IRELAND - The Irish Business and Employers Confederation (IBEC) has been criticised for recommending new public sector workers should be offered entrance to a defined contribution (DC) scheme with a state guarantee of certain minimum investment returns instead of the existing define benefit (DB) schemes.
IBEC issued a series of suggestions for major reforms to the public sector pension system, following the Irish government’s effort to try and reduce public expenditure, as it warned public sector pay and pensions will account for 51% of all tax revenue in 2009.
Brendan McGinty, director of IBEC, said: “Business will support government in its endeavours on the basis that a reduction in the cost of the public sector is a priority. Necessary reform must involve capping public sector pension liabilities and introducing fundamental reforms of public sector pensions.”
He said a target €5bn reduction in total government expenditure is needed by 2012, and warned in that context “public service pay and pensions cannot be exempt when one considers that the public sector pay and pensions will account for 51% of all tax revenue in 2009”.
However IBEC admitted a single reform would not solve the problem of escalating costs, and instead argued, “a combination of major reforms is necessary”, which could include:
Adopt a fundamental repositioning of the public service pension for new entrants, away from DB provision to a DC with a state guarantee of certain minimum investment returns Ending the pay parity link, where public servants are guaranteed pensions based on the ongoing salary of the job they held The government should set a contribution rate cap after which employees would fund liabilities on an equal basis All public servants should contribute to the costs of funding benefits
McGinty pointed out as estimated three out of four DB schemes in the private sector were unable to meet the “draconian funding standard” in 2008 and the situation is expected to deteriorate further in 2009, yet “the average public sector pension is worth a premium of 13.5% of salary more than the average private sector pension”.
“We are facing the most difficult economic circumstances since the foundation of the statem” he said. “It is a time for strong leadership and for taking difficult decisions in the national interest. Now is the time to take the necessary steps to put the economy back on track.”
In addition, McGinty claimed the issue of public sector pension reform is “now urgent, with a shortfall in tax revenue of €8bn for 2008 and an Exchequer deficit spiralling to €20bn”.
He continued: “Every sector of Irish business is struggling to sustain jobs and to compete. The private sector is already adjusting to the unforgiving realities of market forces, and turmoil in financial markets with pay freezes, and in some cases pay reductions, being necessary for survival and to sustain jobs. The public sector must show similar flexibility,” he added.
However IMPACT, the public and services trade union, accused IBEC of “exploiting the recession to drive down the value of public and private pensions”, and claimed the proposals would do little to help the present crisis yet would effectively signal the end of employers’ responsibility for pension provision.
Shay Cody, deputy general secretary of IMPACT, claimed IBEC had “habitually exaggerated” the value of pensions to most public servants and argued in the ‘boom’ years it had stood “idly by while many of its members dismantled occupational pensions in the private sector. Now it’s exploiting the present crisis as a tool for employers to escape what responsibilities remain and place the entire pensions’ burden on employees and the taxpayer”.
“Its proposals would be a green light to employers - public and private sector - to dismantle occupational pensions. It’s a classic case of an organisation exploiting the recession in its members’ self interest,” he added.
Meanwhile, the Irish Labour Party has accused IBEC of “pursuing an old and bitter agenda” in its calls for major pension reforms.
Eamon Gilmore TD, leader of the political opposition Labour Party, suggested IBEC has made “a conscious decision to take advantage of our very real economic difficulties to try to turn the clock back and to reverse the advances that have been made for workers in both the public and private sectors”.
He admitted public sector pay is a significant part of public expenditure and “must be in the mix” of any remedies for dealing with the current crisis, but warned: “I will not allow public service workers or pensioners to become soft targets for the comfortable bosses in IBEC”.
Gilmore claimed some of the IBEC suggestions “have been ludicrous”, and added: “If we are to overcome the current crisis it will need a cooperative effort from unions, employers and politicians. The sort of narrow partisan agenda being pursued by IBEC is doing nothing for this effort.”
IBEC previously called for similar “radical” reforms to Irish public sector pensions in April 2008, after the Department of Finance confirmed the pension liabilities for 2007 had increased to €75bn. (See earlier IPE article: IBEC calls for ‘radical’ public pension reforms)
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