The cost of meeting the pensions bill for public service workers has jumped by over 17 per cent to €175.7 billion in just three years, according to projections in a new report.
The figure, published on Wednesday, follows an updated assessment of the pension liability the State has accrued to the end of 2021 for existing public servants, those who have already retired and a smaller group of others who have left public service but have yet to retire.
It means there has been a €26 billion rise in the pension cost of the public service from €149.6 billion in 2018, although the actuarial review carried out by the Department of Public Expenditure, National Development Plan Delivery and Reform notes that the new figure has been calculated using an updated set of assumptions – largely relating to a faster rise in the rate of pay and inflation.
Public service pensions cost the State €4.5 billion in 2022, according to the department. However, it noted that €1.7 billion had been paid in member contributions and additional superannuation contributions by public servants in 2022.
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The 2022 bill amounts to close on 1 per cent of gross domestic product – the measure of the economy that includes profits made by multinationals, much of which is repatriated to their parent groups rather than working through the Irish economy.
That figure is expected to rise as a proportion of a growing GDP figure between now and 2040 before moving back down to 0.7 per cent of GDP by 2070, the report says.
Actuarial reviews measure the present value of retirement benefits to be paid in the future to current and former public servants, but it takes no account of future pension liabilities for additional future service by current staff. The department said that public service numbers jumped over 10 per cent to 365,858 in 2021. They have since risen to 389,070, adding further pressure to the exchequer.
According to the report, at the end of 2021, just shy of 608,000 people stood to benefit from public service pensions.
The figure assumes that retired public service workers will see their pension rise in line with wage increases earned by serving staff. However, the report notes that is at the discretion of Paschal Donohoe, the Minister for Public Expenditure and Reform.
Increasing pension instead in line with expected consumer price index inflation would save the exchequer €34.3 billion, the report says, bringing the overall exchequer bill down to €141.4 billion.
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It notes that pension increases in line with salary awards applies anyway only to those public servants who joined before 2013. Those who joined after that date will see their pension income rise in line with inflation, not pay.
However, the report says it does not take any account of the financial impact on the exchequer of payment of the State pension to public servants who entered service after April 6th, 1995. It also does not cover the cost of pensions in the commercial semi-State sector.
“While the overall figure is undoubtedly large, it is important to bear in mind that the accrued liability will be paid over the next 70 years or so,” Mr Donohoe said. “It is also important to highlight that a number of significant steps have been taken to improve the long-term sustainability of public service pensions.”
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He added that pension benefits “are an important part of the remuneration of public servants and the overall process of the recruitment and retention of staff”.
Public service pensions are defined-benefit or final salary schemes, where the income in retirement is based on your salary and the length of your service. Retirees who joined before 2013 with full service receive a pension of half their final salary. Those who joined more recently will get 50 per cent of the average salary over their career.
In addition, they get a lump sum on retirement amounting to three times their annual pension.
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