Sunday, 22 February 2009

Paying twice for public service pensions

Gerard Hughes: The Government argues that the pension levy is justified because public service pensions are significantly more favourable than the generality of pensions in the private sector. This is a strange argument because the greater value which public service workers derive from their pensions has already been taken into account following the implementation of recommendations made by the Public Service Benchmarking Body in a report in 2007.

Under its terms of reference this body was required to examine the value of public service pension benefits by reference to pension arrangements in the private sector. It took the view that the main comparison of pension benefits in the two sectors should include the mix of defined benefit and defined contribution schemes applicable to employees in the private sector. In conjunction with the Review Body on Higher Remuneration in the Public Sector it commissioned an actuarial firm, Life Strategies Limited, to compare the value of pension arrangements at different grade levels and for different occupations in the public sector relative to the value of pension arrangements in the private sector. Following a detailed comparison of the two sectors Life Strategies advised the benchmarking body that a fair rate for the notional employer cost of public service pensions is 20 per cent of salary and a fair rate for the employer cost for private sector employees who have a pension arrangement is around 8.5 per cent. Consequently, the benchmarking body applied a discount of 12 per cent in setting public service pay to take account of the greater value of the employer contribution to public sector pensions than to private sector pensions.

When the Government implemented the benchmarking body’s recommendations about public service pay in 2007 it did so in the knowledge that the full value of the greater employer contribution to public service pensions was taken into account in the pay award. If a case can be made that a differential has opened up since then in the value of the employer contribution in the two sectors, an additional adjustment may be required to take account of it. However, at present there is no rational basis for requiring public service workers to make an additional contribution via a pension levy towards the cost of their pension.

Gerard Hughes is a Visiting Professor at the TCD School of Business

3 comments:

Anonymous said...

"If a case can be made that a differential has opened up since then in the value of the employer contribution in the two sectors, an additional adjustment may be required to take account of it."

Em, hello, collapsing private sector pay...

Gerry Hughes said...

So what is the case?

Anonymous said...

There is no reference to the community cost of this. Older employees in the public service will cling to their positions because of the loss of pumped up pension rights if they leave and probably resent being trapped in their jobs by the cost of moving to something more enjoyable, challenging or with higher take home pay. So the community gets a lot of cranky old public servants.