2012 pensioner counterparts will, on post-emergency restoration, return to full pension and serving staff to pre FEMPI pay levels (allowing them to retire with full pre FEMPI pensions).  

6.3      The pension of a public servant who retired post March 2012 was calculated on the FEMPI reduced salary of 2010 (column 2), which generated a significantly reduced pension compared to the pre FEMPI pension in (column1). Column 3 illustrates the impact of the 1 July 2013 FEMPI pension cut for this group. This is the only element of their emergency reduced pension, which benefitted from the 2016 to 2018 restoration measure (column 4 refers).

6.4      Column 5 highlights how the post February 2012 pensioners will, under present arrangements, continue as if they were in a bubble of their own condemned to exclusion from restoration of the bulk of their emergency induced cuts. This is a grossly unfair penal measure and should be reversed as a priority in forthcoming restoration talks.

6.5      The gross unfairness of this position is reflected not only in the fact that this group will carry their emergency cut to their grave but will even pass it on to their surviving spouse or other dependants after they have died.      

Pension Restoration and Unwinding FEMPI

7.1      The financial emergency that gave rise to the use of emergency powers in relation to public service pensions is over, and a wide range of new services is increasingly being put in place.

7.2      The decreasing amount of pension reduction collected each year is no longer of significance in overall financial or budgetary terms.  The benefit to the State is no longer proportional to the continuing burden being suffered by individual pensioners who also have to deal with wider austerity measures.

7.3      Public service pensioners are private citizens who have completed their contract with government and are in a separate legal and practical situation from serving staff who are in continuing employment with government and who have access to the industrial relations machinery of the State and have a much wider range of income increase options open to them.

7.4      The age and health status of retired public servants and related financial liabilities arising in this regard are hugely important issues which, along with life expectancy, should be taken into account in relation to pension restoration. Given that some 4,000 public service pensioners die each year it can be reckoned that up to 24,000 public service pensioners subjected to FEMPI cuts between 2011 and 2016 have died before full or in most cases any pension restoration took place

7.5      Despite popular misconceptions that public service pensioners are privileged the reality is that the average public service pension is in the order of €20,000 per annum and that public service pensioners do not additionally receive the State pension.

7.6      Equally, the treatment of public service pensioners who are required to pay the Universal Social Charge on all their pension income is fundamentally unfair in comparison with their private sector counterparts who pay no USC on their State pensions.

7.7      The treatment of public service pensioners contrasts most unfairly with the approach adopted by government in 2011 when it recognised the property rights of AIB (99% State owned) private sector pensioners and authorised €1.1bn of State funds to be put into the AIB pension funds.

7.8      Responsibility for any new financial emergencies or the provision of increased services is a community responsibility and should be addressed in the context of general taxation and not visited on public service pensioners on foot of continuing use of emergency powers. Even the Exchequer levy imposed across all pension Funds in response to the financial emergency has been lifted.

7.9      The justification, recognised by successive Ministers for Public Expenditure and Reform, and by the Public Service Committee of ICTU in its submission to the Pay Commission, for priority treatment in restoring public service pensions, should now be matched by full pension restoration without delay.

Increases in Pension

8.1      The framework for increases in pension is a matter which is of great importance, not least because there were over 50,000 retired public servants on pensions of up to €12,000 who were never subject to pension reductions and who have received no increases in pension notwithstanding the fact that their equivalent serving public servants have received increases in pay.

8.2      The parity based framework, whereby pensions increased in line with pay, was, in effect, suspended during the emergency but, with the unwinding of the FEMPI legislation, the legitimate expectation of retired public servants is that custom and practice should be followed and the principle of parity restored. Successive governments since 1969 have adopted the principle of pension parity leading to its full implementation in 1986. These developments underpin the legitimate expectation held by the current generation of public service pensioners serving over those years and beyond.

8.3      Retired public servants contributed to their pensions (which included a parity based approach to increases) at rates deemed appropriate by successive governments. Furthermore the value of pensions, based on the actuarially calculated pension costs of the Public Service Benchmarking Body in 2007 have reduced over the past ten years with substantial reductions in pay and pensions and given the absence of assumed pension increases based on CPI plus 2%, not to mention the reduced pension costs for newly recruited public servants. 

8.4      It should be further noted in this regard that there are scheduled increases in social protection payments (which are to be maintained above CPI rates) whereas the comparative position of the lowest paid public service pensioners, who have received no increases in pension, is further deteriorating.

Access to Industrial Relations Machinery

9.1      Serving public servants have both direct access and access through their unions to in house or ad hoc mediation or arbitration and through the formal industrial relations machinery of the State.

9.2      The Croke Park, Haddington Road and Lansdowne Road Agreements would not have been concluded without ad hoc involvement by the LRC/WRC nor would the recent Garda dispute have been resolved without the involvement of the Labour Court. These mechanisms have been an absolutely vital element for government and serving staff in the unwinding by agreement of the FEMPI legislation in relation to pay.

9.3      The unwinding of FEMPI in relation to pension reductions is of equal importance to retired public servants and it is difficult to comprehend the blank refusal by government to provide any form of third party mechanism to help resolve difficulties in this regard.

9.4      This question should now be addressed.  Public service pensions are deferred pay and arise directly from employment by the State. It is, in the Alliance's view, increasingly untenable and unjust for any government to continue to maintain that they will provide no third-party access for 150,000 retired public servants on any matter relating to pensions.

Ends.  

 

Alliance Submission to Public Service Pay Commission (PSPC), 26 January 2017

The Alliance of Retired Public Servants (ARPS) notes that for its initial report “the Commission will be asked to provide inputs on how the unwinding of the Financial Emergency Measures in the Public Interest legislation should proceed…”

The FEMPI legislation has had a very serious negative impact on public sector pensions and the unwinding of FEMPI must encompass the unwinding of cuts imposed on retired public sector workers.

Accordingly, the Alliance calls on the Commission to ensure that retired public sector workers are comprehended by its recommendations.

This paper summarises how the FEMPI legislation has impacted on public sector pensions and sets out the key priorities of the Alliance in relation to:

  • Reversal of cuts to public sector pensions
  • Pension Parity; and
  • Representation for retired workers.

Background of FEMPI in relation to retired public servants

The Public Service Pension Reduction (PSPR) is a cut to the pensions of retired public servants (and to the pensions of their surviving dependents). .

PSPR came into effect on 1 January 2011. It was introduced initially under the The Financial Emergency Measures in the Public Interest Act 2010. and has been amended and extended  under subsequent legislation.

An exemption threshold of €12k initially applied i.e. the percentage reduction was applied to the amount of annual pension over €12k.

The amount of the PSPR deduction varies depending on the retirees date of retirement and the amount of the pension.

The rates at 31 December 2015 were as follows:

Retired prior to 1 March 2012

(A) Pension up to €34,132 per annum

PSPR rates @ 31 December 2015      Up to 12K                   Exempt

                                                                12K to 24K                        6% 

                                                                24K to €34,132                 9%

(B) Pensions over €34,132 per annum

PSPRrates @ 31 December 2015     Up to 12K                   Exempt

                                                                12K to 24K                         8%          

                                                                24K to €60k                      12%

                                                                60K to 100K                     17%

                                                                100K +                               28%

Retired from 1 March 2012

(C) Treatment of pension under €32,500 per annum

There is no deduction for PSPR for public servants who retired from 1 March 2012 onwards for pensions up to €32,500.

Retired from 1 March 2012

(D) Treatment of pension over €32,500 per annum

PSPR rates @ 31 December 2015                  Up to 12K                   Exempt

                                                                            12K to 24K                       2%

                                                                            24K to 60K                       3%            

                                                                            60K to 100K                     5%

                                                                            100K +                               8%

Partial Reversal of pension cuts

The Financial Emergency Measures in the Public Interest Act 2015 provided for a partial reversal of the pension cuts imposed on public service employees under earlier “FEMPI” legislation. The partial reversal is to be achieved mainly by raising the exemption threshold at which PSPR is applied in 3 phases: 1 Jan 2016, 1 Jan 2017 and 1 Jan 2018as follows:

Retired prior to 1 March 2012

(A) Revised PSPR rates pensions: up to €34,132 per annum

(i) 1 Jan 2016            Up to 18,700K                        Exempt

                                    18,700K to 24K                              6% 

                                    24K to €34,132                               9% 

(ii) 1 Jan 2017            Up to 26K                               Exempt

                                    26K to €34,132                               9%

(iii) 1 Jan 2018          Up to €34,132                         Exempt

(B) Revised PSPR rates pensions: over €34,132 per annum

(i) 1 Jan 2016             Up to 17K                                 Exempt

                        `           17K to 24K                                        8%

                                    24K to 60K                                     12%

                                    60k to 100K                                    17%

                                    100K +                                             28%

(ii) 1 Jan 2017            Up to 22K                                 Exempt

                                    22K to 24K                                        3%

                                    24k to 60K                                       12%

                                    60K to 100K                                    17%

                                    100k +                                              28%

(iii) 1 Jan 2018          Up to30K                                 Exempt

                                    30K to 60K                                       12%

                                    60K to 100K                                     17%

                                    100K +                                               28%

Retired from 1 March 2012

(C) Revised PSPR rates pensions: under€32,500per annum

There is no deduction for PSPR for  public service retirees from 1 March 2012 onwards for pensions up to €32,500.

(D) Revised PSPR rates pension: over€32,500 per annum

(i) 1 Jan 2016                        Up to 29,300K                        Exempt

                                                29,300K to 60K                              3%

                                                60K to 100K                                    5%

                                                100K +                                              8%

(ii) 1 Jan 2017                        Up to 39K                               Exempt

                                                39K to 60K                                      2%

                                                60K to 100K                                    5%

                                                100K +                                              8%

(iii) 1 Jan 2018                      Up to €60K                              Exempt

                                                €60K to 100K                                  5%

                                                100K +                                              8%

Position of the Alliance in relation to FEMPI 2015

The Alliance welcomes the 2015 FEMPI legislation that allows for a partial reversal of the cuts to pensions of retired public servants and acknowledges that by 2018 a majority of retired public servants will be exempt from PSPR. However, PSPR is set to remain for many retirees and at high rates.

The Alliance remains of the view that the emergency legislation introduced to cut public service pensions is no longer warranted or justified and should be repealed and pensions fully restored.

It is now over six years since the pensions of retired public servants were cut. It is punitive and unfair that an older cohort of former public service workers should have a lengthy restoration process.

We are therefore of the view that the restoration of pensions should be significantly accelerated. This position is supported by the Public Service Committee (PSC) of ICTU which states in its submission to the Commission:

“…almost 50% of public service pensioners are in receipt of pensions of less than €20,000 a year. For this reason, as part of the LRA process, the PSC was happy to lend its support to the Alliance of Public Service Pensioners in its attempt to undo the cuts to public service pensions at a faster rate than pay for serving workers. The PSC continues to support that principle and urges the PSPC to assist in its progression.”

Position of the Alliance in relation to future increases for retirees

The mechanism for determining future increases to public sector pensioners is a significant concern to the Alliance. The Alliance has a very clear view: We believe that the pensions of retired public sector workers should be linked to the pay increases awarded to serving staff. This is in accordance with custom and practice in the public sector for many decades where pay increases awarded to serving staff applied on a parity basis to retired public servants. In addition many retired public servants hold formal personal retirement letters of undertaking from their former employer to the effect: “Post  retirement pension increases, as have always been the case will be implemented with a direct link to the equivalent serving staff member grade of your former employer.”

The Alliance is of the opinion that any change to such arrangements in the absence of consultation and agreement would be a breach of contractual obligations.

The financial implications of any change toexisting arrangement would be particularly serious for those retired public servants on modest and low pensions.

 We note that salary scales of up to €65,000 for serving staff are set to increase by €1,000 from 1 April 2017. A pro rata increase should apply to retired workers.

Public sector retirees on pensions of under €12,000 were exempt from the “FEMPI” cuts and as a result are not encompassed by the phased restoration. This cohort of retired workers have seen no increase in their pensions since 2007 and this position needs to be addressed as a matter of urgency.

Position of the Alliance in relation to representation

Retired public servants have had their pensions significantly reduced in recent years. This has caused significant worry and distress to many. Their anxiety has been compounded by a sense of powerlessness.

Officials from the Department of Public Expenditure and Reform have facilitated meetings with the Alliance on a number of occasions. While these meetings have been welcome and helpful they are of an informal nature extended as a courtsey. Informal contact on the margins of official negotiations is no longer acceptable or satisfactory.

Therefore the Alliance believes that it is now appropriate to put in place a formal mechanism to facilitate the engagement of retired State employees with Government on matters affecting pensions and any other matter that impacts on our status as retirees.

Ends.