IRELAND - The continual payment of 1% of GDP into the National Pension Reserve Fund (NPRF) is "difficult to justify" and should be suspended in an effort to control public spending and borrowing, a group known as An Bord Snip Nua has told the government.

The Special Group on Public Service Numbers and Expenditure was established by the Irish ministry of finance in November 2008 to examine the current expenditure programmes in each government department and to make recommendations for reducing or discontinuing expenditure, which could include staff cuts and "further rationalisation" of state agencies.

In the final report presented to Brian Lenihan, minister of finance, the Group identified "potential expenditure savings of €5.3bn in a full year, with associated reductions of over 17,300 in public service numbers".

Recommendations put forward by the group include the suspension of payments into the NPRF  - equivalent to around €1.6bn a year - as although this "would have no impact on the General Government Balance, it would reduce the annual Exchequer Borrowing Requirement".

The findings of the Group, led by Colm McCarthy, an economist at University College Dublin (UCD), also suggested "state pension schemes now face a funding crisis", driven primarily by increased longevity and poor invetsment returns.

It stated that while it understands the importance of pensions "it considers that pensions policy needs to be adjusted to take account of the scale of future pension liabilities for the state".

It therefore noted "consideration should be given" to breaking the index-linking of pensions with earnings, while "an increase in the retirement age for all state pension schemes will have to be considered as an element of any policy proposals to address these problems".

The report pointed out the real annual cost of providing public service pensions is around €7.7bn a year, comprising €5.4bn in annual accrual and the €2.3bn cash cost of existing pensions in 2009.

It admitted a review of the public service pensions area is "beyond the scope of the Group's exercise", but it urged that reform options outlined in the Green Paper on Pensions - including raising the minimum public service pension age; increasing staff contributions; and moving to a career-average earnings basis - should be "pursued and implemented".

The Group also added its own recommendations following the "dramatically worsened position of the public finances since the Green Paper was published":

Reinstating a mandatory retirement age to avoid low-performing staff being retained indefinitely Increasing the age at which people qualify for pensions in state occupational and social welfare schemes; Better transparency on the true cost of accrued pensions and phasing out/elimination of accelerated arrangements, and Move away as soon as possible from full earnings linking of pensions to include an element of inflation linking.

However, the report admitted "reforms along the lines set out above, while undoubtedly significant in terms of longer-term affordability and sustainability if applied to new entrants, will not yield any immediate savings for the public finances unless they are applied for the existing cadre of public servants and pensioners".

It also noted that because many existing public sector pensioners have earnings-linked pensions "there is a case for the government to consider how best to secure an appropriate contribution from this sector of society".

In response to the findings, Lenihan said: "I recognise, and the government recognises, that the choices facing us are not simple or pain-free. Following them through requires a collective social effort and not one motivated by protecting one's patch or pursuing one's special interest to the exclusion of all else.

"That is why I would ask people to read the report carefully and critically, and avoid knee-jerk and defensive reactions to each and every suggestion raised by the Special Group," he added.

However, Peter McLoone, general secretray of the IMPACT public services trade union, warned the government to ignore the recommendations or face strike action, as he claimed public servants should not be singled out to pay for the budgetary crisis.

He said: "I have been clear that, if the government attempts to impose compulsory redundancies, or cuts in pay and pensions, there will be a reaction which will include sustained, widepsread and painful industrial action including strikes."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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